Last month, China's two largest insurance companies, China Life Insurance Company and Ping An Insurance Company of China, announced their first equity investments in US real estate. Through a co-investment venture with Tishman Speyer on the New York-based developer's waterfront development project at Pier 4 in Boston's Seaport District, the insurers are buying a one-third stake in the $500 million project.
The entry of these two firms into US real estate wasn't exactly a surprise. As we noted in this column back in November, a number of foreign insurance companies, such as China's Anbang Insurance Group and Switzerland's Allied World Assurance Company Holdings, have also made their first forays into US real estate in recent months. Chinese insurance companies in particular have been making an aggressive push into overseas real estate after restrictions on foreign property investments were lifted in 2012.
Two key aspects of the China Life/Ping An transaction, however, were unusual. One was the choice of the market. Most Asian investors typically have opted for a gateway city, usually New York, San Francisco or Los Angeles, for their first debut real estate investments in the US. Boston, while an attractive market in its own right, isn't generally considered to be one of those cities.
The other atypical aspect of the investment was that it was in a development venture. Many foreign institutions usually will start out investing in a new country through the acquisition of a trophy asset, which is considered to be a more stable and less risky investment than development.
These differences are all the more striking when you consider how China Life and Ping An invested in their first overseas property market, London. China Life led a group to buy an office tower in London's Canary Wharf in June 2014, while Ping An bought two landmark properties in the city – Tower Place this past January and the Lloyds Building in June 2013.
According to one person familiar with Ping An, the two insurers would not have opted to invest in the Pier 4 project if were it not for their longstanding relationships with Tishman, which has been an active investor and developer in China since 2006, when it opened its first office in the country in Shanghai. In 2007, Tishman became the first US real estate company to launch a real estate fund focused exclusively on China, Tishman Speyer China Fund, which attracted $884 million the following year for the acquisition, development and management of real estate assets in Shanghai, Tianjin and Chengdu. The firm then raised the first RMB fund by a foreign developer in 2012, gathering RMB1.2 billion solely from Chinese investors for a development project in Suzhou.
The time and effort that Tishman has put into building a China business is paying off now. The trust that the firm has established with China Life and Ping An over the years certainly made them more comfortable investing in a US market and venture that they otherwise would have passed on.
And if you're still not convinced about the importance of relationships in bringing overseas capital to the US, think of Anbang making its US debut last year with its purchase of the Waldorf Astoria New York hotel for $1.95 billion. Virtually no one in private equity real estate had ever heard of the company before that transaction. According to one source, Wu Xiaohui, chairman of Anbang, and Steve Schwarzman, chairman of The Blackstone Group, the majority owner of the Waldorf's parent company Hilton Worldwide, knew each other from sitting on the board of the same charity. Blackstone and Anbang were said to have negotiated the off-market sale of the Waldorf within a matter of weeks.
While Tishman benefits from its relationships with Chinese investors, the reverse is also the same. It is notable that the Pier 4 project represented the first time that both China Life and Ping An co-invested with an investment manager outside of China. Here's one possible reason why: once a deal is on the market in a city like New York, it's under contract within a week. The only way a buyer like China Life or Ping An can compete is to find a local firm like Tishman to be its co-investment partner. A partner with boots on the ground will have in-depth knowledge of the market and superior access to deal flow, allowing it to act quickly on competitive deals, or better yet, negotiate off-market transactions.
There are more Chinese insurers that are looking to break into US real estate. PERE understands that one such firm is in advanced discussions on a joint venture agreement to acquire a residential tower in Manhattan. We're willing to bet that this is not the first time that the insurance company and its partner have dealt with each other.