The U.S. is poised for a surge in international investment. “I think in the next six months and even beyond, we expect to see an increase in the flow of international investors [who are] investing in U.S. real estate,” says Shahab Moreh, partner at Mazars USA in New York. Moreh leads Mazars' real estate practice area.
“One of the big drivers of this trend is the Tax Cuts and Jobs Act,” he says. “That, in a nutshell, is reducing corporate tax rates in the United States, and foreign investors are going to receive the benefit of reduction of corporate taxes.”
Moreh also points out that as international investors look to diversify, “there's a lot going on in politics around the world. There's instability in many regions, and [investors] still do view the U.S. as a stable geographic area that they'll continue to invest in.”
Investment will come from Canada, and Korean and European - particularly German - pension funds, as well as some Israeli pension funds, says Moreh. There's been more scrutiny and restriction on Chinese real estate investments in the U.S., he adds, although Chinese capital that's currently in the U.S. may move between asset classes to maximize rates of return.
International investors are partial to gateway cities, he notes. Popular U.S. markets include New York, Chicago, and the West Coast. Los Angeles is a favorite, but also Sacramento, Calif.; San Diego; San Jose, Calif.; and even as far north as Seattle. He also sees condominium development opportunities in the Miami area, and Israeli bond investors doing transactions in areas such as Baltimore and Texas.
What does this mean for commercial real estate professionals? The most successful international partnerships, says Moreh, “are the ones that understand the cultural differences and are able to manage the relationship. Also, international investors are sensitive to the deal structure and the tax consequences of their investment. They're looking for their joint-venture partners here to have a good handle - and have the right advisors - to help in due diligence of the portfolio, to advise properly on the tax structuring, and to be able to assess the fair value of the investment opportunity.”
“There's great opportunity in this space,” he adds. “There's a lot of flow of capital coming in, and those who will benefit are those who have a focus on targeting international prospects and are able to build relationships. And it is competitive, so they have to be able to show their expertise and their value proposition.”