Recently, Eddie Wilson, president of Affinity Enterprise Group (AEG), returned from a trip to China to visit AEG’s Chinese division, Affinity Investments Asia (AIA). AIA has a physical office in Shanghai with the sole designated purpose of helping Chinese investors find credible investment opportunities in the United States. The office has been functional for about eight months, and Wilson spent his time there meeting investors and potential investors and coordinating with AIA staff. Upon his return, he spoke with Think Realty regular contributing writer Carole VanSickle Ellis to discuss what he saw and learned while in Asia.
TR: Let’s start with something simple: what were your main goals for this trip?
First of all, I was going over there to check on our investment and make sure everything was intact. I’m a part owner and AEG is the primary financial backer for AIA, and I hadn’t seen the office yet! I wanted to meet all of our staff, and then I also wanted to personally gauge the interest level of the Chinese investors that we’re working with. I met personally with a lot of Chinese investors, and I also met with some larger CEOs of bigger corporations that were looking for diversification opportunities for investments, a couple of big insurance companies, media companies, that were looking to invest in the U.S.
When working with investors who are not familiar with the way that American real estate works, you find that they really need somebody to hold their hand and help them understand what returns they can expect, what the liabilities are of investing in single-family versus multifamily versus luxury versus hospitality, so on and so forth. I was able to meet with them, get a better handle on their level of interest in U.S. real estate investments and gain clarity about the amount of money that they were looking to invest. Once I understood that, it was really just a matter of helping educate them some on the types of highly credible investments that Affinity as a whole has access to.
TR: When you say “credible investments,” how does AEG define that term?
A credible investment is first and foremost someone that we do business with ourselves. AEG has multiple entities that reach out into the real estate investment world that can vet providers and clients. For example, our insurance company obviously has a lot of great relationships with investment providers all over the country.
We look at them, first of all, for longevity: How long have they been in the business? How long have they been promoting investment properties?
If they’re a turnkey provider: What type of reputation do they have in the marketplace?
To truly be credible, you must have longevity and credibility in the marketplace.
Second of all, we dive into the data on behalf of our investors. AEG has access to a lot of data from all over the country. AIA, which is specifically serving Chinese investors, would focus heavily on data that is relevant to the types of investments in which those individuals and business entities specifically have expressed an interest. For example, we use RentFax to score rental properties across the board so that we can say with confidence that Gary, Indiana, offers higher risk and greater liability than Orlando, Florida, for turnkey rental investors, for example. Credible investments are not risk-free, but they should have relatively low risk compared to comparable options elsewhere in the market.
Third, we define credibility based on average rate of return as Think Realty and AEG are able to verify it. So, if an investment provider states that their properties offer a 20 percent return, we take a deep look into the area to see what types of investments are yielding 20 percent returns in that area (if any) and whether it is reasonable to continue to expect that type of return on investment.
TR: Please tell me a little more about these investors you met.
I spoke directly with three different types of investors in China. There are a number of independently wealthy Chinese investors who can, quite frankly, be a bit elusive. They are hard to reach unless they reach out to you. An example of this type of investor is one man I met with who is a farmer. The Chinese government bought all of his land through eminent domain and now he is sitting on nearly $1 billion in liquid assets. He’s also a bit concerned that his government might swoop in and take those assets away from him, so he reached out because he wants to get that money into the U.S. marketplace as soon as possible.
Corporate executives make up another investor sector. They act much like wealth managers and handle multiple accounts for other individuals. They are always looking for good opportunities to place money and make a commission based on the amount of money that they place in the U.S. for their clients.
Finally, big corporations in China are looking for diversification options that will enable them to buy hard assets in the U.S. to offset any risk that they have taken on while doing business in the Chinese marketplace. A lot of China’s biggest businesses find the Chinese economy to be very unstable and want to make sure some of their investments are located outside the country and often in the United States.
It’s important to remember that each “investor” we meet with on an individual basis may represent several dozen other investors or millions of dollars in assets. For example, I met with one insurance company representative who stated up front that his company wants to invest around $80 million in the U.S. marketplace in 2017.
TR: We’ve heard about the Chinese government restricting outgoing investments lately. Is this affecting the investors you met?
There are restrictions in place, so Chinese investors need services like AIA to help them move money out of the country and into investments in the United States. There are ways to legally do this, but investors need companies like AIA to facilitate the transactions.
TR: So, speaking of international relations, did you encounter any concerns in the wake of our country’s recent election?
I assumed most of the Chinese would be highly offended by most of President Trump’s statements about our trade relations with China—how he was going to crack down on U.S. trade deals with China, etc. However, what I encountered instead was a great deal of optimism about our new president. The investors I spoke with were very clear: They feel like his economic prowess will far surpass that of our former governmental leadership. They are looking forward to new opportunities.
One CEO of this large insurance corporation put it this way: “In the end, we hold a lot of debt for the U.S., and our economy is only going to be as strong as the U.S. economy. We’re expecting Donald Trump to take the U.S. economy to a completely different level, which is very exciting for us and makes us want to invest as deeply as we can.”
Nearly all Chinese investors in my experience see President Trump and the results of the 2016 election as a big positive. In fact, they’re feeling so good about things that if the right opportunity presents itself, they move immediately. An L.A. developer who traveled with me had eight properties in L.A., each with a price tag around $600,000. He sold most or all on-site during the trip.
TR: Now, the question we’ve all been waiting for: What do Chinese investors want?
AEG has done a lot of research on Chinese investors and what they want in their investments. Typically, they tend to not be particularly sophisticated buyers. They’re typically cash buyers. They usually want to buy the full asset itself. Historically, they’ve not been interested in complicated investment strategies like funds or things like that. I think that’s still by and large the case. Chinese investors understand that an asset in the U.S. is a very secure investment. If they can get their money into that asset, then their money will be secure. That’s what they understand, and that is what they want. However, more and more are beginning to ask the question: “How do we diversify in the U.S.? What are these real estate funds that we’re hearing about? How do we go in and buy 200 or 300 houses instead of buying just one asset?”
Because most Chinese investors view real estate as a passive income opportunity, they’re very receptive to the idea of real estate as a long-term proposition. They’re probably never going to live in the properties, so the main thing that each investment needs is a good yield, long-term, at a decent rate. Every person I spoke with was asking about this type of investment and, to me, that indicates that as a population Chinese investors are getting more interested in more sophisticated investment strategies and structures.
Interestingly, also, is the shift in interest away from EB5 visa opportunities. A year ago, everyone wanted to know if any given opportunity included that EB5 visa. Now, most appear to have found other opportunities to get those visas, if they want them, and are not necessarily investing to try to find a way into the U.S. but rather because they find it to be one of the most stable sources for investment. Probably only one out of every dozen people asked me if we had any investment opportunities within the EB5 community.
To sum it up: Chinese investors in today’s market are sophisticated and savvy. They’re looking for opportunities to place their money into funds that reduce liability while providing them with a passive income stream, and they still want passive investment strategies that do not require them to personally manage properties, place tenants or directly deal with property management companies.
TR: Are there any specific markets that are of particular interest to these investors?
The investors I spoke with are looking for investment providers who have access to 300 or 400 properties, but they want those properties to be in multiple locations. They don’t want to buy just in Cleveland, Ohio, or Detroit, Michigan. They want to spread their money across multiple states and cities. However, they still want their assets to take the form of single-family houses or interest in portfolios of single-family houses.
In the recent past, the main interest lay mostly in big “gateway” cities like Los Angeles, San Francisco and New York City. From there, interest transitioned to the huge potential returns associated with Cleveland or Detroit. Now, Chinese investors are mainly seeking mid-market, Class-A rentals. Many already own properties in Dallas, Atlanta and Orlando. They are OK with buying Class-A properties with relatively lower return potential than, say Class-C properties, because there is so much less risk associated with the Class-A purchase over the long-term.
TR: How can Think Realty readers best use this information and their access to AEG and AIA to inform their own real estate investing transactions and businesses?
In fact, this answer is really exciting. Think Realty and AEG are presenting a huge opportunity to sophisticated real estate investors looking for capital outside the U.S. today. In 2017, we will be planning a trip to our offices in Shanghai where a select dozen providers of credible investment opportunities will be able to present those opportunities directly to the Chinese investors associated with AIA. There is a massive amount of capital available for these types of investments, and AEG is prepared to leverage our offices and connections in China for this select group in order to help them get their product in front of these highly motivated, action-oriented, affluent Chinese investors.
To Contact AIA
For more information about Affinity Investments Asia, contact the AIA team at Info@affinityinvest.com.
About the Author
Carole VanSickle Ellis is the host of Real Estate Investing Today, a daily nine-minute investing podcast, and the editor of the Bryan Ellis Investing Letter. Contact her at email@example.com or visit www.selfdirectedinvestor.org.