The recent recession effectively altered the way we viewed the housing industry. Nearly instantaneously, housing prices went from record highs to record lows. Loan practices became increasingly strict, as to avoid a similar situation from happening again. However, while not as widely publicized, foreign investment into U.S. commercial real estate suffered a dramatic decline. As the colander draws closer to 2015, we are seeing a material rebound of cross-border investment dollars into real estate, with Asia significantly increasing its overseas positions. For all intents and purposes, overseas investors are extremely bullish on U.S. real estate.
While overseas investments originating in Asia have yet to exceed their 2007 pre-recession highs, investment amounts are on the rise. According to Real Capital Analytics, Asian investments are already at 88% of last year’s numbers. With approximately two months left in the year, experts believe this year’s numbers will surpass those of last year.
There are primarily two components driving Asian capital into the U.S. economy at such an aggressive rate:
- There is too much capital chasing few investment opportunities; this is the case for all asset classes, including real estate, stocks and bonds.
- Real estate has become a particularly enticing investment alternative globally as investors search for yield in relation to risk. While the U.K. has been a favorite market for Asian capital, the U.S. is rapidly catching up.
With the expansion of the economy, overseas capital will continue to surge into the United States. Of particular interest to Asian investors, however, is the transparency of the United States’ political and monetary policies relative to Asian markets. Investing in U.S. commercial real estate is simply a safer alternative for their particular situation. For all intents and purposes, the U.S. economy is on the precipice of a substantial economic recovery, whereas, arguably, other countries continue to struggle.
China, in particular, is having trouble with the dynamics of supply and demand, as is evident by the so-called “ghost cities.” Essentially, construction has outpaced demand. As a result, China finds itself with massive residential complexes that are not occupied, though they have been sold.
The U.S. economy has experienced an uptick in foreign investments due to market volatility in other countries. However, the method in which they are investing has changed since the recession. There are several things that foreign investors are doing differently:
- Taking on less debt leverage and planning on longer-term investment strategies.
- Being extremely selective about markets, staying close to major “gateway” cities.
- Putting boots on the ground within each market to ensure local expertise.
Foreign investors are very interested in six markets in particular: New York, Washington, D.C., L.A., Boston, Seattle and San Francisco. According to experts, cash flow from other countries should continue to rise into next year. In addition the previously mentioned markets, Houston, Dallas, Denver and Chicago should all see boosts. Since foreign investors are looking for the longer-term strategies in real estate, it would be reasonable to expect industrial properties to become increasingly popular.
Overall, we should enjoy the growing post-recovery economy while keeping a careful eye on the factors supporting it and the return of foreign investment.
