LONDON, Jan 20 — What do New York’s most famous hotel, the Lloyd’s of London building and the headquarters of the UK’s top law firm have in common? They’re all owned by Chinese insurers.
This new breed of buyers, who weren’t allowed to invest overseas before 2012, are flooding into the global market for prime commercial real estate after being given more freedom to deploy their US$1.6 trillion (RM5.7 trillion) of assets. That has meant good times for sellers of trophy real estate in major cities.
“It’s becoming a seller’s market now if you have a prime property,” said David Green-Morgan, global capital markets research director at Jones Lang LaSalle Inc. “The new investors have helped push the prices higher in the bigger cities.”
The hunt for trophy properties mirrors an earlier push by Japanese investors, who spent US$78 billion on US properties including New York’s Rockefeller Center between the late 1980s and 1995. That ended badly for many Japanese buyers who were forced to sell when the US fell into recession.
The Chinese insurance industry, where three of the top five companies are state-owned, spent an estimated US$15 billion on overseas properties last year, according to Knight Frank LLP. That’s almost triple the total of two years earlier. This year the figure will grow to more than US$20 billion, Jones Lang LaSalle predicts.
Top dollar
As companies like China Life Insurance Co. and Ping An Insurance (Group) Co. ramped up acquisitions, office prices in central London and Manhattan jumped 15 per cent and 11 per cent respectively in the nine months through September, according to CBRE Group Inc. Global commercial property transactions rose to about US$700 billion last year, the highest since 2008, in part due to new demand from Chinese insurers, said Green-Morgan of Jones Lang LaSalle, which is advising about a half-dozen insurers on their first overseas property transactions.
“Chinese insurers get the backing from the government and are eager to nail international deals before their peers do,” he said. “They are more willing to pay top dollar.”
Ping An was one of the first to make a direct property investment after the industry regulator made it easier for Chinese insurers to invest in overseas real estate in 2012. The nation’s second-largest insurer bought the Lloyd’s of London building, home to the world’s oldest insurance market, for £260 million (RM1.4 billion) in July 2013, people with knowledge of the matter said at the time.
The deal was followed by the June 2014 purchase of a tower in London’s Canary Wharf for £795 million by a group led by China Life, the nation’s largest insurer. All the building’s office space is leased to Clifford Chance LLP, the highest- grossing UK law firm.
Anchor tenants
The sale valued the property at 775 pounds per square foot of gross floor area, almost double the valuation a Hong Kong investor group paid in September for Exchange Tower, an office building that’s a 10-minute walk away and houses Morgan Stanley and KPMG LLP offices.
Shares of Ping An climbed 3.8 per cent to HK$84.25 (RM39.26) at the noon break in Hong Kong, while China Life jumped 3.9 per cent to HK$30.75. The city’s benchmark Hang Seng Index rose 0.7 per cent.
Chinese insurers have been drawn to European office buildings because they are typically anchored by tenants with 10-year leases and offer yields as high as 5 per cent, according to CBRE. That compares to Shanghai offices where three- to five- year leases and 4.5 per cent yields are typical, CBRE said.
Property investments have become more attractive after the average 10-year bond yield of the US, Japan and Europe dropped this month to the lowest ever, according to Bloomberg data going back to 1989.
Stable returns
“We consider high-quality overseas property as a good substitute for fixed-income investment,” Hing-yin Lee, a senior executive director who manages overseas property investments for Ping An’s trust unit, told an investor conference last month. “Core offices in prime locations not only offer investors stable rental returns, the property prices may also go up in a few years.”
Anbang Insurance Group Co. sealed the US$1.95 billion purchase of New York’s Waldorf Astoria hotel, which has been used by foreign dignitaries including Queen Elizabeth II, in October after less than a month of talks. The Beijing-based insurer held off two other suitors from the US and Middle East to win the biggest hotel purchase in the country by offering the full asking price before it officially went on the market, Jonathan Gray, head of real estate at Hilton Worldwide Holdings Inc.’s majority owner Blackstone Group LP, said in an interview that month.
The price paid by Anbang equates to US$1.38 million for each of the Waldorf’s 1,415 rooms and suites. That’s 57 per cent higher than the valuation paid last March for the luxury London Marriott Hotel Grosvenor Square, located in the city’s posh Mayfair area.
Expensive purchase
In November, Sunshine Insurance Group bought a Sheraton hotel in Sydney for AU$463 million (RM1.36 billion). Four out of China’s top 20 insurers have made substantial offshore property acquisitions so far and another eight of them have expressed interest in doing so, according to a survey released last month by Knight Frank.
Diversifying into property will bring higher investment returns to Chinese insurers over the long term, said Dominic Chan, a Hong Kong-based analyst at BNP Paribas SA who has “buy” ratings on Ping An and China Life. Ping An is hoping to secure deals in Germany, Spain, Italy or Japan, Lee said last month.
The insurer bid for the Squaire, a ship-like office and hotel complex perched atop the Frankfurt airport train station, people with knowledge of the matter said in December. The building is home to auditing firm KPMG, German carrier Deutsche Lufthansa AG and two Hilton hotels.
Owner IVG Immobilien AG canceled the sale this month, saying bids were too low. A representative for Ping An, who asked not to be named citing company policy, said the company won’t comment.
“It’s pretty strategic for Chinese insurers to snap up overseas properties, especially landmark buildings, as they have plenty of cash to deploy,” BNP’s Chan said by phone. “For trophy assets like the Lloyd’s of London building, it can be an expensive purchase, but it won’t be a bad purchase.” — Bloomberg
