Chinese investors have discovered distressed U.S. commercial properties in places like Detroit and are parking their cash in these areas. The deeply discounted prices are appealing to investors who are used to the higher prices in China.
Well-to-do Chinese investors have been buying residential properties for a number of years but are now buying hotels, office buildings and other commercial properties. Earlier this month, the Chinese firm Dongdu International (DDI) paid $13.6 million for two Detroit buildings. One will remain an office, while the other will be converted into an apartment complex. Other Chinese purchases include a vacant office park in Silicon Valley and the Cassa Hotel in New York.
The new Chinese administration has encouraged companies to diversify their holdings and spend foreign capital reserves. Chinese investors have bought $1.7 billion in property so far this year, up from the $1.1 billion they purchased in 2011, according to Real Capital Analytics, a research firm.
The distressed properties are often in default and have high vacancy rates or have high turnaround challenges. The Chinese investors are more willing to take risks than other real estate investors and are patient enough to hold onto properties until the values rebound.
These investors are drawn to steeply discounted prices. Each of the Detroit properties would have cost $80-$100 million to replace, according to Ryan Snoek, a consultant for Luke Investments, the properties’ seller. The Chinese investors look at the price of the buildings and compare it to the price of one apartment in Shanghai. To them it’s a good deal.
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