Foreign Capital in Today’s Real Estate Market: Origins and Destinations
Where is foreign capital coming from, and where is it going? These were the overarching questions raised during a recent panel on “Assessing Global Opportunities at the Local Level.”
The panel took place during the Global Leaders in Real Estate Summit, which was hosted by iGlobal Forum in partnership with EisnerAmper and held at the Sofitel New York in October.
Lawrence Selevan, chief executive officer of Chesterfield Faring Ltd., moderated the panel of experts, which included Jordan Sloane, chairman of Harbor Group International, LLC; Mark Wilsmann, managing director and head of real estate equity strategies at MetLife Real Estate Investors; Ronald Chua, director, investment and management department at China Overseas America; and Michael Gately, head of real estate research at Barings Real Estate.
Selevan began by asking about the effects of the new U.S. environment, with its rising interest rates, trade wars, low unemployment rates, strong national growth and political divisiveness.
For China Overseas America, the macroeconomic picture is “still pretty rosy,” said Chua. The one area of concern is geopolitical risk. He believes that the trade war and its tariffs have played a role in pullback from Russian and Chinese investors. “We think this is a situation that will carry on in the near term,” he added.
Sloane, on the other hand, has seen little drop-off in interest from foreign investors. “I still think that foreign investors see the United States as the number one place in which to invest today,” he said. Wilsmann concurred. He attributes the ongoing interest to the U.S.’s status as “one of the strongest economies in the developed world and a transparent market with a strong rule of law.”
Furthermore, Wilsmann believes that rising interest rates are actually creating more opportunities. He explained: “We’re seeing a lot of deals that we lost out on. All of a sudden the brokers now are calling us back because the deals blew up.” In his view, foreign investors will want to pursue these opportunities.
Although Gately agrees that investors continue to perceive the U.S. as a safe haven, he is seeing slower growth, along with more caution among Barings’ Korean and European clients.
For Chinese investors, it is not only the geopolitical situation that is affecting strategies, but also capital controls. The result, said Chua, is a shift in asset types: “Previously, Chinese investors were largely interested in residential condos, large office buildings, trophy hotels.” Today, smaller-priced assets are commanding attention. Asset types that fit the criteria include student housing, residential rentals, single-family construction and senior housing.
Geography is another consideration. Selevan asked the panelists which markets within the U.S. are the most attractive. Gately finds that the global gateways are still the most popular targets, thanks to the familiarity they offer, along with market size and depth. New York, for example, despite its high pricing, is still appealing because of its highly liquid market. Other popular choices are Los Angeles, San Francisco, Seattle, Chicago, and, to some extent, Miami.
That said, Gately also is seeing some of the more experienced overseas investors moving into some of the secondary markets, such as Atlanta and Texas. Chua is hearing about deals in Albany, Dallas and the Carolinas. And Harbor Group recently sold an office building in Cleveland to an advisor for a foreign capital account.
Regardless of an investment’s location or asset class, relationships are paramount, emphasized the panelists. It’s critical, said Gately, to build a relationship over several cycles. Such strong relationships, said Chua, are especially important to Chinese investors.
Some overseas investors rely on local players. Wilsmann reported that many global players work with major U.S. asset management firms to serve as their eyes, ears and feet on the ground. Thus, in some cases it’s best to cultivate relationships with these agents.
How will technology affect relationship building and the real estate industry overall? Wilsmann, whose firm recently formed a “proptech” investment group, thinks that technology will inspire major changes in the industry. For example, he recently read about a platform that can reduce the time to conclude a typical transaction from as much as 90 days to only 14 days.
China Overseas America is another firm that has adopted technological tools. It is using virtual reality to enhance its condo sales and, on a corporate level, an online approval system that facilitates the process. Gately is curious to see how the emerging ability to build properties with artificial intelligence will affect development deals.
“Most firms are organizing around this dramatic impact of the digitalization of our business at the property, portfolio management and asset management levels,” said Sloane. “It’ll be interesting to see how it impacts the investment level.”