The U.S. commercial real estate (CRE) market is on the mend and it’s thanks in no small part to the ravenous appetite of overseas investors. Real Capital Analytics reports that foreign investment in the U.S. CRE market has been on the rise for the last three years, from landmark office buildings in Manhattan to condo projects in Miami and beyond. Experts say it’s due to foreigners who are looking for safe havens in which to store their riches, and U.S. commercial property has proven to be a great store of value, despite recent market woes. For more on this continue reading the following article from National Real Estate Investor.
Foreign investors continue to snap up ownership stakes in major landmarks ranging from Manhattan office towers to Miami condo projects. That appetite for U.S. commercial investment property shows no signs of slowing any time soon.
The volume of foreign capital flowing into commercial real estate investment has been on the rise for the past three years and the sales activity in 2013 is no different. During the first half of 2013, transaction volume was already ahead of the same period in 2012 by 63 percent. Year-to-date sales as of Sept. 1 show $22.2 billion in closed transactions, which is on pace to exceed the $27.6 billion that occurred last year, according to Real Capital Analytics.
Much the same factors driving U.S. investors to buy commercial real estate property are fueling foreign investment. There are huge sums of money stockpiled throughout the world looking for safe investments, notes John Stone, CCIM, principal, managing director of Multi-Family Services / Foreign Investments at Colliers International in Clearwater, Fla. The perceived “safety” of the U.S. is one of the big drivers for that influx of capital. “The U.S. is about as safe of a place as you can put your money and get a reasonable return on it,” says Stone.
All you have to do is open a newspaper to see the unrest that is happening around the globe in areas such as the Middle East and Korea and overbuilding in China, agrees Stephen Collins, an International Director in Jones Lang LaSalle’s Capital Markets Group. According to JLL’s 2012 Transparency Index, the U.S. is the world’s most transparent places to invest capital followed by the United Kingdom and Australia.
The saber rattling by North Korean leader Kim Jong Un prompted South Korean investors to start deploying capital. South Korean investors have spent nearly $1.5 billion this year acquiring properties in San Francisco, Houston, Chicago and Washington, D.C. For example, Jones Lang LaSalle brokered the sale of 225 W. Wacker Drive in Chicago to South Korean investment manager Mirae Asset Global Investments in May for $218 million.
Canada leads the charge
Canada continues to dominate the foreign capital buying market in the U.S. for all commercial property types. Canada accounts for one-third of the total foreign investment sales that have occurred year-to-date as of Sept. 1, according to RCA. Other top countries that have topped the $1 billion mark this year include Singapore, China, Germany, South Korea, Israel, Switzerland and Australia.
Investment strategies vary widely. Florida, for example, has seen an uptick in acquisitions from Canadians buying apartments. Canada’s multifamily investment activity in Florida rose 8 percent during the first half of the year to reach more than $163 million in sales, according to RCA. “We see a lot of people from Montreal and Toronto coming here because it is on the East Coast,” adds Stone. Investors want geographic diversity, and they also are finding better returns than what they can get at home, he adds.
The field of foreign buyers is increasingly crowded with private investors and institutions from a variety of countries, as well as sovereign wealth funds such as the China Investment Corp., Government of Singapore and Korea Investment Corp. looking for very large buying opportunities.
The hottest markets for international capital in the U.S. continue to be the gateway cities, including coastal cities of Los Angeles, San Francisco and Seattle, New York, Boston and Washington, D.C. The favorite markets in the mid-section of the country are Houston and Chicago. “I think foreign investors are going to have to start looking at secondary markets such as Atlanta, San Diego and Denver,” says Collins. To some extent, that geographic expansion is already starting to occur. For example, Collins is currently working with Chinese investors that are looking at deals in Atlanta.
The stockpile of capital available globally and the continued search for favorable yields is expected to continue to fuel foreign investment in the near-term. “I think 2014 is going to be another record year for the same reasons that foreign capital has been on the rise for the last three years,” notes Stone. Chaos in other parts of the world such as the Middle East and the economic challenges still facing Europe are driving capital in those markets to look for more stability, he adds.
This article was republished with permission from National Real Estate Investor.