Monday, November 23, 2009

International Investors are Ready for Return

The good news is that international buyers are bullish on U.S. commercial real estate. "Many of our members (primarily banks, pension funds, and other institutional investors) are heartened by the price corrections they're beginning to see in the U.S. market and expect to increase their debt and equity investments in late 2009 and 2010," says James Fetgatter, chief executive of the Association of Foreign Investors in Real Estate in Washington, D.C.

"The yield compression in the U.S. market between 2006 and 2008 wasn't an attractive proposition for global investors, but as U.S. property prices recalibrate, they are becoming much more active," says Joel Coren, senior director of CBRE Global Property Advisors, also in Washington.

"We've definitely seen an increase in interest in the last six months, but there's still not a lot of buying. International investors are waiting to see what's going to happen," says Andre J. van Rensburg, ALC, CIPS®, president of Prudential Commercial Real Estate in Jacksonville, Fla. Concerns about the fallout from CMBS debt that can't find refinancing is also keeping some overseas investors on the sidelines, says Fetgatter.

Like their U.S. counterparts, many international buyers haven't been ready to commit capital to commercial real estate until they're convinced the pricing has bottomed out. "Everyone is very cautious about investing too early in the cycle; most of my institutional and high net worth clients are planning to launch their investing in 2010," says Scott Sweeney, CCIM, CPM®, executive vice president of Falcon Real Estate Investment Co. in San Diego.

One group that has already been "very active" in U.S. markets is German open-ended funds, says Coren. He points to a fall purchase of a trophy D.C. office building by Deka Immobilien GmbH as an indicator of transactions to come. German funds are probably the most liquid global capital source today, which gives them the opportunity to come into a market early "once the pricing paradigm shifts."

Other international buyers in the United States are from China (both from the mainland and Taiwan), the United Arab Emirates, and Israel, all of whom have seen their home economies remain relatively strong during the recent worldwide downturn. The Asia-Pacific region is the most interesting area to watch for new buyer sources, suggests Coren. There's a lot of wealth coming out of countries like Singapore and South Korea, as well as China.

It's also important to note that high net worth investors are often "independent of the economic situation in their respective countries," and will continue to invest despite the economic downturn, says Michaela Driver, CCIM, director of commercial real estate at RE/MAX Properties North in Chattanooga, Tenn.
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