MediumChinese investors and their creditors are putting a "first" sign on real estate assets around the world, because the need to raise cash amid the deepening domestic real estate crisis outweighs the risk of assets in the market. The ** they get will help finalize the exact number of the industry as a whole in trouble.
Barry Sternlicht, chairman of Starwood Capital Group, said last week that the global recession triggered by borrowing costs** has wiped out more than $1 trillion in the value of office properties alone. But the total loss is still unknown, because **'s assets are so small that appraisers have little up-to-date data to refer to. Last year, completed commercial real estate transactions worldwide fell to their lowest level in a decade, and owners were reluctant to discount their buildings** steeply.
Regulators and markets are concerned that the impasse could mask huge unrealized losses, creating problems for banks and asset owners who are pushing further with physical lending in an era of cheap money.
New York Community Bank hit a 27-year low on Tuesday after slashing dividends and stockpiling reserves, in part due to struggling real estate credit. The ECB is concerned that banks in the region are moving too slowly to reduce the value of their loans, while the UK's Financial Conduct Authority will review valuations in private markets, including real estate.
Now, a slew of new overseas assets that China has acquired in its decade-long expansion spree are beginning to hit the market as landlords and developers decide they need cash now to shore up their domestic operations and pay off their debts – even if it means taking a financial hit. Beijing's crackdown on excessive borrowing has left developers virtually unscathed, even those once considered major players. For example, a subsidiary of Guangzhou-based China's Aoyuan Group*** is reportedly executing a $6 billion debt restructuring plan, the company bought a plot of land in Toronto late last year at a discount of about 45% compared to what it bought in 2021. Data provider Altus Group.
Credit analyst Toru Alamutu said: "With active sellers, the market freeze may be unfrozen, increasing transparency and discoverability. Portfolio valuations are likely to go further**.
With each trade, the market gets a clearer picture of the capitalization rate – a measure of the return on which an investor is willing to trade. The appraiser will then use this data to value other assets, which could trigger broader impairments. As a result, landlords may have to inject more money to address any loan value violations, or risk the property being seized by lenders.
Although so far, Chinese companies have only sold a small amount in Europe – last year, a London office building by the chairman of Shimao Group Holdings*** was discounted by about 15% from the early sales agreed in 2022. According to a person familiar with the matter, it's still a long way from – trading volumes are starting to grow again.
The 2022 London No. 1 Nine Elms project just this week saw troubled developer Guangzhou R&F Properties ***agree** to its worth $13 in London's Nine Elms district£400 million ($16.1)US$900 million) in exchange for a portion of dollar bonds and 10p, while an office building in the Canary Islands, Wharf, sold for 60% less than in 2017 after it was confiscated by a lender from a Chinese investor. Last year, some developers took a breather while working on restructuring plans, and this sale is part of the disposal**.
Carol Hodgson, head of European real estate research at JPMorgan Asset Management, wrote last month: "Findings will improve throughout the year." She added that this was partly due to "an increase in non-performing assets entering the market".
Earlier this month, a luxury development in the upscale Mayfair Centre in west London went into receivership after defaulting on its loans. The majority stake in the project is held by two Chinese investment firms, CITIC Capital and Cinda, and the homes will continue to be marketed to potential buyers through managers.
Further east in the British capital, a person familiar with the matter saw that the bid for a housing project planned by troubled Chinese developer Country Garden Holdings*** was less than £100 million. According to a December filing, the subsidiary made an impairment charge of £10.3 million in 2022. Meanwhile, a subsidiary of Greenland Holdings, a Shanghai-based real estate company, has made a loan for a skyscraper project in east London that technically defaulted last year, according to a document.
The signage around Country Garden Holdings*** is now known as Elsa Quay in East London. Sales are also picking up outside of Europe, including Australia. Just a few years ago, ambitious Chinese developers were major players in the local market. Now, most people have basically stopped buying and switched to ** items. Recent notable disposals include Country Garden's Risland subsidiary with 2., according to local**$500 million (1.)$6.3 billion) of a plot of land in the suburbs of Melbourne. According to another local ** report, the company also recently sold for about 2The $400 million ** divestment of a development asset in Sydney. "*These portions of the remaining land are part of Risland's portfolio optimisation methodology," the Australian CEO said in a statement, but did not confirm details of the sale or **.
Representatives from Shimao, Country Garden, R&F, Greenland and Cinda did not immediately comment, and ** from Aoyuan's headquarters went unanswered. CITIC refers all issues to the administrator.
To be sure, China is by no means the only one in the underlying woes of the commercial real estate market**. The timing of South Korean investors making huge bets on office buildings is bad, and higher interest rates have already led German and Nordic landlords to heavily discount** properties. A wave of loans maturing in the U.S. is also expected to result in foreclosures and underlying assets by regional banks. But China may be the market where the best merchants are most motivated to sell quickly.
Property analyst Peter Papadakos said the broader impact of such disposals would depend on how seriously the market values the results.
"Given the 'enthusiasm' of sellers, it is debatable whether appraisers will adequately consider these factors," Papadakos said. In my opinion, they should do it. ”
Real estate