Foreign Investors Eyeing U.S. Property For Recession-Era Deals

Before the coronavirus hit the U.S., foreign investors were bullish on the country's commercial real estate sector, a new survey from the Association of Foreign Investors in Real Estate found.

The international organization that represents institutional real estate investors polled 200 members, including 62 members representing foreign institutional capital and sovereign wealth funds.

The survey found that although respondents to its 28th annual sentiment survey in late 2019 were bullish on U.S. CRE before the COVID-19 crisis shook up global property markets, several of them have since updated their responses to the group's CEO, saying that 2020 is now in prime deal-making territory.

Conducted by the University of Wisconsin on behalf of AFIRE, respondents listed Los Angeles, Paris and Boston as the top three global cities best for foreign investment, AFIRE CEO Gunnar Branson told Bisnow.

 In terms of asset classes, multifamily properties were on top of foreign investors’ wish list, along with industrial assets. Both were seen as good long-term holds, Branson said, adding that foreign investors were especially eyeing affordable and workforce housing as stable long-term investments for their clients.

More than 70% of respondents representing foreign institutional investors and sovereign wealth funds said the country's low interest rates, stable credit environment, balanced inflation and employment, and economic growth are all positives for the U.S. market.

“U.S. commercial real estate continues to perform well, even amidst a range of uncertainties,” University of Wisconsin School of Business Faculty Associate Joe Walsh said in a statement.

Obviously, the foreign investment outlook on the U.S. property market has changed since that survey, Branson said. But some foreign investors Branson has spoken to since the release of the survey have also said they see an opportunity.

“This is a global crisis. It’s affecting every market around the world,” Branson said, adding just as many U.S. workers are adjusting to working from home, so are investors. “The investors of foreign institutional capital are trying to find the right and safe place."

Branson said safety is more important to investors than overall yield, and added that the U.S. has historically been a reliable place to to park investment dollars.

One of the major reasons the U.S. market is attractive even in the midst of a recession? More than half a dozen cities in the U.S. are “global cities, connected to the global economy,” Branson said. 

Those areas, including Los Angeles, New York City, San Francisco and Seattle, have been popular U.S. investment destinations for foreign investors in the past.

“A lot of other countries around the world only have one or two global cities,” Branson said. “We have quite a few of them. This is a large investable market. Combined with a lot of uncertainty globally and issues before COVID-19 came along, [the U.S.] is less of an unstable market. We’re all confronting a lot of challenges but the U.S. has shown itself to be a resilient property market.”

Branson said several foreign investors are still bullish on the U.S. property market, even in a down economy. Though at the moment there has been a slowdown of deals getting done, Branson said, "there is still a real desire to make investments in 2020."

Branson said Japanese investors have been wanting to allocate significant capital in the U.S. property market, as have investors from South Korea, Canada, Latin America, Europe and the Middle East.

Japan has yet to make significant investments in the U.S. property market, Branson said, but that may change if there is a repricing or adjustment in the market. That may be the "buy" signal, Branson said. 

"There is still a lot of capital carefully watching our markets," Branson said. "This is a global marketplace."

Of course, given how rapid the spread of the coronavirus and its economic impact on many countries, foreign investors' sentiment could all change, Branson said. 

"Anything I’m telling you today may not be true tomorrow," he said.