Real Estate Investment Will Outperform Stock Market, Livingston Predicts

He bases his crystal ball declaration largely on new data passed along to members of the Association of Foreign Investors in Real Estate. The 13-year-old Washington, DC industry group's new survey shows foreign nationals from 17 countries plan to invest, over the next several years, more than the total $272 billion in assets they already own in the United States.

As their first choice, foreign investors will be putting the bulk of their money into multifamily properties, the AFIRE online-published survey shows. This marks the first major investment trend change for foreign nationals in 10 years. Multifamily usually is the No. 2 selection.

It's also the first time office properties are being ranked second choice since 1994. Industrial, retail and hotel properties ranked, in that order, behind office.

"We are facing lower anticipated returns over the short term, but foreign investment in United States commercial properties hasn't slowed appreciably," Livingston says.

Liquidity is a big selling point with foreign investors, the developer/analyst tells GlobeSt.com. "The fact that their investment can be turned into cash, if necessary, is a huge selling point for U.S. commercial property investments, " Livingston says.

New York, Washington, Boston, San Francisco and Los Angeles, in that order, are the foreign investors' favorite sites. Despite the Sept. 11 terrorist tragedy, 55% of AFIRE's respondents are staying with New York as the strongest commercial real estate investment territory in the United States. Globally, New York is second behind London. Paris, Washington and Tokyo, in that order, follow New York.

Livingston, founder/chairman of Maitland, FL-based Realvest Partners Inc., says most foreigners who own real estate in the United States cite America's "superior political stability, economic leadership, size and diversity as the principal reasons they invested here."

On Wall Street itself, the developer says the market "appears to have bottomed out from its steepest decline since 1938-39." He says the national economy is "showing marked signs of improvement as well, thanks, in large part, to the (President George) Bush tax cut and increased federal spending."

Positive growth is forecast by the second quarter, Livingston says, "but don't expect a pronounced recovery." He says "1% to 2% annual economic growth is likely in 2002, and probably toward the low end of that range."

Looking deep into his crystal ball, Livingston says "a fragile recovery will encourage the Federal Reserve Board to continue its easy monetary policy, which means we can expect low and relatively stable interest rates and a lethargic bond market, so long as inflation remains low."

In this cycle, the stock market will model the 1960s, "with annualized growth of around 6% to 10% and extreme volatility, as high valuations collide with slow economic and profit growth," the developer says. Dividends will be important again.

"While clearly positive, our current economic outlook includes some formidable risk factors," Livingston says. "In theory, the ripples of American economic recovery should spread first to Europe, then to Japan and then to the Pacific Rim countries." But he says Japan, "a fulcrum of the Asian economy, is experiencing chronic economic woes that could delay worldwide recovery--and a default would be a disaster."

The developer says "another significant crisis, or a terrorist attack, could delay the U.S. recovery by as much as one or two quarters."