Public private partnerships spread to real estate

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Rick Perry brought public private partnership toll roads to Texas in 2003. Now public private partnerships are spreading to real estate. Even worse, this version allows China to buy-up distressed U.S. real estate using public money.

China Ramps Up To Buy Cheap U.S. Real Estate
Thursday, September 10, 2009 3:29 PM
By: Julie Crawshaw and Dan Weil

China Investment Corporation, China’s $300 billion sovereign-wealth fund (SWF), is preparing to buy distressed U.S. real estate assets.

It will do so using the U.S. Treasury Department’s Public-Private Investment Program (PPIP) to fund the investments, reports the Wall Street Journal.

Meanwhile, several Chinese officials warned that Wall Street isn’t taking the recession seriously, and that much more pain is in store for U.S. investors in the near term.

The PPIP program, which limits investments by any single investor to no more than 9.9 percent of each fund, is designed to help U.S. banks get rid of toxic mortgage assets by financing investors’ purchases of such securities.

CIC officials reportedly have held talks with U.S. private-equity fund managers, including BlackRock, Invesco, and Lone Star Funds, about buying securities backed by office buildings, hotels, strip malls and other commercial property, and about buying ownership interests in buildings as well.

Though CIC spent only $4.8 billion in global financial markets last year, it invested that much in a single month recently, CIC Chairman Lou Jiwei said last month.

He said that if future returns are good enough, it might ask the government to let it invest more of China’s $2.132 trillion foreign-exchange reserves.

CIC recently invested in a real-estate trust in Australia and in an owner and developer of office towers and retail stores in London.

The SWF also is considering investing in Hollywood production firms, the Times of London reports.

The move could give Beijing a direct stake in a variety of foreign media content “from South Korean television dramas and Japanese game shows to Hollywood blockbusters.”

The Chinese onslaught against the United States over economic issues continues, with Bank of China Vice President Zhu Min criticizing Wall Street for complacency in the wake of the financial crisis.

Bank of China is the country’s third largest bank.

“You go to Wall Street, the people feel the crisis never happened,” Zhu told Bloomberg. “It’s not only overconfidence, it’s over-myopic. This is too much.”

Much of China’s criticism has focused on the growing U.S. debt burden and the dollar’s role as the sole reserve currency.

In March, Premier Wen Jiabao said he was “worried” about China’s investment in U.S. Treasuries, now $776.4 billion, and wanted assurances that they were safe, Bloomberg reports.

As for Zhu, he told Bloomberg that the credit crisis isn’t over yet. “It’s sort of stabilized from a cliff drop,” he said. “But the real economic crisis has just started.”

Zhu expressed some concern about China’s economy too.

“The potential risk is that a lot of liquidity goes to the asset market,” he said. “So you see asset bubbles in commodities, stocks and real estate, not only in China, but everywhere.”

The Shanghai Stock Exchange Composite Index has soared 61 percent this year, topping the MSCI World Index by 41 percentage points.

China’s concern about the United States apparently hasn’t spread to its sovereign wealth fund China Investment Corp. The fund is looking at plowing some of its $300 billion kitty into U.S. real estate.

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