Due to increased demand, international investment in U.S. commercial real estate is surging beyond primary markets. While Chinese investment and development companies immediately come to mind, U.S. property investment is a priority for firms from Canada, Norway, Japan, and Germany, which are seeking hefty, safe returns on their investments, according to CBRE Research.
“Foreign investment in the U.S. is not a new phenomenon; we are just seeing an expansion,” says Mark Levine, CCIM, JD, LLM (Tax), author of International Real Estate and a professor at University of Denver. “The number of countries and the amount of investment are growing.”
According to the Association of Foreign Investors in Real Estate, the United States is ranked No. 1 in opportunities for capital appreciation.
“It’s in our best interest to encourage investment in commercial real estate because it helps keep interest rates low,” says Carmela Ma, CCIM, CIPS, RICS, president of CJM Associates, Inc., in Beverly Hills, Calif., and a CCIM instructor. “Our commercial real estate is attractive because the United States provides the most stable investments. Historically, only 2 percent of U.S. real estate is owned by foreign nationals. AFIRE expects a 60-percent increase over the next five years.”
The stability in the U.S. government and fee simple ownership attract global investors, according to Ma.
However, she sees three major hurdles for international investors in the U.S. commercial real estate market during the next five years: availability of property; asset pricing; and competition with other investors. With intense competition for primary market properties, she has already seen multiple global investors move into secondary and tertiary markets.
Also as the U.S. economy steadily grows, the U.S. dollar has surged ahead of other major currencies except the Chinese yuan, according to CNN Money. During the past year, the dollar has increased in value by almost 10 percent compared to the British pound, 22 percent to the Japanese yen, and 21.8 percent to the Euro.
“I expect the U.S. economy to double during the next five years,” says Adrian Arriaga, CCIM, president of AAA Real Estate and Investments in McAllen, Texas, and National Association of Realtors liaison to China. “This is a great opportunity for commercial real estate brokers to cultivate relationships and work with foreign investors.”
Fluent in Spanish, Arriaga has worked with Mexican nationals buying U.S. property for many years in the border town of McAllen. He has also developed relationships with South Koreans who speak Spanish as their second language and are acquiring properties in McAllen’s downtown area.
Despite being located in different geographic markets, Levine, Ma, and Arriaga expect global investment in the United States to continue at least for the next five years. Levine, however, thinks it’s possible that market forces could intervene, such as the interest rate jumping by two points or more.
“That would knock out some local financing, although it may encourage more investors who use cash,” he says.