By Michael Cole
01/25/2015 @ 10:10 AM
The skyline of downtown San Francisco is about to be transformed by a pair of towering buildings totalling two million square feet (186,000 square metres) and the force behind this megadeal is a little-known developer from Beijing, China.
Oceanwide Holdings, which acquired the First and Mission site from Bay Area developer TMG Partners and Northwood Investors LLC for $296 million, seems determined, however, to make itself better known in the Golden State.
The Shenzhen-listed real estate company now has acquired three development projects in California, and is part of a growing group of Chinese real estate companies that are acquiring projects globally now that their domestic property market is mired in its longest-ever slump.
First and Mission Part of San Francisco’s Changing Downtown
As the city by the bay grows in importance as a national center of commerce, its office rents are rising, and this is helping to attract more real estate investment – including deals involving Chinese buyers.
According to a study by property consultancy Cushman & Wakefield, office rents in San Francisco grew by 5.1 percent year on year, compared to just 3.9 percent in Manhattan. The only city to outpace SF nationally was Bay Area neighbor San Jose, which saw rents rise by 6.7 percent year on year.
The demand for office space, along with ever-rising home prices is helping to fuel more real estate development in San Francisco. Houston-based developer Hines began construction in 2013 on what is now known as the Salesforce Tower, which at 1,070 feet (326 metres) will be San Francisco’s tallest building when it’s completed in 2017.
Oceanwide’s new project is just up the street from the Salesforce Tower, and will include more floor space than its neighbor, although its twin towers will be slightly shorter at 910 and 605 feet in height (277 and 184 metres).
Designed by Foster + Partners, First and Mission will include apartments, a hotel, offices and retail space. The project is currently being reviewed by the San Francisco city government and is schedule to be completed in 2019.
And Oceanwide is a relative latecomer among Chinese developers entering the San Francisco market.
China Vanke China Vanke, the country’s second-largest developer by sales, did the first major deal by a Chinese developer in the Bay area in 2013 when it joined with US real estate company Tishman Speyer to develop the Lumina residential project.
In 2014, the biggest transaction involving a Chinese developer was the acquisition of the former Standard Oil Building at 225 Bush Street in San Francisco for $350 million.
At the time the purchase by a subsidiary of golf course developer Genzon Group was said to be the largest office building sale in San Francisco since 2012.
Chinese Developers Flee a Domestic Slump
The wave of outbound investments by Chinese companies is not confined to the Bay Area or to California. New York, where China’s Anbang Insurance acquired the Waldorf Astoria for $1.95 billion last year, continues to be the most favored US city among Chinese investors, although capital from the mainland is now finding its way into Los Angeles, Chicago, Miami and many other urban centers.
Beyond the US, real estate investors from China have also had a major impact in Europe and Australia, both in developing new projects and in acquiring stabilised assets.
For the most part this migration of Chinese capital into the world markets is driven by a slump in China’s housing market, where prices have now been declining for more than eight consecutive months.
There has also been a gradual loosening of government policies in China in recent years, that now makes it much easier for investors to move their cash overseas by removing many of the government approvals that were necessary previously.
Now, many of these developers and finance firms, which grew wealthy on China’s unprecedented bull run in real estate, are heading overseas to look for the double-digit returns that they grew accustomed to in the go-go days of Chinese property.
Oceanwide Has a Taste for California
Although New York is the leading city for Chinese investment overall, Oceanwide seems to have its gaze fixed on California.
The Beijing-based developer took on its first project in the Golden State when it acquired the long-dormant Fig Central site opposite LA’s Staples Staples Center for $200 million in 2013. Oceanwide is expected to begin construction on its Los Angeles development this month.
Also, just days after its acquisition of First and Mission was announced, news broke in northern California that Oceanwide had acquired a 186 acre (75 hectare) site for a resort in the Sonoma Valley.
The Chinese developer bought the wine country site, which has already been approved for development of homes, a hotel and a winery, for $40.7 million, after the projects had been stalled for decades.