Last year, international investors spent $426.8 billion on cross-border transactions – basically, buying real estate in countries other than their own. And the United States is the recipient of the biggest share of those investing dollars by far. As real estate investors, how can we benefit from these big spenders?
When you hear numbers like $426 billion, it often pays to sit up and take notice – it literally pays, if you are a real estate investor. According to analysts at Tranio, an overseas property brokerage, the lion’s share of that money went to the United States in 2016. It also went largely to residential real estate.
The analysts reported that in the United States, $48.5 billion went to commercial property investments and $100.5 billion went to residential property investments. That equates to just over one in every 10 commercial deals in 2016 involving a foreign investor, to give you an idea of how big a “piece of the pie” foreign investors have in our market.
But what can U.S. investors do with this information to improve their own investment returns and strategies?
For starters, you can follow the money. Markets in which foreign buyers are active tend to show strong appreciation – at least early in those buyers’ involvement. Later on, sometimes those markets become overheated because foreign buyers do not necessarily have the same set of priorities for buying that we do and may be willing to pay more than the market will bear in the long term in order to get their investment money into U.S. property.
According to the Association of Foreign Investors in Real Estate (AFIRE), the top markets for foreign investors buying in the United States in 2017 are New York, Los Angeles, Boston, Seattle, and San Francisco.
AFIRE’s predictions for new cities of interest may hold a little more promise for individual investors hoping to get involved in a market and then later sell to foreign investors. The association listed Nashville, Portland, Chicago, San Antonio, and Pittsburgh as areas that foreign investors named as areas that they considered “having investment potential.”
Selling your real estate holdings to foreign investors at a top dollar is definitely not the only way that you can benefit from the massive volume of foreign investments coming into the United States, however.
According to Real Capital Analytics (RCA), foreign investors are presently looking for more creative ways to do real estate deals rather than just buying up expensive properties in hot markets, as has been their “M.O.” in previous years.
In fact, last year, 31 percent (nearly a third) of cross-border transactions in the United States were joint-venture investments, RCA senior vice president Jim Costello noted in an interview in National Real Estate Investor. So far in 2017, that number is 36 percent, so foreign investors’ interest in working with U.S. investors appears to be rising.
I should note that RCA also puts out a report on what they call “Top Cross-Border Markets” on a quarterly basis. That report indicates where foreign investment activity is highest. According to RCA, whose numbers indicate what has already happened (vs. AFIRE, who surveyed investors about what they were planning for 2017), Manhattan dominates the cross-border investment field with nearly $16 billion invested in the first three months of the year alone, but some great cities for U.S. investors like Dallas, Atlanta, and Phoenix made the top-10 list as well.
And those lists lead us to a final note on foreign investing in the U.S. Miami, a city that is not making top-10 lists but that deserves a mention, is emerging as a center of “Asian influence” in real estate according to analysts like Jesse Ottley, who is president of Cervera Realty’s development division, and, it’s only fair to note, is based in Miami.
According to the Miami Association of Realtors, Chinese buyers ranked in the “top tier of foreign purchasers in South Florida in 2016,” something that has not happened previously. Japanese investors seemed to follow suit, making some major commercial investments in the city during the same time frame.
Ottley, who is also president of the Miami chapter of the Asian Real Estate Association of America, declared in a recent Miami Herald column, “Key factors indicate the dawn of a sweeping Asian-influenced era in South Florida.” One of the factors she cited was Chinese president Xi Jinping’s visit to President Trump’s Mar-a-Lago estate this past April. “Jinping’s presence has been known to generate a ‘golden goose’ ripple effect. If he puts his stamp of approval on something, Chinese buyers will typically follow,” she said. Ottley also cited the Chinese president’s 2015 visit to Seattle as evidence of this: within seven months of his visit it became the top destination for Chinese buyers of U.S. real estate.
Whether you choose to follow foreign investing trends in order to try to “get in early” on heating markets or you want to interact more directly with these powerful financial forces on U.S. housing markets, knowing where foreign investors are active is the first step.
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