China Construction America Inc. (601688), a unit of a Beijing-based developer, bought a suburban New Jersey office building for $71 million as it expands in U.S. real estate investment and development.
The building at 445 South St. in Morris Township, New Jersey, is the company’s first property purchase in the state. It’s close to the U.S. unit’s headquarters in Jersey City as well as its construction projects in and around New York, said Phillip Gesue, who joined China Construction last year to lead its U.S. real estate operations. Gesue previously oversaw real estate for Orient-Express Hotels Ltd. (OEH:US), based in Bermuda.
China Construction might occupy part of the building, which is leased mainly to insurance-company tenants, Gesue said.
“This is really a strategic investment that has uses to us both from an operating standpoint and also as an investment for our firm,” Gesue said in a telephone interview.
China Construction focuses on development in and around Manhattan, primarily residential projects, said Gesue. “It’s an asset class that has a lot of demand right now. It’s also a business we’re very active in in China and very knowledgeable about as a company.”
He said the company is working on some “very large” new residential developments in New York, declining to provide details. The city “is a phenomenal global marketplace,” he said.
The company is a unit of China State Construction Engineering Corp. (601668), which is building the country’s tallest tower in the southern city of Shenzhen.
No. 1 Market
The Morris Township deal reflects an influx of interest in U.S. real estate from foreign investors, said Andrew Merin, the Cushman & Wakefield Inc. broker who represented the seller, a group led by Bedminster, New Jersey-based Advance Realty, an owner and manager of property in the Northeast U.S.
“The U.S. has become the No. 1 market they all want to be in because of its political stability and economy,” he said in a telephone interview, adding that real estate also offers potentially higher interest rates than bond investments.
“We are seeing a lot more interest” from Asian as well as Middle Eastern and European investors, he said. “We mainly see it in the big cities like New York and Washington, but occasionally we are seeing the investments out here.”
The sale was done at a capitalization rate, a measure of investment yield, of less than 7 percent, Merin said. Cap rates are calculated by dividing net operating income by purchase price.
The 320,274 square-foot (29,800 square meters), four-story property is located in Southgate Corporate Park. It was built in 1982 and renovated in 2008. It contains a cafeteria, a full-size basketball court and fitness center, according to Cushman & Wakefield. The purchase price works out to more than $221 per square foot, the broker said in a statement.
The Advance Realty group bought the building vacant in 2005, renovated it and increased occupancy before selling, Merin said.
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