Foreign CRE Investors Weigh Opposing Forces

 

Jeffrey Steele | October 11, 2022

While the strong dollar makes acquisitions costlier, the U.S. offers a safe haven from geopolitical upheaval.

 

International geopolitical and economic uncertainty has solidified the standing of the U.S. as a port in the storm for foreign investors in commercial real estate. History’s third-highest cross-border volume year came in 2021, when in spite of persistent pandemic-related angst $62 billion was invested in all U.S. property types. But investment pace has slowed greatly in 2022, with rising interest rates adding to debt market volatility.

At present, international investors are trying to balance two countervailing forces, said Loryn Arkow, a partner in the real estate practice at Stroock & Stroock & Lavan. On one hand, the U.S. market’s attractiveness as a comparatively safe haven has grown even more appealing at a time of economic uncertainty and an Eastern European war. That has to be weighed against the U.S. dollar’s appreciation vis-a-vis many foreign investors’ currencies, which has made U.S real estate more expensive.

Industrial and multifamily assets appear to be of greatest interest to foreign investors, with life science, self storage and student housing also spurring interest. Cross-border investment interest has also been seen in gateway market Class A office and select suburban office properties.

High among foreign investment magnets is the Miami area. There, half the rich condo projects on Fisher Island are owned by Russians, and Doral is dubbed “Doralezuela” for the number of Venezuelans investing there, said Matt Rotolante, president of Lee & Associates South Florida office. European investors, as well as those from Central and South America, are keen on the market. Argentina and Venezuela investors historically pumped in funds; more recently, it’s been Peruvians and Chileans. “We also see a lot of money coming in from Saudi Arabia, as a result of the new LIV Golf,” he said.

Latin Americans not only see Miami as a haven for their wealth, but for their families, he added. They choose Miami because a countryman of their acquaintance lives there. After buying a condo, they look to invest in a strip retail center or a warehouse. “After the first few deals, we see them start graduating to greater value,” he said.

Looking ahead to 2023, there’s clear expectation international investors will once more actively invest in the U.S. market, particularly in industrial and multifamily real estate.