IRVINE, CA—There's no doubt that foreign investors continue to be interested in US real estate, both residential and commercial, but what specifically makes them want to buy a particular asset in a particular market? GlobeSt.com spoke exclusively with Robert Stamm, executive managing director of Savills Studley here, about how foreign investors evaluate US real estate and what they're seeking to buy now.

GlobeSt.com: What are common acquisition profiles for active foreign investors seeking real estate opportunities in the US?

Stamm: Acquisition profiles tend to vary among foreign investors: Canadian investors, which are the largest foreign investor group in the US, are usually risk averse and typically prefer a 49% JV structure (for tax reasons) in core properties. The Norwegians have been acquiring core office properties in coastal gateway cities, partnering with well-known domestic institutional investors. German open-ended funds generally seek core investment opportunities (office, retail and industrial) in key US gateway cities. Many Chinese investors are seeking high-quality, well-located, large-scale development projects (residential, hotel and mixed-use) and are often paying higher prices than domestic investors based on a certain degree of intangible value associated with a particular asset—for example, corporate branding potential as a strategic means to establish US presence.

GlobeSt.com: As the core markets become increasingly competitive, at what secondary markets are foreign investors looking?

Stamm: Foreign investment in secondary US markets is driven by the economic/demographic trends and the long-term outlook of the real estate fundamentals of the specific market. Houston is an example of a market that possesses many qualities foreign investors are seeking and has experienced a significant increase in foreign investment. Over the past 24 months, Canadian, European, Asian and Middle Eastern investors have been fairly active in this market. Investors are able to acquire assets in markets like Houston at a relative discount when compared to US gateway cities. Miami, Denver, Austin and Minneapolis are other secondary markets in which foreign capital is increasingly invested. As competition heats up in secondary US markets, our team is seeing an increasing number of foreign investors considering Latin America as a viable alternative. We are currently advising a European investor on the acquisition of two office towers in Mexico City, a trend we expect to continue as global players seek opportunities with accretive yield profiles.

GlobeSt.com: Are joint-venture structures preferred for foreign investors?

Stamm: Joint-venture vs. an outright purchase is highly dependent on the needs and motivation of a particular investor/capital source: diversifying equity, increased access to opportunities, protecting tax liabilities and obtaining local market expertise are common reasons. However, some foreign investors prefer to acquire outright and avoid the potential complex process of acquiring a property in parallel with structuring a joint-venture agreement. Foreign investors can also utilize a domestic JV partners as a way to bridge the cultural gap between them and a domestic seller, and as a strategic means of creating a global relationship with their JV partner. We saw an example of this when we advised Deka Immobilien on their recent acquisition (and first joint venture in the US) of a prime retail condo at 522 5^th Ave. in New York. Deka, a German open-ended fund, partnered with well-established local market expert Ashkenazy to form a strategic partnership, which sets the foundation for the two firms to replicate this success on future opportunities going forward.

Check back for an update to this story in which Stamm speaks exclusively to GlobeSt.com about potential challenges foreign investors face when acquiring US real estate and future foreign-capital flows into the US.