The role of foreign investors in the U.S. real estate market ebbs and flows with a host of factors. Though not quite as predictable as the tide, its movement often is in tandem with the market’s fundamental drivers. Currently two factors — the decline in commercial real estate prices and the constraints on available capital to finance or refinance — align to make this a very favorable time for foreign investors with sources of equity or debt to acquire U.S. real property.
When these aspects of the U.S. market are coupled with global factors such as favorable currency exchange rates, instability of various kinds in other countries, and the desire to achieve both product and geographic diversification on a worldwide scale, the time appears to be ripe for foreign investment capital to come to the U.S.
The answers to certain key questions about the prospects for foreign investment in U.S. real estate in the next year or two will help stateside commercial real estate professionals understand the current trend and perhaps profit from it.
Is the current market climate likely to attract more attention from foreign investors?
Foreign investors looking to the U.S. now likely are experienced investors who have invested in a number of countries around the world. These savvy investors believe that they can take advantage of the problems that the U.S. commercial real estate industry currently is facing. They believe that the U.S. offers the best global opportunity for capital appreciation at this time, while also being the safest country in which to invest. They can be aggressive and effective negotiators and can wield their foreignness as both a sword and a shield in negotiations. They know how to make a deal but also are willing to walk away if the deal doesn’t suit them.
U.S. market dynamics clearly give any investor who has capital or access to ready capital the opportunity to make investments in good properties at a greatly reduced cost basis, and often well below replacement cost. We should expect that many foreign investors will take advantage of this opportunity in the next two to three years. This wave of investment will have the beneficial effect of helping depressed U.S. real estate markets find and define the bottom of the current cycle and help lead to an eventual recovery.
by Philip G. Skinner and Abe J. Schear