Hanhai Plaza. Land purchased for $100 in 2003 by Cusumanos. Sold to Chinese investors for $22 million 11 years later.

“This purchase is a gateway to entering the multimedia and entertainment industry,”

That’s what Lucy Lu, the chief executive of the Chinese investment group Creative International Investments, said in a press release back in 2014, when her company paid the Cusumanos $22 million for Burbank Civic Plaza — a four-story building for which the Burbank developer had paid the city a mere one hundred dollars 11 years earlier.

She was referring to the Chinese company’s plan to use the building as an incubator space for Chinese media companies as that country seeks to raise its entertainment industry profile. But, looking now at the slate of mega-developments jockeying for a green light from the Burbank City Council, perhaps residents should ask if the Cusumano sale was actually the gateway for something else — namely a wholesale campaign by Burbank developers to cash in on a Chinese real estate buying spree.

Experts say that Chinese investment in US real estate — and in Southern California in particular — has gone from a mere trickle to a flood, and indeed, from 2009 to 2014, Chinese investment in Los Angeles County doubled, according to the Los Angeles County Economic Development Corporation. Last year, the country’s investment in foreign commercial and residential property broke new records, with an increase of almost 53% over 2015, according to JLL Global Capital, a leading real estate investment bank.

While the Chinese spent their yuan all around the world, the United States was the most popular destination for their cash, drawing in $14.3 billion. West Coast cities — particularly San Francisco and Los Angeles — collected the bulk of those Chinese dollars, continuing a multi-year trend that has transformed the Southern California real estate market, and which experts say will continue, despite recent efforts by the Chinese government to stem the flow of money out of China.

Developers in Southern California have not been shy about tapping the Chinese investor market. The website for downtown LA’s megalith “The Metropolis, the biggest multi-use development on the West Coast, for example, is in both English and Mandarin.

A recent listing from Brad Korb
A listing from Brad Korb, one of Burbank’s top realtors.

So, what does all this mean for Burbank? Is there reason to think our local development boom is linked to this larger trend?

Well, we can’t ignore the fact that many of Burbank’s more savvy real estate brokers are already tapping potential buyers in China for their commercial, multifamily and single-family listings. China’s popular online real estate site Juwai.com is currently advertising more than a dozen Burbank properties, including:

http://www.juwai.com/28962458.htm 220 East Valencia (12-unit rental property)
http://www.juwai.com/28461866.htm 3118 Burbank Blvd (former home to The French Confection Company, the specialty cake store).
http://www.juwai.com/28558238.htm 1913 Jackson Street (a triplex investment property)
http://www.juwai.com/28959331.htm 2317 N. Frederic Street (16-unit apartment building)

And these single-family homes:
http://www.juwai.com/28979318.htm 3018 W. Wyoming
http://www.juwai.com/25331828.htm 7774 Shadyspring Place
http://www.juwai.com/29130775.htm 1920 N. Evergreen
http://www.juwai.com/28921360.htm 1133 N. Reese
http://www.juwai.com/29092192.htm 344 N. Florence
http://www.juwai.com/29130868.htm 1110 N. Griffith Park
http://www.juwai.com/29275379.htm 1526 N. Catalina
http://www.juwai.com/24559160.htm 2124 N. Brighton
http://www.juwai.com/27986905.htm 2900 Scott Road
http://www.juwai.com/26557671.htm 2712 Kingsway Drive
http://www.juwai.com/29348096.htm 434 Parish Place
http://www.juwai.com/28255884.htm 1421 W. Oak

So the answer is — it sure feels like a trend.

By examining certain trends we see in previous efforts to attract Chinese investment, and noting similarities between those projects and what’s being proposed in Burbank, we might be able to better evaluate the developers’ intentions.

Too Many Apartments (And Too Few Parking Spaces)

The projects which will go before the Burbank City Council are for mixed-use developments, which combine housing with retail and commercial use. It is a relatively new land use for Burbank (the Talaria being a notable exception), although it is becoming more and more visible in DTLA, where shiny new super-towers dot the Los Angeles skyline with increasing frequency. It is worth noting that this kind of development — high-density, multi-use buildings located in urban centers — is the norm in China.

“Compared to the United States or other developed countries, mixed-use development is already common in China, where many neighborhoods feature all the services most people need within walking distance,” reports the China Business Review, a publication of the US-China Business Council.

The ability to house a lot of people who will presumably walk to the grocery store, ride their bikes and take public transportation to work, and rarely if ever get in their cars, is the major selling point for this type of development — and indeed, local boosters say it will obviate a need for additional parking and minimize the dwelling’s impact on local traffic patterns.

Cusumano's next development
The Cusumano Company’s latest project on First Street.

However, a significant difference between the Burbank projects and the Chinese variety is how the heavy hand of the Chinese government influences their city planning process. As Jennivine Kwan, vice-president of international operations at the US Green Building Council told the China Business Review that the Chinese government’s role in urban planning makes it easier to create sustainable communities. “China is one of the few places in the world that actually decides where a city is going to happen. They actually build the city,” Kwan said.

This difference is significant, and something Burbank residents might consider as they evaluate promises from our local developers to build green, self-contained communities. While all of these promises of sustainability are of course appealing on their face, the reality is that Burbank lacks the transportation infrastructure necessary to make a car-free lifestyle feasible. Post-war city planners went in a completely different direction with our town. For better or for worse, Burbank was built for car culture and to fulfill a postwar vision of a suburban utopia. Burbank residents would do well to consider that those decisions can’t be undone by simply building a handful of high-rises with low-flush toilets.

Don’t we have enough hotels in Burbank?

There may be a reason all these development projects include plans for new hotels. Consider this, from The Washington Post:

“Hotels, which often come with prime real estate, big-name brands and a promise of stable returns, have become an especially popular parking space for China’s billions.”

The interest by Chinese investors in the hotel market — and especially in multi-use projects that include hotel and office space — stems from a desire to capitalize on the relative stability of that sector, as well as in increase in Chinese tourism, especially by middle class Chinese, according to research analysts at HVS financial services. They report that according to the National Travel and Tourism Office, 2.19 million Chinese visitors traveled to the U.S. in 2014, a 21% increase over the prior year. These visitors contributed over $2.3 billion in travel spending. Moreover, the analysts continued, U.S. inbound travel from China is expected to continue to grow, and Chinese investors have been focusing on acquiring mid-scale hotels to capture the demand from the country’s middle-class.

That the projects awaiting approval in Burbank comply exactly with the needs of this particular investor group may not be a mere coincidence.

Who Can Afford to Live in These Apartments?

A major concern for cities that have seen a spike in Chinese investment – from Silicon Valley to Arcadia to downtown Los Angeles — is that the influx of foreign funds resets rents to a level that puts apartments out of reach for local residents. Yes, Burbank’s proposed projects would add thousands of rental units to our city’s housing supply, but with rents set at about the Los Angeles average (about $2,000 for a one-bedroom), the projects would do little to address the city’s shortage of affordable housing (the median household income in Burbank is about $66,000 a year).

So, why would developers build apartments most people in Burbank can’t afford?

While it’s true that for middle class and wealthy Chinese families, buying — not renting — is generally a more attractive option, the reluctance to rent might be overcome by one of our city’s noted strengths: the reputation of our local schools. A review of Burbank single-family home listings on Juwai.com indicates that sellers recognize the value in promoting their proximity to Burbank’s well-regarded schools. “Walk to award-winning Bret Harte Elementary,” says one listing. “Close to John Burroughs High School,” another notes. “Award-winning schools are within walking distance of the front porch,” yet another listing brags.

According to The New York Times, “education plays an outsized role” in the real estate decisions of Chinese families, and those middle class families who can’t afford to buy a home in a top school district like Palo Alto, for example (where prices have skyrocketed in recent years) will often rent an apartment to allow their children to attend American high schools and state universities. Some 23,500 Chinese students were enrolled in American high schools in 2013, the last year for which such numbers are available (the number is probably higher now), and according to the Institute on International Education, almost a third of international students at American Universities are Chinese.

If, in fact, the ultimate goal of our local developers is to sell these developments to Chinese investors, marketing these apartments to Chinese families makes perfect sense. The planned 12-story apartment building across the street from Burbank High School, for example, seems particularly well-located for families hoping to take advantage of educational opportunities in Burbank. And while Burbank would certainly be enriched by this addition to our culturally diverse community, it’s fair for us to consider the potential impact of a large influx of short-time residents who have an agenda other than making our city their home, and no stake in its future.

Why It Matters

As our city considers whether to give the go-ahead to a series of major development projects that will inarguably change the landscape of this city forever — whether one believes that change will be for better or for worse — it’s necessary to consider as many potential outcomes as possible.

An argument can be made, of course, that in a profit-driven global economy it’s completely unreasonable to expect a developer to consider a community’s wish that ownership of its prime real estate remain in the hands of those with a personal stake in its city. Capitalism dictates that decisions be based on profit margins alone.

And, of course, there is the gaping hole in Burbank’s budget that must be addressed. It might be true that development — even development intended to maximize profits at the expense of local ownership — is the price we must pay if we want to fund Burbank’s beautiful parks, libraries, and schools. Maybe the cost of living in beautiful downtown Burbank is selling off beautiful downtown Burbank piece by piece.

However, if this is the choice that must be made, residents should approach it with their eyes wide open. If our local developers are indeed operating with an eye on the Chinese market, we need to consider all the possible ramifications.

For example, we might ask:

Is the recent trend of Chinese investment a repeat of Japanese investment in U.S. real estate in the early 1990s? (That didn’t end well).

Is building developments tailored to Chinese investment a sound financial bet, given the recent slowing of the Chinese economy?

What if our local developers have overestimated the zeal of the Chinese investor, and later discover there are no great profits to be made off their building folly? Will they just walk away? And if so, what will become of our downtown?

Alternatively, what if our local developers’ bets pay off — are we, as a community, okay with selling off downtown Burbank like so many pieces of Monopoly property?

As residents we have a lot to consider, but it all comes down to this:

Fundamentally, do we think development in our city should be be aimed at creating spaces where we can live, work and raise our families? Or should building projects be tailored to make them attractive to buyers in the global marketplace, for whom our city is nothing more than another place to turn a profit?

We need to have a conversation where we consider the risks and benefits of both scenarios — with regard to our budget, certainly, but also in terms of what kind of future we, collectively, envision for our city. Most importantly, we need to have this conversation now — before our City Council gives these projects the green light — and it’s too late.

Links:
https://www.washingtonpost.com/business/capitalbusiness/the-latest-destination-for-chinas-billions-us-hotels/2016/03/28/10afbd76-ec47-11e5-b0fd-073d5930a7b7_story.html?utm_term=.9ab546b216c1
https://www.nytimes.com/2015/11/29/business/international/chinese-cash-floods-us-real-estate-market.html?_r=0
https://www.chinabusinessreview.com/chinas-green-building-future/
(https://www.forbes.com/sites/ellensheng/2016/11/23/china-oceanwide-mixed-use-building-us/#cac4b1a75890)
https://www.forbes.com/sites/edfuller/2016/12/09/chinese-investments-in-us-hotels-accelerates-with-hna-groups-25-stake-in-hilton-worldwide/2/#169c99444978
http://www.latimes.com/business/la-fi-0825-china-dtla-snap-story.html
http://labusinessjournal.com/news/2014/sep/17/chinese-investment-group-sets-flag-burbank/
http://www.crenews.com/top_stories_-_free/cassidy-turley-unit-brings-asian-money-to-us-property-deals.html
https://www.nytimes.com/2015/11/29/business/international/chinese-cash-floods-us-real-estate-market.html?_
http://www.latimes.com/business/la-fi-china-hilton-hna-20161024-snap-story.html
https://www.hvs.com/article/7764/chinese-investment-trends-in-us-hotel-real-estate/
https://www.forbes.com/sites/ellensheng/2017/01/31/chinese-investment-in-overseas-real-estate-hit-record-high-in-2016/#71509e637971
https://www.forbes.com/sites/ellensheng/2016/12/23/how-u-s-real-estate-sales-could-be-affected-by-chinas-capital-controls/#19418c6c2820
https://www.thestreet.com/story/12867525/1/how-chinese-investors-play-us-property-without-leaving-home.html
http://asiasociety.org/files/Asia%20Society%20Breaking%20Ground%20Complete%20Final.pdf
http://www.constructiondive.com/news/290m-chinese-investment-revives-plans-for-1b-gehry-designed-los-angeles-c/434004/
https://www.chinabusinessreview.com/breaking-ground-chinese-investment-in-us-real-estate/
http://la.curbed.com/2015/12/16/10620610/downtown-los-angeles-metropolis-greenland-china-ghost-town
http://www.latimes.com/business/la-fi-0825-china-dtla-snap-story.html
http://www.scpr.org/news/2015/12/15/56174/who-will-be-living-in-downtown-la-s-new-mega-condo/