As foreign investment groups continually seem to be seeking out investments in the US, last week in our Quick Poll, we asked readers if those groups will continue to seek out opportunities within the US property market over the next 12 to 18 months. Sure enough, the majority of readers, (60%), along with John Lyons, president and CEO of Savills LLC, say absolutely. Only 16% said no, and 24% said maybe.

“The number of inquiries [and closed transactions] on behalf of well-capitalized foreign investors seeking US commercial real estate will continue to increase over the next 12 to 18 months. It is still early in the cycle, but it’s only a matter of time before more deals like SL Green’s sale of a partial interest at 485 Lexington Ave. to a group that included Israeli investors begin to occur. The sale of AIG’s headquarters’ office in lower Manhattan earlier this summer was another indication of foreign-based interest in Manhattan real estate.”

“Unlike most of our competitors, we are active participants in this trend. Savills US, which is part of the London-based global real estate services firm Savills plc with 200 offices throughout the world, is working closely with a number of offshore groups that are actively seeking opportunities here.”

“Why are these clients, in addition to other foreign investor groups, looking to deploy capital into the US commercial real estate market? Foreign investors favor the US real estate market for different reasons. Asian investors can utilize lower borrowing costs from their home banks which enabled them to allocate inexpensive and accretive capital into the US. These groups also see US real estate as a hedge against potential inflation and/or volatile changes in their currency positions.”

“British and European investors are following a different approach. These investors are pursuing the top five largest US metros—but they have yet to deploy any sizeable amount of capital into these markets. Similar to previous buying cycles, these investors will acquire high quality, core office buildings with long-term leases in place. The same investors also are exploring opportunities within the US commercial real estate debt market. Being less familiar with these complex products, these investors will seek to work with knowledgeable partners in the US. Savills is currently advising several offshore investment groups looking to acquire US debt, as well as raising European capital for a US debt fund.”

“Middle Eastern investors, whose fortunes can no longer hinge on the spot price of oil, fall into two camps: First, there are those looking for bargains in the top five markets—meaning core assets likely to generate core-plus returns due to a motivated [i.e. distressed] seller. The second category of investor seeks opportunistic [such as 25%-plus IRRs], but is willing to accept a different risk profile. Both camps identify US commercial real estate market as a safe long term investment.”

“The private, high net worth investors from abroad are increasingly focusing on US assets again. They are motivated to buy assets directly rather than invest in funds, as many of these investors sustained losses after the high-profile property funds they were invested in stumbled. As a result, many of these investors now view direct investment as a more controlled and less risky option.”

“If the sources of foreign capital entering the US real estate market vary, there is one common element: this capital flow will ultimately be deployed as US dollar denominations. The ability to acquire assets directly with cash is empowering in a market that is still credit-constrained, and the US dollar remains the reserve currency of the world. Most of the foreign investors that have closed deals in the US this year have done so with cash–and these groups can deploy additional capital if they find new opportunities that are compelling.”

“Investor confidence in the US has benefited by a sense of stability and a belief that our economy’s near-term outlook is brightening. Look no further than the equity market rally of the past few months. However, many investors are still uncertain that this rally is sustainable. It is precisely at this point in the cycle that the savviest investors, who will ultimately become known as visionaries, re-enter the market.”

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