CPN - March 2009 - (Page 23) INVESTMENT INDUSTRY PULSE Relative Strength Foreign Investors Show Preference for U.S. Commercial Property By Eugene Gilligan s U.S. unemployment CAPITAL INFUSIONS rises and the credit mar(2008 crossborder investment kets continue to coninto the United States) strict, the country may seem United Arab Emirates $5.7B an unlikely candidate to top Germany $3.3B many investors’ wish lists. But its strong legal and regulatory Other Europe $1.7B environment, the opportunity Israel $1B it provides for investors to Japan $836.1M snag attractive properties at a United Kingdom $640.5M discount and even the seating Canada $490.7M of the Obama administration Australia $351.9M are attracting foreign buyers. Other Americas $198M A recent survey of overseas Other Asia $197.6M real estate investors bears this Other Middle East $189.6M out. Conducted among the Hong Kong $165M almost 200 members of the Association of Foreign Investors Grand Total $14.9B Source: Real Capital Analytics Inc. in Real Estate, the survey found that equity investors plan to increase their expenditures in the agreed. “Instead of investing in United States by 73 percent, versus office buildings in Bangkok, invest40 percent in the world (including ors will be more focused on buying the United States). Foreign real office buildings in Chicago.” estate lenders say they plan to The interest in U.S. investment increase lending in the United represents a return for foreign buyStates by 58 percent, versus 54 per- ers. The low cap-rate, highly levercent globally. aged investment environment that Survey respondents, who collec- had prevailed in recent years distively hold $1 trillion worth of real couraged many foreign investors estate assets, ranked the United that wanted to own real estate long States favorably for its stability and term, reported CB Richard Ellis security, 53 percent of them putting Global Property Advisors senior the United States first. Germany and director Joel Coren.“The risk-return Switzerland tied for the next spot ratio had gotten out of kilter,” he with 11.3 percent. The United said, but an upward adjustment of States also led the field as the most cap rates will likely make investlikely to provide the best level ment more attractive. of capital appreciation, winning Coren pointed to a significant 37 percent of the vote; Brazil was rise in London office cap rates dursecond with 16 percent. ing the first half of 2008, which The survey results reflect a spurred significant buy-side activity, flight to quality in the uncertain particularly from German openglobal economy, according to the ended funds.“Yields have got to get association’s chief executive, Jim to a point where investors can justiFetgatter.“(Foreign investors) are fy their allocations,” he said. going to be more careful,” he But foreign investors will also said.“The U.S. is really at the top likely examine rent rolls closely of other options as far as safety when buying in an office market and transparency.” He noted that like Manhattan that begs major significant investment in U.S. questions about office vacancy, statTreasuries has followed from this ed FirstService Williams Commersafety-first philosophy. cial Real Estate executive managing Colliers International executive director James Murphy. “They will vice president & director of market be looking for buildings that don’t and economic research Ross Moore have a lot of leasing expirations in A the near term,” he said. Some such assets may come to market in New York at attractive prices. “Foreign investors are going to look at distressed sellers, not distressed properties,” he added. Many overseas investors are likely to look at providing equity to owners by buying a significant share of a trophy asset. As asset values fall in many markets, investors could obtain assets at prices that may not come around again, said Frank Liantonio, executive vice president of Cushman & Wakefield Inc.’s capital markets group. While overseas investors typically favor office properties, retailers’ woes could make signature retail assets available at attractive prices, he said. Whatever they pursue, foreign investors face the same hurdles as do U.S. investors, Fetgatter pointed out.“They have to be confident that the re-pricing has occurred,” he cautioned.“An investor doesn’t want to come in too early and have the bottom fall out from underneath them. That’s a big challenge.” They may also have to deal with financing obstacles. Foreign buyers typically use lower leverage, around 60 percent,on acquisitions,hedging with debt in their own currencies. Now, Fetgatter said, their own nations’ frozen credit markets could hinder their investment activity. Irish investors, for example, have been active in the United States in recent years. But the country’s own economic problems and housing meltdown make Moore wonder how much the troubled Irish banks will be willing to lend to investors interested in U.S. com- SERIES Presented by Sparking the Philadelphia Economy Philadelphia Symposium May 13, 2009 • 8:30 AM - 12:30 PM CPN takes you beyond the numbers and headlines with its “Hidden Opportunities” series. With research outfit and sister company Nielsen Claritas and other experts, CPN has introduced the MUST-ATTEND educational and networking event for reviving Philadelphia’s commercial real estate economy. 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