Foreign Investment in U.S. Real Estate
The results are in: The United States is the most attractive country in the world to foreign investors looking to invest in real estate in 2012 – according to the 20th annual Foreign Investment Survey taken among the members of the Association of Foreign Investors in Real Estate (AFIRE). Nearly six out of every ten respondents, which included foreign pension funds, insurance companies, banks, and public and private companies, selected the U.S. as the country providing the most stable and secure investment market for 2012. An equal percentage of respondents stated that they intend to invest new capital in the U.S. real estate market at the same rate or higher in 2012 than they did in 2011. That is the strongest support the U.S. has received in the AFIRE Survey over the last four years.
Such strong support has the potential to result in significant new foreign investments throughout the U.S. in the upcoming year. Without the proverbial crystal ball, it is difficult to predict with any degree of certainty which of the five major property types – retail, multifamily, hotel, office and industrial – is in line to benefit the most from any new foreign investments. Multifamily properties continue to be viewed most favorably by foreign investors, but there is good reason to believe that retail properties are in a comparably strong position for consideration. According to the AFIRE Survey, foreign investors view retail more favorably now, in relation to the other property types, than at any point since 2005. Retail is also the only property type from 2007 – 2011 that was viewed more favorably among foreign investors with each passing year.
It is one thing to express confidence in the U.S. retail market by checking a box on a survey, and another, more telling, thing to put your money where your pen(cil) is. Foreign investors have done just that in recent years, as indicated by the following transactions:
- In 2010, a joint venture between RioCan Real Estate Investment Trust, Canada’s largest REIT, and Cedar Shopping Centers, Inc. closed on five retail properties located in Pennsylvania, Maryland and Virginia. The deal was valued at approximately $91 million.
- In 2010, Kimco Realty Corporation and BIG Shopping Centres, an Israeli public company, formed a joint venture to acquire 15 U.S. retail centers located in California, Nevada, Oregon, Washington and Maryland. The deal was valued at approximately $422 million.
- In 2011, Oxford Properties, the real estate investor for the Canadian pension fund known as Omers, opened an office in New York City with the goal of increasing its U.S. property holdings from $1.5 billion to $5 billion over the next five years.
The trends highlighted by the AFIRE Survey, as well as the transactions noted, paint a rosier picture of foreign investment in the U.S. retail market than in recent memory. Despite this, foreign investors continue to cite several barriers to entry – some market-driven (e.g. the need for improved property fundamentals such as stable rents, occupancies, and tenants, positive economic indications that a double-dip recession will not occur, etc.) and others government-created (e.g. the Foreign Investment in Real Property Tax Act) – that have the effect of preventing the foreign investors from exercising their true investment potential. The ever-changing nature of the U.S. real estate market means that an apparent barrier to entry today may in fact present a once in a lifetime investment opportunity tomorrow. Foreign investors that follow the U.S. real estate market closely will be best positioned to spot such an investment opportunity when it arises and strike while the iron is hot.