CIC to Invest Billions in US Property

Over the past weeks we have seen very positive data that points toward  the eventual recovery of our national economy.  More specifically we have seen numbers on the real estate sector that are suggesting that we are rounding the corner on home values, buyer activity, and inventories of properties.  This week news of a potentially sizable investment by the CIC (China Investment Corporation) was leaked in several papers around the country.  This buzz created in the news will both directly and indirectly affect the real estate markets.

 

China Investment Corp. is a two-year-old fund set up to improve returns on China’s massive foreign-currency reserves.  It holds over $2.1 trillion (US) in forex reserves.  The fund has been meeting in past weeks with nine fund managers, including BlackRock and Invesco, in order to structure an investment into US property.  In order to achieve any meaningful diversification in its portfolio, the fund would need to set aside between $4 billion and $10 billion to global property investments in the next year and a half.

 

What has attracted CIC to US property is a government backed program called PPIC.  Under the program, the Treasury will co-invest with funds that buy toxic mortgages that have been clogging banks' balance sheets. The U.S. government, through the Treasury and the Federal Reserve, also will make financing available to the ventures. In other words, CIC and the Treasury would be partners in borrowing money from the U.S. government to buy troubled mortgages.

 

CIC's "debut in the U.S. property market likely will be double arm's-length investments," meaning through U.S. fund managers, with a minority stake in the fund, as opposed to direct stakes in actual properties, Mr. McCormack said, an executive director at Z-Ben Advisors, a consulting firm in Shanghai (WSJ, “CIC Looks to Pile Cash Into U.S. Real Estate”).  Its interest is not in buying up large quantities of U.S. properties, but to invest in deeply-discounted assets. Some people will see this as a great investment opportunity by someone with deep pockets.

 

In this marketplace, it's a very positive sign that at least one foreign institution from a country that has capital is willing to lend money.  The past turmoil in the U.S. marketplace might work in the favor of foreign investors like CIC.   What impresses me is the formula that the CIC is employing - purchasing wholesale and discounted property at a national level that will likely appreciate greatly in the next few years.  Although the specifics of their strategy is somewhat complex, it is not unlike what Mason Hill has been doing for sometime now.

 

By focusing on smaller scale markets, Mason Hill provides an opportunity to our clients to maximize the reach of their capital and maximize their return.  As each week passes by, I predict that your clients are becoming more and more aware of the opportunity at hand to invest at an optimal time in the property value cycle.   

 

For today’s market, the strategy remains clear:  Acquire property at a wholesale purchase price that will generate positive monthly cash-flow in markets where the values are rising 1-1.5% a month.  Whether your clients are interested in a "Quick Flip" Investment, "Medium Term" Investment, or "Buy and Hold Forever" Investment, the combination of these factors is a proven formula for success.

  If you are interested in learning more about Mason Hill and our strategies for investing in today's market, take a look at this report we publish a couple weeks ago that gives insight into specific strategies --"Real Estate Investment Strategies for 2009"