ULI China Goes Global

7/30/2019 ULI China Goes Global

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RIDDELLTSENG

Securing Chinese Financing

for

Harbour

a presentation to the

ULI Recreational Development Council (Red Flight)October 13, 2010

by

Malcolm Riddell

RIDDELLTSENG

CHINA GOES GLOBAL

OUTBOUND INVESTMENT IN ANDFINANCING OF REAL ESTATE


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What Chinese Investment in U.S. Real Estate???

Google Chinese investment in U.S. real estate and you may get a few hits,

like:

China Investment Corp Invests $800 million in Morgan Stanley Real Estate

Fund

Jin Jiang Hotels in JV with Thayer Lodging Acquires Interstate Hotels and

Resorts$307 Million Deal

Chinese Search for Deals in U.S. Housing Market

These headlines convey that China is beginning to aim its accumulated wealth

at financing and investing in overseas real estate.

But, most of usin the media or our businesssee little evidence of Chinese

investment in U.S. real estate


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But, How Much are the Chinese Investing

in U.S Real Estate?

The answer: Its impossible to tell, for two reasons

1. The Media Isnt Following the Story

Hasnt focused on Chinese investment or financing (e.g. Google the China Ex-Im Banks $2.5

billion construction loan commitment to the $3.2 billion Baha Mar project)

Chinese investment is fragmentedsome transactions are reported in local newspapers and

trade publications but not picked up nationally2. Secrecy

Some Chinese are investing with funds that got around Chinas tight currency controls, and

have found vehicles to hide their investment, or they dont want the Chinese government to

learn of their international holdings

Some, because of perceived U.S. opposition to Chinese investment in the U.S. (e.g. Socal and

Maytag) want to keep a low profile These investors invest through

Relatives and friends residing legally the U.S.

Partnerships with U.S. entities

Wholly-owned U.S. entities


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RIDDELLTSENG

TO GET RICH IS GLORIOUS

Part One


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Exit Mao, Enter Deng


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Black Cat, White Cat.

Its a Good Cat If It Catches the Mouse.

Deng Xiaoping


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To Get Rich is Glorious

Deng Xiaoping

Thirty years ago, Deng took China

from a socialism to capitalism--and,

ignited Chinas explosive economic

growth

China has over 875,000 millionaires;Forbes listed 64 Chinese billionaires,

other sources say 117

China accounts for 28% of the

worlds luxury goods purchases,

second only to Japan

Last year, Chinese bought about

500 Bentleys, making the

companys fifth biggest market for

and accounting for roughly 10% of

sales


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Older Generation Entrepreneur and ManagerBorn Not Long After the

Communist Victory in 1949Lived through the Cultural Revolution, Prospered

in the Market Economy with Socialist Characteristics


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Young Entrepreneurs and ManagersBorn after the

One Child Policy, Started in 1979, that

Gave Birth to The Little Emperors


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Chinese Companies Operating in the U.S.

Chinese Govt Push-U.S. States Pull

Today some 33 American states,

ports, and municipalities have sent

representativesto China to lure jobs

once lost to China back to the U.S.:

Besides affordable land and reliable

power, states and cities are offering

tax credits and other incentives to

woo Chinese manufacturers.

Fortune, May 7, 2010

Beijing, meanwhile, which has

mandated that Chinese

companies globalize by expanding

to key markets around the world,

is chipping in by offering to

finance up to 30% of the initial

investment costs, according to

Chinese business sources.

Fortune, May 7, 2010

These Chinese companies will

need plants and offices for theirown use, as well as housing for

their Chinese expatriate staff


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But, the Largest Investments Have and Will Come from

Chinese Institutions


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CHINA GOES GLOBAL

Part Two


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Chinese Outbound

Investment is Greater than

it Appears

At the right, Chinese outbound(non-bond) investments from 2005-

2010

But many Chinese companies and

individuals make investments that

dont show up on such a survey

because they dont want them to

show up

This is because these investments

are made from money kept

offshore against Chinese

regulations, and are also hidden

from the Chinese government to

avoid taxes and other intervention

They make them through entities

registered in the other countries,

through partners and

intermediaries, and through other

such means

R T


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In Going Global Chinese Have the Sense that They

are Quickly Reoccupying Their Rightful Place in the

World

RIDDELLTSENG


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EXAMPLES BY SECTOR

Part Three

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SINGLE FAMILY

Chinese Financing of and Investmentin the U.S. Real Estate

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According to the National

Association of Realtors, Chinese

directly invested over $323

million in U.S. homes, in the 12

month period ending 1st

Q 2010

The actual figure is probably

much higher

One motive for buying: placefor children to live when they

come to school in the U.S.

Domestic

Purchasers95.44%

Foreign

Purchasers

4.45%

U.S. Residential Market: $907 Billion

23%

10% 9% 8% 7% 5%3% 2%

0%

5%

10%

15%

20%

25%

Purchases by Client

Nationality--2010

Chinese Have Begun to Buy Houses in the U.S.

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China-U.S. Real Estate Expos and Buying Tours

Home buying trips to the U.S. have

become one of Chinas most

popular package toursso popular

that tours are oversubscribed and

operators have had to put

hundreds on waiting lists

U.S. real estate expos in China

introduce Chinese buyers to U.S.,

especially residential, real estate,

and attract thousands of potentialbuyers

Delegations of U.S. brokers going to

China to showcase their properties

consistently attract large audiences.

RIDDELLTSENG


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MULTI-FAMILY

Chinese Real EstateFinancing and Investment in the U.S.

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Multi-Family: Standard Austin

In January 2010, an unidentified

Chinese investment group, doing

business anonymously through its

U.S. partnership entity, Standard

Austin, purchased 5,000 multi-

family units in 16 projects in Texasand Maryland

Bought $360 million of equity

from Bethany Groups out of its

bankruptcy proceedings; debt

remains in place

Also has 7-property, 2,759-unit,

Bethany portfolio in Phoenix

under contract for $123 million

Standard Austin acquired existing

subordinate debt from lenders,

converted that debt to equity

through the bankruptcy process,

and then assumed the remaining

$296 million of out-standingsenior CMBS debt through a

favorable restructuring.

RIDDELLTSENG


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INDUSTRIAL


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Wanxiang America

Wanxiang Group, Chinas second

largest privately-held company and

one of the worlds largest auto

parts manufacturers; also owns

about $2 billion in real estate

worldwide

Began operations in the U.S. in1995, grew, in large part, through

acquisition of U.S. companies;

around 5,000 employees; $1 billion

in U.S. sales

Completed 168,000 sq. ft. plant in

Elgin, Illinois

In August, opened a new, $12.5

million, 40,000 sq. ft plant in

Rockford, Illinois, to manufacture

solar panels

RIDDELLTSENG


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COMMERCIAL


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Wanxiang America Real Estate Group, LLC

In 2010, the Wanxiang Group established

Wanxiang America Real Estate Group, LLC,

in Elgin, IL, to acquire and develop

commercial real estate

This is not unusual; in China, most

prosperous companies invest in real estate Recently made its first acquisitionthe

abandoned, 330,000-square-foot Lucent

Technologies office building, in Naperville,

Illinois

Paid $9 million, all in cash; plans to

completely renovate the four-storystructure at a total cost of $47 million,

including the purchase price

In making the purchase, Wanxiang formed

a venture with two local suburban

developers

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HOTEL


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Los Angeles Marriott Downtown

Bought by Shen Zhen New World

Investment (USA), an affiliate of

Shenzhen New World Group, in

March 2010

For $63 million out of bankruptcy

(previous owner paid $115

million in 2007)

Shenzhen plans to spend $13

million to renovate the 27-year-

old, 469-room hotel

Lynn Cadwalader, partner at

Holland & Knight and a member

of RDC (Red), represented

Shenzhen

Lynn also reports that Shenzhen iscurrently pursuing two other

acquisitions:

A big-box branded four-star hotel in

Southern California

A winery in the Napa Valley to

produce red wines for sale in China


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Jin Jiang Group Immediately Announced a Series of

Strategic Initiatives

Agreement with Interstate for

setting up a hotel management

joint venture, and instilling

Chinese elements into the joint

venture to help it develop an

independent hotel managementbusiness in China

Agreement with Thayer for the

establishment of a hotel asset

management company to

improve asset enhancementability and boost asset liquidity

Memorandum with Thayer for

setting up a Chinese hotel &

tourism sector investment fund,

the first hotel & tourism

investment fund in China

Memorandum with Thayer and

Interstate for training programs

in United States for one hundred

middle or senior management

over three years; after the

training, the trainees shall serveat Interstate China or the Fund

Manager JV for of at least two

years

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Relationships Count:

Thayer and Jin Jiangthe Back-story

In 2005, Thayer and Jin Jiang

Hotels established Thayer Jin

Jiang InterActive Corporation,

Ltd. based in Shanghai, to

provides travel distribution

infrastructure and services to thetravel and hotel industries in

China

The products include:

HUBS1CRS system, a Web-based

platform that acts as a real time

central reservation, distribution,

management, and account

settlement system for the hospitality

industry and

1-Link, a Web-based management

platform, tailor-made for

independent hotels in China, which

provides hotels an exposure to

various hotel distributors and

wholesalers, including call centers,hotel-booking Websites, business

travel managers, and corporations.

Customized Website design and

search engine marketing services.

RIDDELLTSENG


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CASINO



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RESORT


RIDDELLTSENG


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Baha Mar, The Bahamas

April 2008: Baha Mar begins

discussions with the China State

Construction & EngineeringCorp. [CSCES] and the China

Exim Bank about its $3.2 billion

project

March 2009: In Beijing, Baha

Mar president signs a formal

agreement with CSCEC and

MOU with China Exim Bank for

a construction loan

September 2009: During visit of

Chinas top legislator to The

Bahamas, Baha Mar signs, atBahamian government offices:

$1.9 billion contract with

CSCEC as sole contractor

framework agreement with

China Exim Bank

CSCEC agrees to invest $99

million for 2.75% share [now

$150 million]

March 2010: China Exim Bank

signs a $2.6 billion constructionloan for Baha Mar.

The Chinese government has

approved the deal; still awaiting

Bahamian government

approvalone major hold-up:

visas for 8,000 Chinese workers

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REAL ESTATE FUNDS


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China

s sovereign wealth fund,

with over $300 billion invested in

companies, securities, and funds

No direct real estate investment in

the U.S.; invests through funds:

$1 billion to Brookfield AssetManagement

$1 billion to Cornerstone Real Estate

Advisors

$1billion to Oaktree (to buy PIPPs?)

$800 million in Morgan Stanley RealEstate Fund VII Global

Tried but failed to buy stakes in U.S.-

focused real estate funds from

Harvard endowment fund for $500

million

RIDDELLTSENG


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REFINANCING


RIDDELLTSENG


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Chinas Banks, Among the Worlds Largest, are

Going Global in Real Estate: Bank of China

Several of Chinas banks are among the

largest in the world

Most had few losses during the global

financial crisis, are awash with cash now

because of tight regulation and a fast-

growing economy, and are seeking lendingopportunities in real estate outside China

Both Bank of China and the Industrial &

Commercial Bank of China are active in

major refinancings of U.S. commercial real

estate

Bank of China Leads Lenders for US Real

Estate

Xiaojing Li, Bank of Chinas general

manager for the US, says: Our

Beijing head office is encouraging

overseas branches to get into the

local lending business as long as wecontrol the risk.

Bank of China actively seeks larger

positions and holds them. For

example, Bank of China provided

$120m for the New York Times

building, near Times Square.

FTJanuary 2010

[Also led syndicate for the $475

million re-financing of 1515

Broadway in New York City.]

RIDDELLTSENG

Chi B k A th W ld L t


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Chinas Banks, Among the Worlds Largest, are

Going Global in Real Estate:

Industrial & Commercial Bank of China

ICBC Pushes Into U.S. Market in a Large

WayChina Bank Targets Commercial

Real-Estate Owners Needing Loans

Exceeding $100 Million; Lack of Name

Recognition

Industrial & Commercial Bank of

China, China's largest bank, is rollingout a "large-loan" program targeting

U.S. commercial real-estate owners in

need of loans that exceed $100

million, a category most U.S. banks

now avoid.

The move by Beijing-based ICBC,which is 70% owned by the Chinese

government, is part of a broader

push into the U.S. market and comes

as China's regulators are encouraging

domestic financial institutions to

expand overseas.

The Chinese bank is offering to lend

no more than 65% of a property's

value.

ICBC says it could consider loans

that are even higher than $500

million, and it intends to hold loans

on its books. Early this month, ICBC closed its first

commercial-property loan in the U.S.

It contributed $150 million to a $355

million loan made to a partnership

led by private-equity firm Carlyle

Group. The venture used the loan torefinance the existing $325 million

mortgage on 650 Madison Ave., a 27-

story office-and-retail tower in

midtown Manhattan. The rest of the

loan was provided by Wells Fargo.

WSJ June 29, 2010

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CONSTRUCTION LOANS ANDPROJECT FINANCE


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Construction Loans for Baha Mar and Revel Entertainment

Both engaged a

Chinese construction

company, China

Construction America Through CCA,

approached the China

Ex-Im Bank

RIDDELLTSENG


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Chinese Construction Construction Companiesand

LoansGo Global

In 2000, China officially announced its Go Global policy within its

10th five-year plan (2001-2005).

Among the industries encouraged by the Chinese Central Government

to Go Global was Chinas construction industry.

Backed by construction lending from Chinese banks, Chinas

construction companies undertook numerous infrastructure and real

estate projects in developing companies of strategic interest to China.

Now, Chinese construction companies and Chinese banks are using the

same model to enter the real estate markets in the United States and

elsewhere around the world.

RIDDELLTSENG


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Chinas Construction

Companies are

World-Class

In the ten years since China

officially announced itGo

Global policy, China has

developed a world-class

construction industry.

More than 50 Chinese

construction companies are on

Engineering News-Records

2010 list of the:

Top 225 Global Contractors

Top 225 International

Contractors.

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Chinese Banks Make Construction Loans to Foreign

Projects to Support Chinese Construction Companies

Winning ContractsAll Part of the Central

Governments Go Global Policy

Central Govt

Go Global

policy

Chinese

Construction

Company

Chinese

Bank

St. KittsForeign Development Projects

Formal/Informal Cooperative Agreement

RIDDELLTSENG


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Securing Chinese Financing

for

Harbour

Thank you

RIDDELLTSENG


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Malcolm Riddell

RIDDELLTSENG

Malcolm Riddell is president of RIDDELLTSENG, a boutique investment bank that advisesleading international financial services and real estate companies on investment and joint

ventures in China, and on winning financing from Chinese investors and lenders.

A board-certified international lawyer, he is also strategic advisor to DLA Piper on China.

He is senior visiting fellow at Peking University; associate-in-research at Harvards Fairbank

Center for Chinese Studies; and former Harvard Kennedy School Asia fellow. He regularlylectures on China issues at Harvard.

Formerly, he was an investment banker at Salomon Brothers; a US delegate to the UN; and a

CIA case officer and a Special Operations Group reserve officer.

A Mandarin speaker, he lived fifteen years in China and Taiwan.

Malcolm is a member of the Council on Foreign Relations

For more information about Chinese investment in or financing of U.S. real estate,

please call 941 321 5000 or email: [email protected]

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ULI China Goes Global