Open Door Policy in San Gabriel Valley

Ignoring the Downturn, Insular Market Thrives

By MICHAEL STREMFEL
Staff Reporter

Somebody forgot to tell Yan Cheung there's a recession going on.
By month's end, the Chinese-American entrepreneur plans to break ground on a 40,000-square-foot headquarters building in the City of Industry for her recycling company, America Chung Nam. She is simultaneously developing a 20,000-square-foot spec office building next door.

"Where's the recession? (America Chung) is not experiencing that," said Shan Lee of Daum Commercial Real Estate, who brokered the America Chung deal.

Company founder Cheung exemplifies a force that is enabling the San Gabriel Valley to power through the bad times relatively unscathed. That force is Chinese-American entrepreneurship.

The entrepreneurs are capitalizing on their ties to China, which recently joined the World Trade Organization and is rapidly expanding its role as the world's low-cost producer of everything from toys to clothing to furniture.

"Even the Koreans are setting up their factories in China now," said one local Chinese bank official. "(Entrepreneurs) are coming here from China, setting up distribution operations and selling their (China-made) products to Home Depot, Wal-Mart and all the big U.S. chains."

The resultant rise in Chinese-Americans' economic clout is most visible along the San Gabriel Valley's commercial corridors Colima Road, Gale Avenue, Valley and Atlantic boulevards where retail centers with sprawling parking lots are jammed at all hours of the day and night. Virtually all signs feature Chinese characters, many without a single word of English.

"It's just unbelievable how the demographics of that area have become almost totally Chinese," said Jack Tweedy, manager of the corporate real estate loan department at Cathay Bank in downtown Los Angeles.

What began as a small collection of Chinese-American merchants and vendors in Chinatown north of downtown L.A. early in the 20th century is now fanning out to the east and south. Waves of Chinese immigrants in the 1970s, '80s and '90s set up businesses in Monterey Park, with wealthy business owners taking up residence in nearby San Marino and Arcadia.

In recent years, however, a larger wave has been pushing the Chinese population farther east. Entrepreneurs like Cheung are setting up ever-larger businesses in the City of Industry and taking up residence in surrounding communities. First it was Hacienda Heights, where a massive Buddhist temple was built, then Chinese-Americans began buying homes farther eastward Rowland Heights, Diamond Bar and Walnut.

"Now the Chinese are migrating all the way out to Chino Hills, and following along the 57 and 55 freeways in the foothills going down to Irvine," Tweedy said.

While the outer edges of the Chinese migration are pressing into San Bernardino and Orange counties, the heart of the population remains in the San Gabriel Valley.

Growing dominance

"Four out of every 10 (commercial real estate) transactions are to Asian companies relocating into the City of Industry," said Kent Valley, a senior vice president at Majestic Realty Co., which is developing America Chung Nam's new headquarters on a for-fee basis.

The most common type of commercial real estate investment made by Chinese-Americans in the San Gabriel Valley involves small industrial buildings (10,000 to 15,000 square feet), with support office space attached. Most of these entrepreneurs run small import/export businesses in such industries as apparel, computers, food processing and furniture.

"Japanese and Americans have more of a tendency to form groups and operate as teams, growing into big chains or corporations. But Chinese like to be their own bosses," said Vilma Chau, a veteran retail broker at Lee & Associates. "They might have two or three partners, but it's almost never a big group."

These Chinese-American entrepreneurs generally end up owning the buildings where their businesses are housed.

"A high percentage of American business owners prefer to lease their buildings because they don't want to tie up their capital, but Chinese like to own their property, not lease," said Peichin Cheng, owner of CGM Development Inc. in Industry.

Cheng should know. Since 1996, she has developed 14 industrial buildings in the City of Industry, all but one of which she has sold to Chinese owner/users.

The one structure she has retained is divided into eight units ranging in size from 10,000 to 17,000 square feet. She shares one of the units with her husband's apparel company, and leases out the others to Chinese-American entrepreneurs.

Now Cheng is poised to meet her successful tenants' needs.

Projects in the works

In July, she plans to break ground on two new buildings, one of 80,000 square feet and the other 54,000.

"I have a serious buyer prospect for the 80,000-square-footer," Cheng said. "If that goes, I'll keep the 54,000-square-footer and cut it into 20,000 and 34,000-square-foot spaces so when my current tenants grow up, they can move into this other building."

If recent history is any indicator, she won't have any problem finding takers for the new buildings. San Gabriel Valley businesses absorbed 1.7 million square feet of industrial space and 257,433 square feet of office space in the fourth quarter ended Dec. 31, according to Grubb & Ellis Co. That pace is up sharply for office space absorption, although 18 percent slower for industrial space than in the prior quarter.

"There is a large concentration of computer hardware and software distributors in this area, and they have been hit (by the recession)," said industrial broker Lee. "But the bulk of (the commercial tenant base) is in the trading business, which is still thriving."

Among those thriving is America Chung Nam, which generated $255 million in 2000 revenues, according to company controller Stephen Lo, who said 2001 financials had not been tabulated yet.

But even at the 2000 revenue level, the company qualified as the 54th-largest woman-owned business in the United States, up from No. 74 the prior year, according to Working Woman magazine's annual ranking.

While Cheung is an exceptional case, she is far from the only Chinese-American entrepreneur enjoying success in the San Gabriel Valley.

"Ten years ago, for a Chinese business to have 100,000 square feet of space in the San Gabriel Valley was pretty rare," said Lee. "But right now there are a lot of them I can easily number 20 to 50."

Majestic Realty's Valley also noted the trend.

"We see Chinese companies that started out 10 years ago in 10,000- or 15,000-square-foot buildings now transitioning into the 100,000-square-foot level," he said.

Majestic is currently negotiating a building deal with a Chinese food processor looking for 200,000 square feet. Valley declined to name the company, citing competitive reasons.

Spiritual alignment

Besides developers, another group benefiting from the Chinese expansion are Feng Shui consultants, who are being called in to provide guidance on a growing number of San Gabriel Valley projects. (Feng Shui is the ancient Chinese practice of physically orienting one's surroundings to align with the natural order of the universe thereby enhancing wealth, health and happiness.)

"Most of our Asian tenants have their buildings Feng-Shuied," said Valley of Majestic Realty. "Whereas we would normally align a building to be parallel with the street, they have us put it more to the true north, put a fountain in the front entrance, round off corners of the building there are a bunch of things they do."

Chinese tenants and owner/users also file for address changes on their buildings, to get "lucky" numbers.

"They also do that with their phone numbers," Valley said. "You see a lot of threes and eights they'll work hard to get phone numbers or addresses with those in them."

With all the new action, the City of Industry is becoming essentially built out. As for the future, Cheng said she would probably set her sights next on Ontario, where available land is still plentiful. "Everything is pretty much developed already in the City of Industry, unless we find an old building and demolish it," she said.

But Chinese-Americans, like most other L.A.-area residents, have a strong preference for being centrally located rather than out on the urban fringes of the Inland Empire. And that leads to comparisons between the San Gabriel Valley and Hong Kong or Taiwan, where real estate values have constantly risen due to land scarcity. Some Chinese view the San Gabriel Valley as something of an island unto itself.

"The Chinese like to live all in the same area," said Edward Lo, chairman and CEO of United National Bank in San Marino. "And since there is scarcity in the San Gabriel Valley, there is scarcity."

Among the largest centrally located projects now underway is a $30 million commercial project being developed by Lancer Investments LLC on prime Valley Boulevard frontage in the city of San Gabriel.

As further evidence of the economic insulation the area is enjoying thanks to its ties with China, the Lancer project is to be anchored by a 209-room Hilton hotel and will feature 50,000 square feet of retail space atop subterranean parking. Developers in other areas of Los Angeles, as well as nationwide, have largely abandoned or indefinitely delayed hotel projects due to a severe slowdown in the hospitality industry, especially following Sept. 11.

"We don't feel nervous at all," said David Le, property manager for Lancer. "We are targeting overseas tourists from Asia and Asian-Americans from other parts of this country. There is very strong demand for both the hotel and retail space."

Le said 50 percent of the retail space has already been leased, even though the project is not scheduled to break ground for another month or so. The retail space is slated to be done next spring, with the hotel opening next summer.


'Put it in the Bank'

Despite the recession, Chinese banks in the San Gabriel Valley are enjoying steady demand for real estate loans from investors and developers alike. But that demand is nowhere near enough to soak up the flood of cash pouring in from Chinese-American depositors.

"(Chinese) are generally not comfortable with the stock markets and other types of investments. So they put it in the bank," said Edward Lo, chairman and chief executive of San Marino-based United National Bank.

For banks, it's too much of a good thing. Because most commercial real estate loans in the San Gabriel Valley are in the $3 million-to-$5 million range, they are having trouble making enough loans to soak up the deposits.

The resulting supply/demand imbalance is caused by a confluence of factors.

First, Chinese-American families tend to save more of their incomes than the average U.S. household, and the number of such families in the San Gabriel Valley continues to grow. Second, the steady stream of immigrants moving into the San Gabriel Valley from mainland China, Taiwan and Hong Kong are bringing sizable bundles of cash and promptly depositing those bundles into local Chinese banks.

Even when venturing into real estate, investment strategies are conservative. "Our customers tend to put up larger downpayments in general, 25 to 30 percent on a home mortgage and as much as 50 percent on a large commercial loan," said Dominic Ng, chairman and chief executive of San Marino-based East West Bank, the largest Chinese bank in L.A. County. "They do it to be safer, just to make sure they don't get themselves in trouble."

Even when things go wrong, Chinese developers are safer bets for banks than are their non-Chinese counterparts. "Because Chinese developers tend to put more of their own money into projects, they'll work very hard to make it work," Lo said. "And if anything goes wrong, they will go to their relatives for help in paying off the loan. Bankruptcy is much lower for Chinese developers. It's a cultural thing."

Michael Stremfel

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