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WASHINGTON, DC-James Fetgatter, CEO of the Association of Foreign Investors in Real Estate, did not try to overstate the impact of foreign investment in the District in the coming year. “I am not here to tell you that we can expect a flood of capital,” the keynote speaker told the crowd at DC’s RealShare conference yesterday. Still, he provided anecdotal signs–along with supporting stats–that foreign investors will be placing money into this market to give nervous investors and developers hope that DC’s unique fundamentals will be enough to cushion it from the worst of the recession.

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.

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