Foreign Funds Cushion DC Market

For example, he pointed to a French pension fund that had never invested in the US before. Recently this fund hired a US manager to explore the market. Also while several open-ended funds in Germany were frozen--and thus unable to invest--Fetgatter said he knew of one fund that, while not frozen, had stayed out of the US market. "Now I hear it is coming back" Rreef just put out a research report strongly advising funds to invest in the US, he added. "So there are signs of green shoots coming up."

There are a number of reasons why foreign investors like DC, some surprising. The height restriction in the District makes deal size palatable to investors, Fetgatter said. Also, a DC investment "looks good in an annual report."

The extent of the global downturn, though, has eroded most foreign investors purchasing power. That was evident in 2008 investment figures; according to Real Capital Analytics, foreign investors only sunk $15 billion in the US that year. In 2007 that number was $50 billion. The downturn has also changed many of the players active in the US and Washington market. For instance, in 2007 the UAE only comprised 2% of the total foreign investment holdings. In 2008 that number had jumped to 39%. Now the UAE--indeed entire Middle East--is "licking its wounds from the $40 per barrel of oil price," Fetgatter said. Conversely Germany increased its share of total foreign investment in the US to 22% in 2008 from 15% in 2007--even though several of its open ended funds were frozen by the end of last year. And Australia has all but vanished from the US market; in 2008 its share was 2%--a sharp drop from 2007's 32%, Fetgatter said.