China Bank Eager to Write Loans of $100 Million-Plus to U.S. Developers

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China Bank Eager to Write Loans of $100 Million-Plus to U.S. Developers

Posted by Alex Finkelstein 07/13/10 12:40 PM EST
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If you had any doubt that China isn't the paymaster of the globe, Industrial & Commercial Bank of China is clearing away the skepticism. The bank, China's largest, has found a new lending niche.

The Beijing-based institution is rolling out what it calls a large-loan program. The program targets U.S. commercial real-estate owners and developers needing loans over $100 million, a category most U.S. banks now avoid, reports The Wall Street Journal.

China Investment Corp., the $300 billion sovereign-wealth fund, also is looking to pile cash into U.S. real estate through investing with U.S. property-fund managers.

Industrial & Commercial Bank of China is offering to lend no more than 65% of a property's value. During the real estate lending frenzy only five years ago, U.S. banks had lent more than 80% of a building's value.

Most U.S. banks are reluctant to lend more than $200 million to any single borrower because of the lingering difficulty in unloading risks.

ICBC says it could consider loans that are even higher than $500 million, and it intends to hold loans on its books.

The move by Beijing-based ICBC, 70% owned by the Chinese government, is part of a broader push into the U.S. market and comes as China's regulators are encouraging domestic financial institutions to expand overseas, according to the WSJ.

Wu Bin

Although many U.S. and European banks continue to struggle with losses tied to real-estate loans made during the bubble years, ICBC is betting that property values have fallen enough that the bank's lending risks will be limited.

"The market is very close to the bottom," Wu Bin, general manager of ICBC's New York branch, told the WSJ. ICBC's office is located in the Trump Tower on Manhattan's Fifth Avenue.

Demand for new commercial-real-estate loans is intense as property owners face more than $1 trillion of maturing debt over the next five years that must be refinanced, according to various published reports.

Analysts believe that ICBC could help fill a void left by the retreat of U.S.-based financial institutions.

650 Madison Avenue office tower

"Because of the concentration risk associated with large loans, that is a market many U.S. lenders shy away from," says Josh Scoville, director of research at real-estate-services firm CoStar Group Inc. "A new entrant like ICBC certainly will be helpful."

In the past, scores of foreign banks from Japan to Germany have been clobbered by their aggressive push into the U.S. property market during the boom times, the WSJ reports.

Wu says ICBC will limit its risk by financing buildings with stable existing cash flows and lending to developers and investors with a solid track record.

ICBC doesn't have a projection set for its loan book. "We will not force ourselves to do something we don't like or we don't know," Wu says.

According to the WSJ, Industrial & Commercial Bank of China provides the latest evidence that foreign capital is funneling into U.S. real estate, lured by beaten-down property values and signs that the U.S. economy is coming out of the recession faster than those of other developed countries.

650 Madison Avenue Map

Still, despite ICBC's size and profitability, challenges abound for a foreign bank to crack open a market also being courted by some large, well-capitalized domestic lenders, the WSJ points out.

Big U.S. banks like Goldman Sachs Group Inc., Bank of America Corp. and Wells Fargo & Co. are coming off the sidelines as they hope to market commercial property debt to yield-chasing investors by carving the debt into commercial-mortgage-backed securities.

Wu, a 15-year veteran of ICBC who has spent most of his time for the bank overseas and speaks fluent English, is open about the challenges.

Robert Koen

"Here, no one knows who you are," says Wu. To counter the lack of name recognition, he brought in two local real-estate experts -- Proctor Wong, head of bank-services group at brokerage Newmark Knight Frank, and attorney Robert Koen at DLA Piper US LLP -- to devise the lending initiative.

Wu and Wong met in early 2008 when Wu was looking for space to house ICBC's New York outlet after the bank received federal approval to branch out into the U.S.

"I told him to hold off signing the lease because values would continue to fall," Wong told the WSJ.

Proctor Wong

The bank, eager to start business in the U.S. market, opened the branch in October 2008. But that conversation triggered a broader one about the U.S. real-estate market and its need for funding.

"We started to work together and to get training" for the ICBC team on things such as property valuations, Wong says, referring to Newmark Knight and DLA Piper.

In early June, ICBC closed its first commercial-property loan in the U.S. It contributed $150 million to a $355 million loan made to a partnership led by private-equity firm Carlyle Group.

Andrew Chung

The venture used the loan to refinance the existing $325 million mortgage on 650 Madison Ave., a 27-story office-and-retail tower in midtown Manhattan. The rest of the loan was provided by Wells Fargo.

Andrew Chung, a principal at Carlyle, says there was a "competitive" bidding process among lenders to provide financing to the building.

"We understood ICBC had never done a real-estate deal in the U.S. But we were comfortable because of their size and global presence," Chung says.

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