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NYC Becomes Billionaire Family's Haven From China Property Crash

Bloomberg
Bloomberg11/30/2022 01:16 PM GMT+08  • 6 min read
NYC Becomes Billionaire Family's Haven From China Property Crash
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(Bloomberg) -- In a townhouse facing St. Patrick’s Cathedral in Midtown Manhattan, the power couple behind one of China’s greatest commercial property empires is writing the playbook for how to move a fortune out of the Communist nation. Zhang Xin and her husband Pan Shiyi, who grew Soho China Ltd. into a behemoth that reshaped the country’s skylines, have built a discreet family office called Seven Valleys — named for the book written in Persian by the founder of the couple’s Baha’i faith.

Two of its biggest assets are as iconic to New York as the architecture they developed in Beijing: stakes in the General Motors Building on Fifth Avenue and Park Avenue Plaza in Midtown. Now, after the implosion of the Chinese property sector, the combined equity value of just these two investments — about half a billion dollars — is roughly the same as the couple’s holding in the Beijing-based company responsible for their wealth, according to the Bloomberg Billionaires Index.

Zhang and Pan’s story is a case study in how to be prepared. Their five-part strategy — build a successful business in China, list it on a global exchange, pay out billions of dollars in dividends, set up a family office abroad and buy up foreign real estate — means their fortune is relatively protected while other Chinese billionaires have seen their riches crumble after running foul of President Xi Jinping’s clampdowns“Many of China’s other real estate tycoons are likely jealous,” said Brock Silvers, managing director at private equity firm Kaiyuan Capital, adding that the couple’s decision to distance themselves from the growing instability of China’s real estate sector was “prescient.” The duo didn’t respond to requests for comment sent through both Soho and Seven Valleys.

New Profile

Zhang and Pan are now fixtures of US society. They’re often pictured attending high-profile sporting and social events, have both been senior fellows at Harvard University, and Zhang is on

the Council on Foreign Relations’ global board of advisers. They’re also prominent philanthropists in China — something increasingly important for billionaires who want to stay in the regime’s good graces.

See also: China's economy jumping into the Year of the Rabbit

By contrast, their compatriots back home have seen their fortunes crushed. China Evergrande Group founder Hui Ka Yan lost more than $30 billion since 2020 and was forced to dip into his

own pockets to help his operations, while Sunac China Holdings Ltd.’s Sun Hongbin is trying to put together a restructuring deal after the company defaulted on a dollar-bond payment.

China’s plan for a sweeping rescue package has brought some relief to developers this month, but only on the margins. The couple haven’t been immune to the carnage. Last year, Blackstone Inc. decided not to proceed with a US$3 billion takeover of Soho after Beijing authorities indicated the transaction wouldn’t be welcome and could impact the private equity firm’s future dealmaking in the country, according to people with knowledge of the matter. Blackstone declined to comment.Soho’s stock is down almost 90% from its peak in 2007.

See also: Shares in Tencent nearly double from October low as China prepares to end crackdown

Right Moves

What’s saved their personal fortune was the decision to list Soho on the Hong Kong stock exchange in 2007 rather than in China, said four people familiar with the matter, who asked not

to be identified discussing private information.

Goldman Sachs Group Inc., who Zhang worked for in London after earning a master’s degree in development economics at the University of Cambridge, handled the listing. Unlike with mainland China, where residents are given a strict annual overseas capital quota, money can move freely out of Hong Kong and be used to purchase assets abroad. The bulk of the payments made by Soho funded US real estate deals, the people said. Most of the disbursements were between 2015 and 2017, including special dividends and return on capital.

The assets, staff and reporting requirements of Zhang and Pan’s family office are entirely in the US, according to a person familiar with the firm. Seven Valleys also manages a portfolio of stocks, bonds, venture capital and private equity, the person said, asking not to be identified discussing private information.

The GM Building, home of Apple’s Manhattan flagship store, is worth about $3.2 billion, filings from majority owner Boston Properties showed this year, making it among the most valuable

office towers in the US. The Soho founders have a 20% holding, a person familiar with the matter said. The couple in 2011 bought 49% of Park Avenue Plaza, the 1.2 million-square-foot building that houses firms including Morgan Stanley, property records show.

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Philanthropy Focus

The couple’s US philanthropic efforts got off to a rocky start. They funneled cash into sponsoring scholarships for Chinese students at Harvard and Yale University starting in 2014, triggering criticism on Chinese social media for not donating to the country where their fortune was built (each of their sons ended up studying at those schools).

Now, though, many of their donations are less controversial, such as educational programs in Pan’s hometown in the northwestern Gansu province. In September, Pan and Zhang resigned as Soho’s chairman and chief executive officer, saying they wanted to focus on such philanthropic pursuits. Their exit was “unusually elegant,” said Geoffrey Jones, a professor at Harvard Business School who co-authored a case study on the couple’s philanthropy.

“It sort of chimes with Xi’s insistence that business has to do good and contribute to common prosperity, even though they have actually got a lot of their wealth out. So they are unlikely to face the kind of retaliation that rich families exiting are likely to face,” he said.

As more of the rich try to leave China — or at least prepare a backup plan — the Soho founders show one way it can be done, even if such a story would be less likely today given the nation’s flailing property market and tightening capital controls.

“Their timing was among the best,” said Victor Shih, an associate professor of political economy at University of California San Diego, adding the offshoring of assets reflect a “clear-eyed assessment of the inherent weakness of property rights in China.”

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