4 Foreign Investment Trends For CRE In 2016

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Includes: DRA, DRN, DRV, FREL, FRI, FTY, IARAX, ICF, IYR, JRS, KBWY, LRET, NRO, PSR, REK, RFI, RIF, RIT, RNP, RQI, RWR, SCHH, SRS, URE, VNQ, WREI, XLRE
by: The SeedFeed Team

In our increasingly global industry, the rate of foreign investment in U.S. commercial property has been surging in recent years. It's something that we focus on and watch carefully at SeedFeed. In fact, nearly 20% of the total sales volume for CRE in the U.S. now comes from international capital. Doing business in the U.S market is attractive for a variety of reasons.

Compared to other world markets, the U.S. economy is strong and stable, and transactions are more transparent. Foreign investors with large sums to invest are looking for a safe place to put it, and the U.S. market fits their requirements, thanks to low interest rates and favorable spreads. International buyers are drawn by the prospect of capital preservation and higher yields.

Secondary Markets

The bulk of foreign investment activity is seen in gateway cities, particularly New York, Washington, and Los Angeles. However, increased competition for properties in these markets has led some international buyers to shift their attention to secondary markets.

More than half of all major office transactions in Denver are already conducted with international buyers, for example. It's likely that there will be increased interest from foreign investors in markets like Seattle, Minneapolis, Denver, Philadelphia, Miami, Dallas/Ft. Worth, and Charlotte for 2016.

Online investment

Real estate crowdfunding sites have moved into the mainstream and are now a routine option for U.S. investors, with over $2 billion in real estate deals last year. International participation on these platforms has been slim, but interest is tremendous, and some of the sites have begun to include foreign investors. RealtyWealth and Fundrise are among the sites open to foreign investors, and there's little doubt that they'll be joined by other platforms in 2016.

Increased participation from China

While Canadian investors continue to be the biggest investors in U.S. real estate - and have since 2013 - there's increasing participation from Asia, and it's possible that China will surpass our Northern neighbors in the coming year. This growth continues to accelerate in response to the Chinese government's loosening of restrictions on overseas investment.

Another factor that comes into play with Chinese investors is the EB-5 (or Immigrant Investor) program, which provides a method of obtaining a green card for foreign nationals who invest money in the United States. More than 85% of the EB-5 visas issued in 2014 went to Chinese nationals.

Preference for High Quality Assets

International investors favor high quality assets such as regional shopping malls, office and industrial properties and multifamily properties. They tend to prefer established, occupied properties, but there is some indication that foreign buyers are more willing to participate in development schemes.

These buyers are willing to pay for a place at the table. Pricing for property purchased by international buyers in 2014 was 28% above the average price paid by domestic investors, and that pricing gap continues to increase.

Barriers to international investment are dropping in the U.S. and abroad. This, along with increased access and transparency provided by technology, will encourage continued growth in the rate of foreign investment in U.S. commercial properties for the coming year.