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Chinese Property Investors Widen Footprint in U.S.
Photo from Grand China Fund Grand China Fund owns a stake in this Atlanta residential complex. SHANGHAI—The upswing in the U.S. property market is attracting Chinese developers and investment firms, and they are dipping their toes into new cities. While Chinese institutional investors are still drawn to their traditional favorites of New York, Los Angeles and San Francisco, many are now also headed to cities such as Houston, Boston and Seattle as they seek geographic diversity as well as bigger lot sizes. These other cities—lesser known to some Chinese firms—now appear to offer fresh opportunities as energy or technology drives their economies and local Chinese communities expand. In the second quarter of this year, Beijing-based real-estate investment firm Grand China Fund took an 80% stake in a 286-unit residential rental complex in Houston. That followed a 2012 investment in a 170-unit residential project in Atlanta, with another local partner. The firm put a total of about $15 million into the two projects, which are valued at more than $50 million. For both projects, it said it was attracted by the prospect of higher yields amid the lower prices compared with property in California and New York. Gaw Capital Partners, a Hong Kong-based private-equity firm, is planning to raise $500 million for a real-estate fund that will invest in U.S. commercial property in the fourth quarter, targeting investors from Asia and North America. The fund manager said it will look at assets in “innovation centers” such as Portland, Ore., and Austin, Texas. China Vanke Co., 000002.SZ -2.23% the country’s largest property developer by market capitalization, is interested in investing in Boston, partly because of its sizable Chinese community, said the firm’s president, Yu Liang, at a news briefing in Hong Kong last month, without providing further details. Vanke had already jointly invested in a 655-unit high-end condominium in San Francisco with U.S. developer Tishman Speyer earlier this year. Chinese investors still are eyeing assets in New York and San Francisco, “but we are also witnessing increased interest in cities like Washington, D.C., Boston, Houston, Seattle and Chicago,” said Alistair Meadows, who oversees cross-border Asian-Pacific real-estate transactions at consultancy Jones Lang LaSalle JLL -1.20% . “Cities like Seattle and Houston are enjoying strong job growth driven by the technology and energy sectors. As a consequence, core office investments in these cities offering higher yields are proving attractive.” Slower domestic economic growth in China as well as rising risks in the country’s financial sector are prompting investors to look abroad. The U.S. has become the most popular real-estate market to invest in so far this year for Chinese firms, followed by Hong Kong, the U.K., Macau and Singapore, according to data tracker Dealogic. Chinese property investors—from big players like sovereign-wealth funds and insurers to smaller ones such as local fund managers—are attracted to the U.S. market in general because of the economic recovery, ample market liquidity, and the stability of returns, real-estate consultants say. Rental properties in the U.S. typically have longer leases compared with China’s, and hence are less prone to disruptions or volatility. Tishman Speyer China Vanke invested in a condo project in San Francisco earlier this year. Acknowledging that Houston and Atlanta aren’t usually the first places Chinese investors think of when investing in the U.S., Zhang Mingeng, board chairman at Beijing’s Grand China Fund, cites costs as a key attraction. He said prices of some projects in these areas are still down around 20% from their peaks, and that growth prospects in these cities are positive. “Our investors, which include lawyers, exporters, merchants, accountants, have U.S. incomes and want us to branch into the U.S. for diversification,” Mr. Zhang said. “They are looking for safe assets that they can see and touch.” Grand China Fund manages yuan-denominated funds totaling four billion yuan ($653 million) investing in Chinese real estate, and a $60 million dollar-denominated fund investing in the U.S. Houston, in particular, has become more familiar to Chinese investors. China Petrochemical Corp., known as Sinopec, has operations there, and the city gained recognition with Chinese investors with the help of former Chinese basketball star Yao Ming, who played for the Houston Rockets. Mr. Zhang said he is looking for more real-estate projects in Miami, Orlando, Dallas and San Diego, in addition to New York and Chicago. “While the returns from the U.S. are not as high as what we get in our mainland China projects, they are good enough,” he said, declining to reveal the investment yield of his U.S. projects. “We like residential projects near universities, hospitals and military bases.” Asset managers said investors who aren’t eager to place all their eggs in one basket are looking for diversity, not just in asset classes, but also in their geographic footprint. “The large Asian institutional investors, including Chinese investors, are looking for safety, more stability and exposure to diversified currencies and returns,” said Goodwin Gaw, chairman of Gaw Capital Partners, which also provides outbound-investment advisory services to Asian institutional investors. To be sure, foreign investment in the U.S. still makes up a small portion of the market. Around 15% of the $25 billion invested in New York’s real-estate market in 2012 was from foreign investors, for instance, compared with 75% of the $24 billion invested in London in 2012, according to data from Jones Lang LaSalle. Not all Chinese investors are branching out. The coastal cities in the U.S. still attract plenty of Chinese investors, with deals this year such as Greenland Holdings Group’s $1 billion investment in a mixed-use project in downtown Los Angeles, and Soho China Ltd. Chief Executive Zhang Xin ‘s personal investment in a stake in the General Motors Building in New York, which attracted considerable media attention in China. Beijing-based property developer and investor Feng Lun, chairman of Vantone Holdings Co., said he is sticking to investing in New York City. Vantone has leased 20,000 square meters of space in One World Trade Center, and has invested in joint ventures in two residential projects in the city. “We’ll focus on New York City, preferably Manhattan, to ensure our current operations are successful before branching to other cities,” Mr. Feng said. Write to Esther Fung at esther.fung@dowjones.com A version of this article appeared September 25, 2013, on page C8 in the U.S. edition of The Wall Street Journal, with the headline: China Casts a Wider Net Over U.S. Market. Continue reading
Analysis: Despite Talk Of Farm Bubble, Farmer Mac Woos Investors
By David Randall NEW YORK | Mon Sep 23, 2013 (Reuters) – Farmer Mac – the farm loan equivalent of its cousins Freddie Mac and Fannie Mae – owes its existence to the last time a U.S. farm bubble burst. Now, the company is trying to convince investors it would survive another one. The market isn’t giving the company a vote of confidence yet. Just five years ago, Farmer Mac had to be rescued by its creditors after its large positions in Lehman Brothers and Fannie Mae went sour. Now, the revived company must prove to skeptical investors that it can withstand a sharp decline in the price of farmland that analysts expect to come in the next year. That open question – and the inability of Congress to pass an updated five-year farm bill, which provides crop insurance and other subsidies that farmers rely on – has been weighing on the company’s stock price. Shares of Federal Agricultural Mortgage Co. ( AGM.N ) – a government-sponsored enterprise that functions as a secondary market for farm, rural utility and rural development loans – are up approximately 6 percent for the year and 35 percent over the last 12 months. This year has seen a widespread market rally that has pushed the benchmark Standard and Poor’s 500 index up more than 20 percent. After collapsing to around $3 in late 2008, the stock price has since recovered to pre-crisis levels of around $34. Still, the stock trades at a price to earnings ratio of 5.5, close to half the valuation of small lenders like PennyMac Financial Services ( PFSI.N ) and of its own five-year average P/E of 10.1, according to Thomson Reuters data. The company has been actively courting small-cap fund managers, institutions and endowments by pitching itself as a conservative way to play the booming U.S. farm sector. In February, for instance, the company presented at the Bank of America/Merrill Lynch Global Agriculture Conference in Miami, and in April it gave a presentation to the California Municipal Treasurers Association. In all, it has made seven presentations to potential investors in New York, Baltimore, San Francisco and other locations this year. At all the events, chief executive Timothy Buzby argued that a decline in farm prices would not affect his company as much as the market expects. Farmers can always sell a few hundred acres of a larger farm or their excess equipment before defaulting, he said. “We only make real estate loans, not operation loans. If there’s a bursting of a bubble, the last lender to get hurt is the one who has the loan on the farm,” he said. He points to the company’s low 0.01 percent default rate and the fact that the firm “lost zero” during last year’s drought – the most extensive in at least 25 years – as evidence of the resilience of the sector. RUN-UP IN PRICES The widespread concerns that farmland is a bubble ready to pop comes from an unprecedented run-up in prices. Between 2003 and 2013, the average acre of farmland in the U.S. jumped 213 percent in non-inflation adjusted dollars, according to research by Brent Gloy, an agricultural economist at Purdue University, an average annual increase of 12 percent. By comparison, prices rose 127 percent in real terms between 1971 and 1981, a rally that ended in the late 1980s farm crisis when land prices tumbled 40 percent. That steep decline brought down several community banks and led Congress to create Farmer Mac. “If prices don’t start to slow down soon, that would be a major red flag,” said Gloy. Farmer Mac has responded by tightening its lending standards and the portfolio’s loan-to-value ratio has fallen to 60 percent from 70 percent, Buzby said. That has helped the 90-day delinquencies rate in its farm and ranch portfolio fall to 0.69 percent of loans in the second quarter of 2013, compared with a 1.30 percent delinquency rate in the same quarter of 2010. Freddie Mac , by comparison, reported that 2.79 percent of its loans were seriously delinquent at the end of 2012. Over the same time, Farmer Mac’s core capital rose to $564 million from $461 million. The company has also tightened its own standards for its liquidity portfolio, said Buzby, who became chief executive of the company in 2012. The prior management team was using the portfolio to boost earnings , he said. When its large position in Lehman tanked, the company was forced to sell $65 million in preferred shares to its lenders as part of a rescue plan. Most of the portfolio is now invested in low-yielding U.S. Treasuries, Buzby said, meaning that the company is losing money on its capital after inflation. Like other government-sponsored enterprises, the company has the implicit backing of the U.S. government, but does not offer the same level of security as a Treasury bond. To be sure, the company remains highly leveraged, like other government-sponsored enterprises. The company has a leverage rate of approximately 25 to 1. While that has fallen from a peak of 45 to 1 before the 2008 crisis, it remains higher than regional banks , which typically have leverage rates of 12 to 1. “When you talk about what you could be concerned about as an investor in this company, that would certainly figure into the analysis,” said one hedge fund manager whose fund owns shares of Farmer Mac and who did not want to be quoted by name. VALUE PLAY Some value investors who own the stock say that the company has stronger fundamentals than the market is giving it credit for. “If you look at the leverage within the farm system, it’s not nearly as high (as in residential mortgages) and it isn’t going out of whack like the residential space was,” said Howard Lu, a portfolio manager with First Wilshire, a Pasadena, California-based money management firm with $650 million in assets under management which owns Farmer Mac stock. The Kansas City Fed estimates that the debt to asset ratio in the farm sector is currently around 10 percent, well below the 25 percent mark associated with the collapse of the 1980s. By comparison, debt to asset ratios topped 25 percent in the residential mortgage sector leading up to the 2008 financial crisis. Lu said that the company is still “significantly” undervalued because of its earnings growth. Farmer Mac reported core earnings of $1.48 per share in its most recent quarter, a 27.9 percent gain from the same period last year. The company is little followed by Wall Street, in part because its market cap is so small that large-asset funds can’t invest much more than $20 million in the company without becoming a significant holder in the shares and distorting prices. As a result, its shareholders tend to be small mutual funds and hedge funds. The one analyst polled by Reuters who covers the company, Evan Hutto at Compass Point, rates it a buy, with a target price of $42, a roughly 25 percent increase from its current price of approximately $34. New York-based Sidoti & Company initiated coverage Wednesday with a price target of $44. Hutto looks for positive price moves after Congress passes a farm bill and when concerns abate that Farmer Mac will be hurt by falling farm prices. Rising interest rates could also push Farmer Mac’s loan volumes higher. Unlike Freddie Mac and Fannie Mae, Farmer Mac has largely been exempt from Republican bills that would unwind government-sponsored enterprises. “This is a company that’s had tremendous growth but has been falling under the radar,” Hutto said. “Now they need to prove that they’re for real.” (Reporting by David Randall; Editing by Claudia Parsons) Continue reading
The Future Of Farming: Q&A With Futurist Glen Hiemstra
Wednesday, September 11, 2013 by Farm and Dairy Staff Share Farm and Dairy spoke with Glen Hiemstra, founder of Futurist.com , about the future of farming and agriculture. Glen Hiemstra is a respected expert on future trends. He’s worked with companies like The Home Depot, Boeing, Land O Lakes, John Deere and Microsoft. Glen has also advised government agencies and organizations like the U.S. Army Corps of Engineers, the Federal Highway Administration Advanced Research program and the Washington Forest Protection Association. Glen often meets with companies to discuss emerging trends in economics, demographics, energy, the environment, science, communications and technology. Here’s what Glen had to say: F&D: What exactly is a futurist? What do you do? GH: A futurist is somebody who explores three questions about the future. The three questions are: What is probable in the future? What is possible, sort of what’s outside the boundaries of the way we usually think about our business, or what is a sort of “black swan” event that could happen, that we might want to take into account? What’s preferred is the third question. That’s the strategic planning question. Futurists like myself usually give talks or seminars about the first two questions. People are really interested in future trends and where the world might be going, according to those who watch for trends. Organizations tend to be really interested in that third question, “What’s our preferred future?” That’s essentially what we do: presentations, writing and consulting work around those questions. Futurists, like myself, tend to be called when people are interested in a little bit longer term view. Most organizations do regular strategic planning cycles, maybe looking 5 years ahead. But now and then they want to look 10 years ahead, and that’s when they call me. F&D: You’re not looking into a crystal ball, right? There’s no wizardry involved. What kind of methods do you use to try to accurately predict these future trends? GH: Well, there are two or three primary methodologies. One is typically called trend-analysis. It’s just a kind of labor-intensive collection of data material from whatever sources you can find it. Whether it is the Bureau of Labor Statistics, or in the case of agriculture, The Farm Bureau. It might be demographic trend information. It might also be cultural trend information that you get by reading other people’s opinions about it and keeping track of things over time. While there are some computerized tools for forecasting, which are available, which I’m not trained in and do not use myself, most futurists still, in the end, rely on good old pattern recognition. What makes sense. If you logically look at this, how does it all add up? F&D: Now that we got those two questions out of the way, let’s move on to farming and agriculture. Briefly explain to me what you think the farm of the future could look like? GH: Super question. I am actually thinking about that now because of a talk I have coming up with the directors of the Farm Credit Bank, though they want me to talk less about agriculture and more about big-picture stuff. Here’s a couple thoughts on what a future farm will look like. Number one, undoubtedly, a future farm will be much more attuned to the biological basis of the soil. Not that we don’t know a lot about that now and we don’t pay attention to it. But, there are concerns because the world will need much more food between now and 2050, because of the growing global population and the growing appetite of the global population. So the question is how are we going to do that? And the big keyword in every industry, including agriculture, is sustainability. How can we do that in a way which produces more, but at the same time preserves the ability of the soil and farmland to produce in the future. Every year that clicks by over the next 20 years, that’s going to be more of an issue. The good news is, we’ll know more about how to do that. So I think the farm of the future will ultimately be doing some things differently in terms of using fossil-fuel-based fertilizers and pesticides, and so on. That will evolve. It will not be the same, but exactly what it will look like isn’t clear to me. I could vacillate in the big debate between what we now think of as traditional agriculture versus what we think of as organic agriculture, which is of course in old-fashioned terms, more traditional. How that will all play out is, I think, the big question. The reason that’s a big question is because it will have to deal with the ability of the soil to provide enough food and with what happens with the evolving climate. F&D: Sure The second thing dealing with the future of agriculture that I find very intriguing is that I’m pretty persuaded by the growing interest in the local food movement or the organic food movement. Basically, it comes down to especially local food. I think that we will see, because you can do it economically, there’s a whole generation interested in it, and it kind of fits in the value shift going on around the world, there will be a viable local agricultural community in places where it’s sort of disappeared. Whole regions are interested in that, New York, Washington and part of the Midwest. We will still see growth in very large-scale agriculture, but we’ll also see equivalent growth in very small-scale, even personal scale, agriculture. This interest in healthy, local food, I don’t see that disappearing. I see it increasing and it has to have an impact over the next two decades. F&D: Is it fair to say that farming and agriculture in these metropolitan areas will be more important moving forward? GH: Yes. It will be more important. With a co-author, Denis Walsh, a sustainability futurist from Canada, I’ve written a book called “Millennial City.” It’s really a look at the future of cities. F&D: We’ve got a couple questions here submitted to us via social media. Charles wants to know if non-traditional meats, goats, lambs, emu, will become a larger part of our diets and the market moving forward. GH: Oh man, that’s something I have not looked into at all. My off the cuff response is that I don’t think so. I will give one caveat to that. They will continue to be small niche and specialty foods.The caveat is the growing diversity of the U.S. population. By 2040, according to the Census Bureau, the non-Hispanic white population will be the minority population of The United States. That means you have many more people of color who come from historical cultures where those meats are a traditional form of protein. One could imagine that in a more diverse, ethnic culture, some of that market could grow just based on ethnic drivers. F&D: Carol from Greenford, Ohio wants to know if you think we’ll see an increase in GMO fruits and vegetables in the future? On that subject, what will the role of GMO fruits and vegetables be? GH: Yes, we will see an increase in genetically modified, but I think that will be accompanied by an increase of regulatory requirements for labeling. That’s on the ballot here in the state of Washington, I know it got defeated in California. I haven’t read any polls, but I’ll be surprised if it does not pass in the state of Washington. I think the consumer will be fine with genetically modified foods, so long as they know what they’re getting. The rate of increase of genetically modified foods will be highly related to what happens with the climate and food security and whether it’ll be biologically necessary to grow genetically modified foods to makes sure we grow enough food. Bottom line, I do think we’ll see more genetically modified food, but it’ll be in an environment in which there will be a requirement for labeling. F&D: What can small farmers do to stay relevant and competitive over the next 20 or 30 years. GH: Two, maybe three things. If you’re a small farm, it’s sort of imperative to be on the sustainability bandwagon. I haven’t studied this, but I’m familiar with the film director Peter Bick. Peter made “Carbon Nation,” a documentary. He is persuading me that there is a growing understanding of how to rebuild a healthier soil using some fairly old and traditional farming methods, which don’t work on the super-large scale. When I say get on the sustainability wagon, I’m really saying learn everything new about the building of soil as a carbon sink. Small farms that could turn their land into a carbon sink could become more valuable in a world in which we go to a carbon trading system, which is occurring in California. Though we’re a long ways from that politically in the U.S., depending on what happens with the global climate, you could see a very rapid shift into a system that the ability to sequester carbon is highly valued. F&D: What’s a “carbon sink?” GH: If you’re growing grazing land, and your land is being maintained in such a way that your roots go back to the old prairie kind of root systems which were deeper and more robust than we have in the Midwest these days, those roots soak up carbon. They basically take carbon out of the air. That can all be calculated. You can look at how many acres and if that many acres pulls the following amount of carbon out of the air. Therefore on the carbon-trading system you could be paid for doing that. That’s all kind of fringe stuff yet, at this point. We won’t really know for a decade, or two, how that plays out. But it’s an opportunity that the film director [Peter Bick], who is making a film on the subject, thinks is something for smaller farmers to look at. I’m not sure how it’ll apply to the individual family-farm, but it’s something to pay attention to. The other thing is, if you’re part of the local-food movement, using the Internet. People want to know where their food is from. Getting into that game. Relatively small family farm operations become super stars on the internet. F&D: Do you see drones in the future of ag? GH: Yes! That’s a great question. Sure, why not? Will every farm have a drone that the farm manager/operator/owner can fly over the field and measure and observe stuff? Related to that is the potential of the so called “internet of things,” such as a project that is putting sensors in forest land to alert people sooner of forest fires. It’s quite easy to imagine more and more embedded and implanted sensors on a person’s property, giving constant data. Drones? Yea, that’s a really good one. Sure, why not? F&D: Do you think there’s going to be a time when the grain markets aren’t controlled by the weather? Because of the way genetics is changing crops, do you see us going a different route in the future? GH: That would be a very distant future… I say that, but I suppose somebody could come up with a genetic modification tomorrow that changes the whole picture over night. The weather’s very powerful, and the globe is a very big place. You can look at some of the climate change scenarios and look at the maps of the potential drought areas and drought areas. OK, I don’t care what you do genetically, try to grow grain on this massive area of land with no water for 10 years. It’s not going to happen. Though clearly, there’s been some improvements with drought tolerance and salt tolerance in crops. There is some interesting work going on with organic kelp based and other biological fertilizers. They’re showing some pretty good results in Africa and California and some other places. They include the ability to increase yield in conditions of drought, but they can’t overcome catastrophic level droughts. My guess is, no. The weather will still be a factor 50 years from now. F&D: When we started this conversation, we talked about the magic year 2050, when the food supply will have to double. Are we going to be able to do that, do you think? Or will we face a famine? GH: I’ve actually heard bigger numbers than that. If the global class continues to grow, then the numbers could be even more than double. I think the odds are that we’ll be able to figure out how to do that. It’ll require a lot of innovation. It could be innovation on the organic side, or it could be a new kind of agriculture. It might not look like the 19th century agriculture or the 20th century agriculture. Humans are inventive when they have to be. F&D: Do you have a positive outlook when it comes to the future of agriculture? GH: Yes, absolutely I do. Agriculture has shown an astonishing ability to produce food. Not that long ago, I don’t have the exact time, but it used to take 6,000 acres to provide enough food for one person for one year. Now we’re down to half an acre or less. That’s an amazing record. Though the rest of the world lags behind the U.S. in terms of that record, they will catch up. On the large scale I’m pretty optimistic. On the small scale, I think that we’ll see more people participating in this local food and urban farming movement. To me, that’s very optimistic. What we know is that an increasing percentage of the global population moves to, and lives in, cities, which is counter-intuitive to what I just said about small farms. They will want food grown within 250, 350 miles. And that means more local agriculture in and around cities. I’m very fascinated by the very futuristic, mostly still on the drawing board, images of future cities with large food-growing operations within the city. On the facades of high-rise buildings, or various kinds of hydroponic or fast-growing environments. In part two, Glen answers questions from Farm and Dairy’s online community. He then addresses the idea of drone in agriculture and then gives an optimistic view on the future of farming. Continue reading
