I represent a group of family offices in Japan and China which are led by older entrepreneurs who are now cashing in. Despite all of the bad economic problems in Japan over the past twenty years, there are several businessmen who were very successful at various different industries, Several are now billionaires or close to that. Taxes are relatively high in Japan with a 70% estate tax and high cap gains taxes. As a result they are interested to move cash out of Japan and into a more long term stable country such as the US. They also have gone to Singapore, Kuala Lampur and Australia. These are not your typical Japanese investors in several cases. These are guy who make decisions and since it is their personal money they do not have to do the usual Japanese routine of consensus. Their goals are the full range of five year flips to never sell.
For the Chinese there is a flood of cash coming to the US from China these days and it is growing. Hundreds of everyday businessmen have been arrested for being part of the standard culture of corruption that was everyday way of doing business there. Now the world has changed and many of these people have to get their cash out before the government moves on them and takes it away. They may also need to get themselves out and almost all want to get the children to the US to go to college. EB5 does not do the job for many of these wealthy investors. It is too slow and does not move enough of their cash. The Chinese are quick to move and quicker to flip as they have much more the trader mentality. As we have all seen there are billions moving out of China to the US.
I don't believe there is any early end to this flow of capital into the US. Unlike the last Japanese flood of investment into real estate, this time there is also a new group of wealthy individuals, as opposed to the eighties when it was institutional, painfully slow, and poorly executed. At least with the people we are working with, it is much more entrepreneurial.
While there are still a large number of Asian investors who only know the typical gateway cities, we have been educating them on secondary cities, The more aware and aggressive Japanese family office investors have found secondary cities, and have figured out that the gateway cities are over priced, subject to silly bidding wars, and require such short due dili periods that they do not have time to act intelligently. We have chosen to find developer. Operators in a few top quality cites like Denver, where I know them or where I can vet them in depth to make sure they are the sort of people we are comfortable with. In short, we are focused on relationships and not one off transactions. A different approach, but we believe one others should try as it leads to multiple deals that then become easier to execute with these offshore investors.
There is going to be a continuing, and probably growing flow of this Asia capital, and it will be spread into secondary cities as well as the usual gateway cities. There is going to be development investment, as we are seeing, and all of this is good news for US real estate industry players.
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Joel Ross
Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.
