Category: Foreign Investment

Foreign Investors Ramp Up Multifamily Acquisitions

Even as the overall volume of cross-border investment in U.S. real estate slows down, apartment properties remain popular with foreign buyers.

Foreign investors continue to spend money on apartment properties in the U.S., even while they may be slowing down on purchases of assets in other sectors. In the second quarter, cross-border investors became net sellers of U.S. commercial real estate overall for the first time in seven years, according to Jim Costello, senior vice president with research firm Real Capital Analytics (RCA).

But “we are not seeing any slowdown from global capital into multifamily,” says Brian McAuliffe, president of capital markets with real estate services firm CBRE, based in Chicago.

These investors are lured by the ongoing strong demand for apartments that has shrunk vacancy in the sector. In addition, because apartment buildings rely on their income on dozens or sometimes hundreds of different tenants, their incomes are viewed as less volatile than, for example, a single-tenant office building, according to McAuliffe.

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Foreign Investment in U.S. Commercial Property Drops Almost 50%

Deals involving foreign investment in U.S. commercial real estate totaled $16.9 billion in the first six months of 2019.

(Bloomberg)—Foreign investment in U.S. commercial real estate plunged in the first half of 2019 as signs of a global economic slowdown made buyers more cautious.

Deals totaled $16.9 billion, down from a record $32.7 billion in the same period last year, according to a report by CBRE Group Inc. Much of the decline was in spending on large mergers and acquisitions, which tumbled 83%, the brokerage said. Individual asset and portfolio sales fell 26%.

A Pause on Deals

The current slowing economy and uncertainty over where U.S. interest rates were headed have caused many overseas investors to hesitate on deals, according to Spencer Levy, chairman of Americas research for CBRE. That may change as buyers get more clarity.

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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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Special Incentive for Property Buyers: A Foreign Passport

When Natalia Yavorska and her husband first considered buying a holiday retreat somewhere warmer than their Ukrainian homeland, they were drawn to the Canary Islands.

A vacation to the Spanish archipelago in 2012 left them eyeing land on the southwest coast of the island of Tenerife, and while the initial attractions were the golf courses and ocean views, the deal was sealed by a special extra that came with their purchase.

“The fact that we could get a Spanish residence visa from buying real estate was very important, and that made it an easy decision,” said Ms. Yavorska, a 60-year-old former banker from a town near Kiev.

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How the Interests of EB-5 Investors and CMBS Lenders Can Sometimes Be at Odds

Situations where a property changes hands or defaults may prove tricky for situations where an EB-5 project is financed by a CMBS lender.

A notable characteristic of the real estate capital markets over the last 20 years has been the ability to access non-traditional sources of capital for both debt and equity investment in U.S. commercial real estate. One such source is the EB-5 investment/visa program. Created by Congress in 1990, the EB-5 program creates a fast track for non-U.S. citizens toward a green card in return for capital investment in qualifying U.S. domestic businesses and projects. The EB-5 program has garnered its share of controversy for possible abuses, but can also lower the cost of equity capital for a developer.

An often overlooked issue is the interplay of EB-5 financing with the requirements of a CMBS lender, where the developer, EB-5 investor and CMBS lender have objectives that are in conflict, at least initially. In particular, the EB-5 investor may seek decision-making and investment accrual rights not acceptable to CMBS lenders.

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Uncertainty Chills International Apartment Investment

After a giant year in 2018, international investment in apartments slowed early this year, according to early data.

Rising interest rates and uncertainty about the economy’s prospects slowed the pace of investment in apartment properties during the first few months of 2019.

“The deal activity in January and February was light,” says Jim Costello, senior vice president for Real Capital Analytics (RCA), a data firm based in New York City.

Lower interest rates are expected to lure some investors back to make deals later this year. And whatever course the economy takes in 2019, apartment properties are likely continue to attract buyers.

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Foreign Investors Find Trophy Assets in Unlikely U.S. Gold Mines

Foreign investors are buying up properties in Sunbelt states.

(Bloomberg)—U.S. properties in places like Denver, Phoenix, Philadelphia, and the suburbs of Atlanta have all drawn foreign investment this year as buyers look for growth outside the biggest U.S. metro areas.

Canadian investors topped the list of foreign buyers of U.S. real estate this year, as they have for a decade. Among those was Toronto-based Starlight Investments, which purchased apartment complexes in the suburbs of Atlanta and Phoenix through its U.S. fund.

“There were really only a handful of people when we first started looking at the suburbs, and that handful is now a larger number of people that are looking at those deals,” said Raj Mehta, global head of private capital and partnerships at Starlight. “We were increasingly seeing that jobs were moving from traditional Northeast and Northwest corridors into the sunbelt states.”

In the major markets of New York, San Francisco, Washington, Los Angeles, Chicago and Boston, commercial rents are already reaching record heights, and there’s less room to grow, so some foreign real estate investors are putting money into the next-best markets where they see yields rising.

Canada, China and Germany were the top foreign investors in U.S. commercial real estate this year and are making more deals outside the biggest metro areas, according to data from CBRE. The most popular second-tier markets for foreign capital this year include Dallas, California’s Inland Empire and Philadelphia.

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