Considerable press has been given lately to high-profile real estate acquisitions made by foreign investors, particularly those from China. China Life Insurance Group Co. recently purchased a $1.65 billion Manhattan office tower on Sixth Avenue; Anbang Insurance Group Co. bought Manhattan’s Waldorf-Astoria Hotel for $2 billion; and Chinese real estate giant Greenland Group is midway through the acquisition of a massive, $1 billion mixed-use project in downtown Los Angeles called “Metropolis.”
These high-ticket projects make headlines. But the real story lies in the steady growth of overseas investment in small- to mid-balance commercial real estate transactions, particularly as they have become available through marketplace lending.
What’s the draw for foreign investors?
Global instability, Brexit and the threat of a debt-fueled bubble bursting in the Chinese economy has made U.S. commercial real estate one of the most desired investments on the planet. The Wall Street Journal recently reported a 19 percent year-over-year increase in investment by China in U.S. commercial real estate for the first half of 2016.
Generally speaking, real estate, especially income-producing commercial real estate, is seen by foreign investors as a solid investment. Why? Because not only does it retain significant value at all points in the cycle, it also provides a tangible, saleable and income-producing form of collateral in the form of lease and lodging payments.
Overseas interest in office, multifamily and hospitality properties from coast to coast has been rising steadily all over the U.S., but more so in traditional metropolitan centers such as Los Angeles, New York, San Francisco and Chicago.
China’s high-net-worth individuals are buying up luxury apartments, hotels and retail developments, but they’re also investing in funds and REITs to spread their investments among multiple properties that will diversify their interests across the market and, in some instances, provide for greater liquidity. Many upper middle class professionals in China are doing the same: pooling their money with other investors to buy smaller-scale commercial properties such as budget hotels, shopping centers and apartment communities.
New opportunities
Marketplace lending, also known as a peer-to-peer platform, gives foreign investors the opportunity to get involved in the financial side of commercial real estate without the headache of having to manage commercial real estate as an owner or part owner in the property.
Marketplace lending is nothing new to the Chinese. In fact, the China peer-to-peer lending market is the largest in the world, topping more than $150 billion in 2015. The Wall Street Journal reported last year that there were 1,575 peer-to-peer platforms in China, up from 50 three years ago.
But few, if any, of those platforms offer the benefits of U.S.-based marketplace lending, where foreign investors can participate in loans for individual properties stateside, such as hotels, retail centers or multifamily communities. Investment funds offer the same opportunities, but for multiple properties instead of just one, frequently creating preference among investors for providing diversity, reduced risk and, in many cases, stronger yields.
As foreign investors continue to look for new commercial real estate investment platforms, marketplace lending will continue to create new opportunities for this group.
Gary Bechtel serves as president of Money360. Prior to joining the company, he was chief lending/originations officer of CU Business Partners, LLC, one of the nation’s largest credit union service organizations (CUSO).