Land of Opportunity
Foreign investors rejuvenate the U.S. commercial real estate market.
By Dave Liniger |
It's no secret that commercial real estate in the U.S. has had its fair share of
struggles as the economy gets back on track. But when compared to other parts of the
world such as Europe, which is experiencing sovereign debt crises and economic angst,
the U.S. is still one of the most attractive options for foreign investors with capital
Just as we've seen in the housing market, challenging times create great
opportunities in the commercial sector. Foreign investors recognize this, and they see
the value in investing in U.S. commercial properties. Savvy, professional commercial
brokers can expand their businesses to include this growing client base and be a part
of something big.
The numbers tell the story: For the first time since 2007, cross–border
acquisitions topped $7.8 billion in third quarter 2011. What's more, these buyers
accounted for more than 10 percent of all sales volume — another recent high,
according to Real Capital Analytics.
Underpinning global investment activity is a mix of buyers who are looking for
quality assets, investment safety, and high returns. U.S. commercial markets possess
these strengths, says George Ratiu, manager of quantitative and commercial research
with the National Association of Realtors.
"The U.S. is attractive to global investors because it has a mature and stable
economic environment, which provides investors with quality assets and capital safety,"
Ratiu says. "Another factor is the rising availability of investment capital in China.
While Chinese real estate continues to be a powerful magnet for international
investors, Chinese investors are looking to diversify their holdings, and the U.S. is
an ideal choice. Also, the soft dollar is making dollar–denominated assets a
relative good buy."
Canadians Lead the Way
Looking at the overall picture, our neighbors from up north are the largest group of
international investors, and they're flocking to the U.S. in droves. In 3Q11, Canadian
capital represented one–third of all foreign commercial acquisitions, followed
closely by Latin American and Asian investors, according to Real Capital Analytics.
Investors based in Hong Kong and China have also ramped up activity, with
acquisitions surging to nearly $1.5 billion in the past year — a major increase
considering these investors acquired practically nothing 18 months ago. South Koreans
are right on their heels, totaling well over $1.1 billion worth of commercial
investments over the past year.
The surge in Canadian acquisitions is a relatively new phenomenon, driven mostly by
strong economic conditions and a stable Canadian dollar, says Jim Fetgatter, chief
executive of the Association of Foreign Investors in Real Estate, a trade organization
that represents foreign investors interested in U.S. real estate.
"Canada's economy never went through the financial crisis we did during this
recession, so the U.S. is an ideal choice, plus there are limited investment
opportunities in Canada due to the smaller size of its commercial market," Fetgatter
It might be surprising to some that despite the influx of cross–border
acquisitions, purchasing U.S. real estate is actually a difficult endeavor for foreign
investors, due in large part to Foreign Investment in Real Property Tax Act
legislation. FIRPTA mandates that foreign investors be taxed on dispositions of U.S.
real property interests. It makes transactions more costly and time–consuming for
"No other type of foreign investor is taxed on capital gains in the U.S. except for
real estate investors," Fetgatter says. "The manner in which foreign investors tailor
their acquisitions for tax purposes depends on whether the U.S. has a double taxation
treaty with that country and what kind of investor they are. For example,
high–net worth individuals are taxed differently than foreign pension funds in
relation to how they're able to structure their investments."
Secondary Markets Gain Steam
Traditional commercial gateway markets such as Manhattan, which accounted for 40
percent of foreign purchases through 3Q11, are still the hot destinations for global
investors. But cities like Miami, Houston, Seattle, Dallas, and San Diego are making
gains in commercial investment activity.
In Miami, for example, foreign investors purchased more than $650 million worth of
commercial properties as of mid–October. Asian investors led the way, accounting
for about 63 percent of all foreign capital in the city, according to RCA data.
JM Padron, CCIM, broker/owner of Re/Max Commercial Associates in Fort Lauderdale,
Fla., is seeing this firsthand. Large multinational companies, such as Genting Malaysia
Berhad and Hong Kong's Swire Group, have recently announced major
multimillion–dollar investment projects in downtown Miami. And that's just the
"Asian investors are definitely prominent in South Florida investments, but we're
also seeing major players come in from Brazil and other Latin American countries;
Brazilians account for 35 percent of commercial buys in downtown Miami," Padron says.
"Israel also is an important investor in South Florida; the Dizengoff Group has
invested $85 million, mostly in anchored retail centers and bulk condo deals."
Nationally for foreign investment, office sales have recovered quite nicely,
accounting for over half of cross–border acquisitions as of June 2011 — a
65 percent year–over–year increase over 2Q10, according to RCA. The retail
and apartment sectors, however, recorded the largest gains, signaling an emerging
preference for those property types.
If 2011 numbers are any indication, more foreign investors will be looking to
diversify their holdings — and they'll be investing their capital in the U.S.
Dave Liniger is co–founder and chairman of Re/Max, one of the leading real
estate franchise companies with a global reach of more than 80 countries. Contact him