Thursday, September 17, 2009

China’s CIC Looks to Invest in U.S. Real Estate

China’s sovereign-wealth fund, China Investment Corp., is considering entering the U.S. real estate market, with some of the deals possibly financed through the U.S. government, according to The Wall Street Journal. The $300 billion fund is in talks with U.S.-based private equity groups – including BlackRock Inc., Invesco Ltd. and Lone Star Funds – about potential investments in distressed mortgage securities backed by commercial real estate. CIC is also exploring the possibility of buying ownership interests in various U.S. buildings.

After participating in a relatively small number of transactions in 2008, CIC’s actions come at a time when opportunities in commercial property have emerged because of steep declines in real estate. CIC’s chair, Lou Jiwei, noted that the organization invested a total of $4.8 billion in various markets throughout the world in 2008 while it invested the same amount this year in just one month.

To finance the investments, CIC is exploring the possibility of taking advantage of the U.S. Treasury-backed Public-Private Investment Plan, in which the government provides financing to entice investors into buying toxic mortgage securities. Although it is unclear how much CIC will invest in U.S. real estate, the U.S. market is appealing to the fund because of the PPIP’s financing incentives.

For years, elected representatives have voiced concern about foreign investment in U.S. real estate. Although the PPIP allows sovereign-wealth funds to participate in the program, to limit an investor’s controlling interest, participants can only invest up to 9.9 percent in each of the nine funds. Because CIC historically has taken minority stakes in real estate investments, it is likely the fund will continue this approach with future U.S.-based transactions by pursuing double arm’s-length investments.