Foreign investors putting their money into commercial real estate get major headlines when they make big-splash purchases, such as when New York City’s Waldorf Astoria traded for $1.95 billion to China-based Anbang Insurance, among other significant Manhattan assets.
But do we only hear about the major transactions that make it seem like there is more overseas investment than actually takes place?
Some think so. The notorious Sam Zell and NAI Global economist Peter Linneman, as well as the president of NAI, Jay Olshonsky, are on that page. Their take is that overseas buyers are mostly only interested in trophy assets, which are a small percentage of the purchases that actually take place in the United States. For example, they said, there aren’t many people from China looking to buy a $10-million strip center in the Midwest.
There are some differing opinions, though.
JLL just put out a foreign-investment report that says firms from other countries will ramp up their business in the United States. Due to a lack of opportunities in their domestic locales, sovereign-wealth funds and other institutions will put money into commercial real estate in the United States due to the high returns that this country offers.
It says that investors from different countries are looking to buy properties outside of coastal and “gateway” cities, such as New York and San Francisco. But Denver, for example, is attracting plenty of buyers because it’s such a great market right now with an increasing population and job market. It’s not the only one, though. Several urban markets in places outside of coastal environments are gaining a lot of attention, as well as places in the suburban markets that are seeing a housing rebound.
JLL even predicts that foreign investment in commercial real estate will hit $50 billion this year, which is a major jump from the $12.1 billion put into assets in 2014. The firm also points out that Canada will continue to be a major purchaser of U.S. commercial real estate.
Overseas and cross-border buyers may be a small percentage of overall commercial real estate properties, but they definitely aren’t insignificant.