Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
Issue link: http://cire.epubxp.com/i/164181
Te destination is no coincidence. Core markets such as Washington, D.C., have been the main targets for international investors for years. Since 2007, cross-border investors have closed more than $148 billion in transactions, with Manhattan, Los Angeles, and Washington, D.C., leading the way, according to Real Capital Analytics. However, more than half of that volume was pumped into secondary and tertiary markets, driven by improvements in technology and energy markets, as well as housing. Of course, transparency is a big draw for inbound investors. But immigration, in a sense, is also a factor, though it may not be driving the conversation on Capitol Hill. "International investors seem to have the same motivations that local citizens have, except for the entrée-to-citizenship factor," says Frecia Johnson, CCIM, senior vice president of Coldwell Banker Commercial in Irvine, Calif. "In the past, [inbound investors] were primarily interested in owning properties but rarely lived here. Now these investors are represented by many ethnic groups who live and work here." In Johnson's market, they may be purchasing ofce, industrial, or retail space for their own businesses, targeting long-term investment opportunities in their neighborhoods, or buying owner-user buildings to obtain a green card. Tis shif is not only changing the inbound investment landscape, but also causing U.S.-based advisers to rethink how they assist these clients. Major Players and Target Markets A substantial amount of the international investment capital is fowing in from Canada, which represented approximately one-third of all inbound activity last year, according to Jones Lang LaSalle. But private investors from a variety of countries are seeking opportunities across a broad spectrum of U.S. markets. Unsurprisingly, multifamily in growth markets is the most coveted property type among international investors. Since 2012, instability in foreign markets has helped to push multifamily transaction volumes back to peak levels, JLL notes. Chicago, Dallas, Houston, Manhattan, and South Florida each saw more CCIM.com than $300 million in cross-border apartment purchases from 1Q12 through 1Q13. Investors based in Canada were most active, followed by those based in Switzerland, Israel, the United Kingdom, and Kuwait. Richard Knutson, CCIM, senior vice president with Cornish & Carey Newmark Knight Frank in Emeryville, Calif., recently received a referral from a local residential agent to work with Norway-based investors. He represented them in the purchase of a 20-unit multifamily portfolio in Oakland, Calif., for more than $3.6 million. "Tey liked the rental potential of this investment and also the conversion potential to sell as condos later," he explains. Te portfolio transacted at a 5 percent capitalization rate, with approximately 10 percent upside rent potential. (Perhaps these investors were taking a cue from their government. Norway recently granted permission for its $665 billion Norwegian Government Pension Fund Global to invest in property outside of Europe this year, according to JLL. As of 1Q13, the fund's manager, Norges Bank Management, planned to allocate $11 billion to U.S. investment opportunities.) But competition for multifamily properties is driving international investors to consider other sectors. "We've noticed more Japanese investors and some Chinese investors acquiring ofce buildings and hotels in Hawaii," says Mark Bratton, CCIM, vice president of Colliers Monroe Friedlander in Honolulu. Bratton cites recent acquisitions by Japan-based Sanno Group, including the purchase of the Waikiki Galleria, a 15-story ofce and retail tower. In fact, some international investors are avoiding multifamily opportunities altogether. Matson B. Holbrook Jr., CCIM, vice president of Siegel-Gallagher in Milwaukee, recently represented a Singaporebased investor seeking multitenant, City Total Total volume grocery-anchored retail properties properties (in millions) in noncore markets. "Remarkably, Manhattan 247 $38,633.3 they were not interested in multiLos Angeles 157 $9,048.0 family investment, as the news in Washington, D.C. 60 $6,357.1 Asia about the U.S. single-family Chicago 129 $5,969.0 residential market over the past fve Houston 190 $5,594.2 years has scared many away from San Francisco 65 $5,228.4 residential altogether," Holbrook Boston 127 $5,049.4 says. Las Vegas 38 $4,779.8 Distressed properties in secondAtlanta 152 $3,852.7 ary markets are also drawing attenOther 3,517 $63,821.1 tion from cross-border investors Total 4,682 $148,333.0 searching for better cash fow. PatSource: Real Capital Analytics rick O'Sullivan, CCIM, senior asso- Top Markets for Inbound Investment, 1Q07–1Q13 September | October | 2013 C.J. Burton/Corbis n by Rich Rosfelder 23