Has the US Has Lost its Allure for Foreign Investors?
Speakers during a global capital market and foreign capital breakout session during the CREW Network Convention Orlando agree that the US is still the most transparent market in the world and is still a safe haven for foreign capital.
ORLANDO, FL—Money is flowing into the US and Canadian CRE markets. Understanding where the flow of foreign capital is coming from and why it is coming is critical in maximizing business opportunities and planning for the future.
In a breakout session at the CREW Network Convention Thursday morning, speakers discussed where money is flowing from and why it is flowing into the US and Canadian economies. They also touched on factors that will have a global impact, including blockchain, China, Brexit and the economic downturn.
According to speaker Jim Costello, economist at Real Capital Analytics who has worked in the CRE space on issues of urban economics since 1990, in looking at recent cross-border investor changes, he says they are selling more now than they are buying. “But that doesn’t mean we are doomed,” he said. “While deals might be harder now, there is no reason to panic.”
He points to a recent insights report from RCA, which said that direct acquisitions by cross-border investors dropped by about half compared with a year ago as significant portfolio and entity-level deals, which had characterized much of the cross-border activity during 2018, were largely absent.
Costello explained that it isn’t just an office market story any more for cross border investment. “The sector is changing. They see opportunity in retail, in transforming something.” In the near term, he expects to see a decline on industrial, but in the scope of things, he says it is still an attractive sector.
The last thing of interest on cross-border money is where the money is coming from. Canada is at the top and is extra elevated at the moment because of what Brookfield did last year, he said.
According to the insights report, deal activity by Canadian investors dropped by 53% year-over-year in the first quarter. On a positive note, deal activity from the Middle East swung higher. There was $1.8 billion in direct acquisitions from these investors in the first quarter of 2019, compared with less than $1 billion a year ago,” the report said.
When moderator Colleen Pentland Lally, a director with CBRE capital markets, asked if the US has lost its allure for foreign investors, speaker Maggie Coleman a managing director at JLL, said it is still the most transparent market in the world and is still a safe haven for foreign capital.
“Off shore behavior is just adjusting and moving into other sectors,” explained Coleman. These investors, she added, are broadening the types of assets they buy and their market exposure. “The gateways are still top choice, but the secondary market story has grown in prominence. There has been an education.”
Costello concludes that there is still money coming here, but it is in a different bucket. “They are almost going with a value-add play,” he said. “It protects the equity and helps with hedging. That change in the financial condition has taken the activity away because it has been more expensive but not because they don’t like that property growth.”
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