Four malls were built in so-called second-tier cities, like Hangzhou, which has 5.5 million people according to its municipal Web site. But in 2009 — before three of the malls had opened — Simon sold its interest and left China. The company told analysts that the cities lacked enough middle income consumers to make the centers profitable. Simon said it lost $20 million in the venture.
But in October, Simon’s chief executive, David Simon, disclosed that his company was in “serious discussions” about opening outlet centers in China with a joint-venture partner, and would make a decision in a couple of months.
Another major American mall company, Taubman Centers , the developer of the only major mall currently under construction in the United States (City Creek Center in Salt Lake City), is planning a foray into China. Last summer, Taubman bought TCBL, a retail consulting company based in Beijing. Robert S. Taubman, the chief executive, said the company planned to build, acquire and update malls throughout China. “It will be the full spectrum of what we do here,” said Mr. Taubman.
Other well-known names in North American real estate, including Hines Interests of Houston, Tishman Speyer of New York and Ivanhoé Cambridge of Montreal, are developing projects in China, all with Chinese partners.
To gain access to the huge Chinese market, they have had to brave significant language and cultural barriers, nurture close relationships with receptive local partners, and deal with layers of bureaucratic complexity as well as opaque and unpredictable regulatory and legal systems.
“You don’t want to get involved in a legal action because it won’t go anywhere,” said Daniel Winey, a managing principal at Gensler, an international architectural firm with a long track record in China. Gensler was the design architect for the Shanghai Tower, a supersize 121-story office, hotel and retail building now under construction in the architecturally striking Pudong section of Shanghai.
Many private equity investors that flocked to China in 2007, when real estate prices in the United States were soaring, have since left the country.
In China, real estate specialists point out, what gets built depends more on the government’s current goals and policies than on market forces. “It’s such a policy-driven market that you have to time not just the market cycles but also the policy cycles,” said Martin Lamb, the director of Asia Pacific real estate investment for Russell Investments. In recent months, the government has been trying to bring down home prices by tightening credit (though lately this policy appears to be easing). The Chinese have also been encouraging more development of mixed-use communities outside the urban cores and more consumer spending — and developers have been responding accordingly.
Hines, the developer of the Galleria malls in Houston and Dallas, completed the first phase of one mixed-use development — the 45-acre California Place in New Jiangwan Town in Shanghai — before selling its stake last year to two Hong Kong developers. In June, Tishman Speyer, whose properties include Rockefeller Center, began development of the Springs, an even larger project north of Pudong.
Portman Holdings of Atlanta and its partners have nearly finished transforming Jian Ye Li, a cluster of 1930s traditional-style residential buildings in Shanghai, into a mix of luxury apartments and furnished housing for temporary stays. Portman was the designer and one of the developers of China’s first mixed-use development, the 1990 Shanghai Center, where the Portman Ritz-Carlton hotel is located.
Of the commercial property sectors, retail seems to offer the greatest opportunities for foreign investors. American developers have played only a minimal role in the tightening office market in Beijing and Shanghai. Hines developed the new 21st Century Tower, a 49-story office building in Pudong with a Four Seasons Hotel, but sold its stake last year to a Hong Kong company.