20.01.10

Bank of China is emerging as one of the largest non-US banks investing in the troubled US commercial property sector, and its local bankers are scouring the market for new deals.

With most US banks paralysed and the market for commercial mortgage-backed securities frozen, foreign banks are now providing more than 60 per cent of all debt financing for commercial real estate, according to data from CB Richard Ellis.

The willingness of these new players to provide debt goes some way to filling a vacuum and providing hope that the worst of the downturn, at least in big US markets, may be over. In so doing, Bank of China and other foreign lenders are taking advantage of underwriting terms and spreads that are particularly attractive today, analysts say.

Xiaojing Li, Bank of China’s general manager for the US, says: “Our Beijing head office is encouraging overseas branches to get into the local lending business as long as we control the risk.”

Bank of China has no non-performing loans in real estate, Mr Li says, thanks to conservative guidelines. Its marketing materials say it lends only 65 per cent of the value of a property – and much less for hotels. But while most banks today balk at commitments of more than $50m-$100m, Bank of China actively seeks larger positions and holds them. For example, Bank of China provided $120m for the New York Times building, near Times Square.

“We have relationships with real estate companies,” Mr Li says. “Because we keep these loans, they know who they are dealing with.”

Bank of China, like many other foreign banks, is only interested in trophy commercial assets in gateway cities such as New York, Los Angeles or San Francisco, said Raymond Qiao, who heads commercial real estate lending for Bank of China in New York.

Financial Times

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Source: Property Week (www.propertyweek.co.uk)