Chinese Investment in Downtown Los Angeles

Chinese investment has spurred a construction boom in downtown Los Angeles, says a recent report by the Los Angeles Times, funding massive building projects on a scale that promises to reshape the city’s skyline. Chinese real estate companies have poured billions into the city in recent years, with seven of the last 18 largest deals in downtown LA since 2014 involving Chinese developers.

As of now, three of the four largest developments in downtown LA are being led by Chinese companies. Chinese real estate behemoth Greenland is overseeing the construction of a $1 billion “city within a city,” aptly named Metropolis, on a 6-acre plot of land purchased for $150 million. When completed in 2018, Metropolis will constitute the largest mixed-use development on the west coast, replete with three towers, 70,000 square feet of retail space, 1,500 residential units priced between $500,000 and $6.9 million, along with an 18-story hotel and shopping complex.

Another $1 billion mixed-use project is being funded by Oceanwide Holdings, a Beijing-based developer, on a 4.6-acre parcel across the street from the Staples Center that it purchased for $174.8 million. Due to be completed in 2018, Oceanwide Plaza will feature 170,000 square feet of retail space, a luxury hotel, and two residential towers.

Such developments are part and parcel of a trend of increasing Chinese investment in the US, which has continued unabated since 2010. Forbes reports that 62.5%, or $10.6 billion of the $17 billion the Chinese spent on overseas real estate in the first five months of this year went to the US, particularly on the west coast. Offices and hotels were the most popular asset classes, comprising 92% of Chinese outbound real estate investment.

Chinese buyers have been the top purchasers of US real estate for the past four years, according to a survey this year by the National Association of Realtors, far outpacing other foreign investors.

As confidence in the slowing Chinese economy and local real estate market wanes, Chinese investors have poured billions into US real estate as a means of diversifying their assets. An uncertain political climate and an aggressive anti-corruption drive have also left Chinese business elites scrambling to cache their money in stable offshore markets while turning a profit.

“For those real-estate investors that do get money out, developing new buildings is a main focus, given that it offers far higher returns but also more risk than buying existing buildings,” said the Wall Street Journal.

Beyond larger returns, splashy and massive developments also serve the function of raising the profile and prestige of Chinese real estate companies that are paying large premiums to showcase their brands in the US.

References:

http://www.latimes.com/business/la-fi-0825-china-dtla-snap-story.html

http://www.forbes.com/sites/ellensheng/2016/08/22/why-chinese-companies-are-snapping-up-u-s-commercial-property-investments/#2d19e63c156d

http://asiasociety.org/breaking-ground-chinese-investment-us-real-estate

http://www.wsj.com/articles/chinese-cash-pours-into-u-s-real-estate-1472569340

http://www.hospitalitynet.org/news/4077699.html

The Metropolis: DTLA

7.12.2016 | The Metropolis – Rusty Tweed team

Multifamily units in Downtown LA (DTLA) have tripled over the past 15 years. There are another 22,000 proposed or under construction. One of the most high profile new projects is the $1B Metropolis.

The Metropolis

For decades, developers have tried to turn the six-acre Metropolis site into more than just parking lots. Greenland Holding Group has succeeded where others have failed largely because it has a direct line to millions of potential buyers in mainland China. Pin Tai, president of Cathay Bank, said “their target customer is probably 30 percent Chinese investors.” Chinese buyers are attractive as 70 percent of them pay all-cash. It’s important to lock these buyers in first as following the financial crisis. Most banks demand up to half a building to be under contract before they will approve a mortgage.

According to Greenland USA director Ryan Aubry, the Chinese development firm was drawn to LA because it is a city in transition. It’s therefore perceived as a destination to invest in.

Metropolis is expected to be a boost for the surrounding area. It will include the 18-story Hotel Indigo, in addition to ground-level restaurants and stores. Low-level studios begin at the $600,000 mark. Top floor two-bedrooms go for over $2 million.

 The Metropolis - Rusty Tweed team
Metropolis rendering

“Everything you could really want is here,” said Michael Altneu, vice president of marketing at Douglas Elliman Development Marketing, which is handling the building’s listings. “There’s a yoga studio with a mediation garden and a dog park with a bathing station.”

Over 1,500 condos will be added to Los Angeles’ scarce housing market by the time, Metropolis’ three towers are complete sometime in 2018 . The average condo price in downtown LA hit a new high: $803 a square foot, according to the Mark Company. Metropolis is the first of three-mega developments owned by Chinese companies to be built downtown over the next few years.

References for The Metropolis – Rusty Tweed team:

https://www.bisnow.com/los%ADangeles/news/commercial%ADreal%ADestate/downtown%ADlas%ADplans%ADto%ADattract%ADmillennials%AD482401/10

http://www.scpr.org/news/2015/12/15/56174/who-will-be-living-in-downtown-la-s-new-mega-condo/

http://www.ladowntownnews.com/news/digging-into-downtown-s-chinese-investment-boom/article_80c864a8-6149-11e4-8a71-f779be4d5288.html

Low Vacancy Rates in LA Creating Housing Shortage

7.11.2016 | Low Vacancy Rates in LA – Rusty Tweed Team

What are the causes of the Housing Shortage in LA?

Blame for the difficulty of finding an apartment in LA and rising rents is often leveled at the new housing developments. New developments are particularly springing up in Downtown LA, Hollywood and Koreatown. Rents climb as new tenants arrive. However, rent has increased citywide, including in areas with extremely limited new development such as Beverly Hills and Venice. The answer, as in other major cities such as Boston, New York and San Francisco, is in fact the low vacancy rate citywide.

According to the LA Times, “the correlation between prices and vacancies [in 20 of the largest U.S. cities] is four times stronger than the correlation between prices and new development”.

Experts agree that a 5% vacancy rate is the tipping point for the power dynamic between landlord and tenant. Above 5%, landlords need to offer lower rents or incentives to be competitive. Lower than 5%, landlords know that there will be a wealth of other takers. Reports from the USC Lusk Center for Real Estate indicate that multifamily vacancies in LA have been below 5% for the last five years.

Los Angeles is the furthest behind in terms of population growth. In 2015, LA’s vacancy rate averaged 3.1%. The city needs new market-rate housing to combat the problem. According to LA Times journalist Shane Phillips, “it must be complemented with policies that more effectively incentivize creation of sufficient affordable housing and additional resources to support lower-income residents.”

Downtown LA’s Multifamily Developments

Over the past 15 years, the total of new multifamily units in Downtown LA (DTLA) has tripled. An additional 22,000 units are either under construction or in the proposal stages.

Low Vacancy Rates in LA - Rusty Tweed Team
DTLA

The projects under development downtown vary from brand new developments to adaptive reuse buildings. Some of the most hyped new projects include Greenland USA’s $1B Metropolis building, Trammell Crow’s La Plaza Cultura and Trumark Urban’s Ten50 S Grand. ICO Group’s Broadway Lofts is a case study in adaptive reuse following their repositioning of the over 100 year old Bumiller Building.

However, there is still a critical shortage in units and there is  certainly space for more players.

References for Low Vacancy Rates in LA – Rusty Tweed Team:

http://www.latimes.com/opinion/livable-city/la-oe-phillips-vacancy-rate-housing-affordability-20160516-snap-story.html

https://www.bisnow.com/los%ADangeles/news/commercial%ADreal%ADestate/downtown%ADlas%ADplans%ADto%ADattract%ADmillennials%AD482401/10

http://www.scpr.org/news/2015/12/15/56174/who-will-be-living-in-downtown-la-s-new-mega-condo/