Driven by the globalization of the commercial real estate asset class, along with much more mobile Asian investment money from high prices and low yields at home, a rising tide of foreign real estate funds is heading for U.S. shores. The prestige gained in U.S. core market acquisitions is another motivator in the renewed readiness to spend in the U.S.
Real estate firm CBRE recently called the U.S. a "top target" for Asian real estate investment citing a swell to $3.3 billion invested in just the first quarter of 2015, up from a total $7 billion in all of 2014. Cushman & Wakefield’s annual global real estate assessment showed that the U.S. pulled ahead of China as the top investment market in the world in 2014.
That’s all good news for commercial property sponsors, but it’s also good news for U.S. investors. The barrier to entry for Asian investors is finding the right partners, and that means opportunity for domestic investors.
Many foreign investors need quality partners to invest with, to and through the process. They need partners who can originate deals, underwrite, assemble decks and manage the investments and eventually the ongoing administration needed in a commercial real estate project. Also necessary is a partner that can navigate the U.S. regulatory waters around the investment.
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Commercial real estate investors looking for equity can find those Asian partners and establish relationships. But right now there is a lot more money interested in coming in than foreign companies who have found the right partners to come in with.
While large projects draw direct relationships, such as Greenland Holdings investment in the Atlantic Yards project in Brooklyn, relationships can be also be established through traditional REITs, real estate services companies like CBRE or technology platforms like RealConnex (disclosure, I am the founder and CEO of RealConnex).
Individual investors can invest directly in REITs that specialize in commercial real estate or buy stock in real estate brokering firms like CBRE. Prominent and public REIT Boston Properties, for instance, owns the controlling interest in the General Motors Building in New York, but in 2013 in a deal brokered by CBRE, added Chinese investment partners, the family of real estate developer Zhang Xin.
Of course, that doesn’t mean real estate investors can just open the door to let money flood in. My experience with Asian investments in other markets — I was a commercial real estate developer in Europe before coming to the U.S. — has been that deals need to be well-underwritten, well-explained and typically in a city the investors are familiar with, such as New York or Los Angeles. Legal and accounting firms with well-known brand names also are important in expediting the process.
While some draw parallels between Japanese investments in U.S. commercial real estate in the ’80s, this wave is different with many more signs of long-term investment. According to Deloitte research, Chinese investors are more conservative, buy in at reasonable prices and express interest in partnering to learn how to develop and maintain real estate in the U.S.
The appetite for U.S. commercial real estate from places such as China, Hong Kong and India now sitting on the sidelines could fund fully all of the commercial projects in New York right now. That, of course, won’t happen; however, we should recognize the potential is huge.
This article was republished with permission from TheStreet.