New York’s Transparent Buildings

Full Bank Accounts, Empty Storefronts: The Economics Of High-Rent Blight.

Fascinating little story that somehow brings to mind places like Kings Garden Villa in Beijing, and much of the city of Ordos.

I would wager that at least some of the money that has found its way to Manhattan is coming from Chinese investors who would rather wait for tenants who can afford their desired rents than rent out at less and undermine the likely ridiculous sums they paid for the properties.

This is not a uniquely Chinese behavior, but it is a practice that is notably common among property owners in China. What is more, the sources of cash flowing out of China and into North American investment properties are certainly not limited to giant, high-profile developers like Wanda. So while it would assume far too much that Chinese money is the cause of High Rent Blight in New York, it is likely a contributing factor.



Many (many!) analysts over the years missed the elephant in this room w.r.t. Chinese property developers: the analysts simply couldn’t get their heads around the fact that for many (not all) Chinese property developers, there was zero cost to the debt they were holding.

Mostly because it was funny money; for example massive rake-offs from coal-mine nationalizations, to give but one example. The eponymous “meilaoban”.

So the old “carry costs” were literally nothing. Makes the maths somewhat different, no?

I’d wager some of that money is now flowing overseas, as the returns in Chinese property start to cool. Back in 2009, I *literally* couldn’t sell in China a single share of a once-in-a-generation Melbourne residential/retail development that had a guaranteed floor of a 7% return. Why would I invest there, was the consistent refrain, when I can get 20% in Chinese property?! Why indeed!

David Wolf

“Why indeed!” Yes!

And not just property developers: all you need is a closet full of cash and someplace to park it where time and appreciation will launder and increase your (ill)-gotten gains. New York property seems a fairly good bet these days.