GlobeSt.com EXCLUSIVE: Foreign Investors Are Icy Toward Boston Buys

BOSTON-Foreign investors have cooled to Greater Boston's hot real estate market in a meltdown that has kept the city out of the Top Five US markets for foreign investment dollars for four years.

Jim Fetgatter, CEO with the Washington, DC-based Association of Foreign Investors in Real Estate which develops the rankings, tells GlobeSt.com that the Big Dig may be partly responsible for Boston's fall from grace. The city was ranked seventh in 2005 for foreign investor interest after being in the second spot in 2001, its highest ranking in the past 10 years before dropping out of the Top Five entirely.

"I think the Big Dig had a major impact," Fetgatter says. "All the construction probably deterred them from looking seriously at the city."

According to data provided by Real Capital Analytics, a New York City-based firm that tracks US commercial markets, foreign investment in Boston has dropped more than $100 million since 2001 when $429.3 million foreign investment dollars came into the city. While foreign investors spent $324.4 million on deals in Boston in 2005, it wasn't the lowest amount spent in the past five years. That distinction goes to 2002 when only $192.9 million in foreign capital was invested in the city. A preliminary study by Spaulding & Slye Colliers found that foreign investors accounted for only 2% of last year's near $5 billion of property sales in the city.

"If you look at sales last year, very little was done by foreign buyers," Gary Lemire, senior vice president and a partner at CB Richard Ellis Inc. in Boston, tells GlobeSt.com. "I just don't think there's a lot of product here that fits inside the box."

Most foreign investors prefer Boston's core to the suburban markets and focus on properties that are single-tenant buildings with long-term leases, Lemire explains. But that criteria often doesn't mesh with the Boston market where prime Downtown properties are usually multi-tenant, often underwritten by shorter term leases. Foreign investor interest in the city also waned when Boston's high-tech boom went bust, Lemire adds.

But not all foreign investors are shunning the Boston market. Challenger Financial Services Group, an Australian firm, has emerged as one of the most active foreign traders in the city. Several Irish groups also are looking to invest in the Boston market, several brokers tell GlobeSt.com.

That interest by Australian and Irish investors isn't going to push Boston back into the top of the list anytime soon. "My guess," Fetgatter says, "is that there is still a lot of interest in Boston, but buyers are waiting to see what happens there."