How Foreign Investors Can Deal with Higher Risks in a Down-turning Market

Foreign investors continue to be interested in U.S. assets. But they need to tread carefully.

U.S.-based private equity funds have more than $300 billion waiting to invest in commercial real estate. That’s a lot of money chasing quality deals, while some experts—including Bank of America/Merrill Lynch—warn that we are coming close to another recession.

What can that mean for foreign investors looking to invest in the U.S. market? Possibly higher risk, since flush domestic investors will have pushed up the price of quality investments, perhaps even above the asset’s inherent value. An investor not fully knowledgeable of the market—both locally, regionally, and nationally—may end up paying above top dollar just as a market decline hits, which could be disastrous. Foreign investors often take a much longer view in terms of the expected ROI, making them attractive partners for U.S. developers. However, given the situation, foreign investors need to be acutely aware of some of the pitfalls facing those who are willing to invest in the United States. Recent examples provide some perspective.

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