Chinese Capital (ICBC) Enters U.S. Market
China Bank Targets Commercial Real Estate Owners Needing Loans Exceeding $100 Million
Industrial & Commercial Bank of China, China's largest bank, is rolling out a "large-loan" program targeting U.S. commercial real-estate owners in need of loans that exceed $100 million, a category most U.S. banks now avoid.
The move by Beijing-based ICBC, which is 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. 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," says Wu Bin, general manager of ICBC's New York branch, located in Trump Tower on Manhattan's Fifth Avenue. Demand for new commercial real estate loans is huge as property owners face more than $1 trillion of maturing debt over the next five years that must be refinanced.
The Chinese bank is offering to lend no more than 65% of a property's value. During the frenzy, U.S. banks lent more than 80% of a building's value. 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," Mr. Wu says.
The new entrant 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. 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.
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.
Mr. 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.
"Here, no one knows who you are," says Mr. Wu, wearing a pin of the bank's logo that resembles the Chinese word for industry. To counter the lack of name recognition, Mr. Wu 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.
Early this month, 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. 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.