China Life Buys Sprawling Portfolio of Small-Market U.S. Real Estate
May 23 2017 - 12:30AM
Dow Jones News
By Peter Grant
China Life Insurance Group is buying a 95% stake in 48
commercial properties scattered throughout the U.S. in deal that
values the portfolio at $950 million and highlights the growing
appetite among foreign investors for real estate in markets they
mostly have ignored until now.
The company, one of China's largest insurers, is buying the
majority stake in the 5.5 million-square-foot portfolio from
ElmTree Funds LLC, a private-equity firm based in St. Louis,
ElmTree said.
ElmTree said it will keep a 5% stake and continue to manage the
properties.
Foreign investors used to focus almost exclusively on trophy
properties in major cities like New York and San Francisco. But
lately prices in those markets have gotten so high that foreign
investors have started scouting less popular locations.
"We're seeing more and more foreign capital coming into
secondary and tertiary markets all across the country," said Jim
Koman, managing principal at ElmTree Funds.
China Life was prohibited by the Chinese government from making
investments in foreign property, but that lifted in 2012. Three
years later, in i ts first U.S. deal, the company joined Ping An
Insurance in buying a majority stake in a Boston development in the
city's popular Seaport District. China Life couldn't immediately be
reached for comment.
Last year, China Life teamed up with New York developer Scott
Rechler to purchase a 1.8 million-square-foot Manhattan office
tower for $1.65 billion.
The properties in China Life's latest deal aren't nearly as
flashy as the ones in Boston and New York. The ElmTree portfolio
includes properties like an industrial building leased by
Caterpillar Inc. in Seguin, Texas, and a FedEx Corp. distribution
facility in Staunton, Va.
But the properties' incomes are attractive. Mr. Koman declined
to discuss the financial details of the deal but he said that, in
general, properties in off-the-beaten-path locations can produce
yields that are more than 3 percentage points greater than yields
of trophy buildings in top locations.
ElmTree's business model has been to develop properties and
lease them to single tenants on a long-term basis. "You have
guaranteed set rents with annual increases in place," Mr. Koman
said.
About 60% of the deal's $950 million value reflects the new debt
the China Life-ElmTree venture is putting on the portfolio. That
debt is being converted into commercial mortgage-backed securities
and sold to investors by a bank group led by J.P. Morgan Chase
& Co.
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
May 23, 2017 00:15 ET (04:15 GMT)
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