3 Reasons Foreign Investors Love U.S. Commercial Real Estate

Commercial real estate is attracting the attention –and capital- of investors from all over the globe. Interest in the U.S. commercial market is driving up prices in major cities and creating intense competition, as well as capital for new development, something that is not necessarily forthcoming from U.S. banks.  Money is coming from high net worth individuals and pension funds, and perhaps most significantly from Sovereign Wealth Funds.

These government treasury funds manage a staggering amount of capital globally. Their value is over $6 trillion, and 60% of those funds are invested in real estate. Of the $8.7 billion that Asian investors spent on commercial real estate in the first quarter of last year, the U.S. market took in 40%.

Many of these large investors favor deals involving multiple properties, since the discount that comes with buying additional properties offers an opportunity for greater returns. Foreign investors have participated in major NYC development projects over the last few years, including the massive tower at 55 Hudson Yards, primarily funded by Japanese firm Mitsui Fudosan.

With about a quarter of all commercial transactions in NYC involving foreign capital, we might well ask: what is behind this intense international participation in our CRE market? Various factors draw foreign investors to U.S. commercial real estate, but chief among them are these three.

Security

In comparison to other world economies, the U.S. market is strong and reliable.  With short-term interest rates falling to below zero in Japan and severe inflation still plaguing many countries, our market is seen as a safe place to park capital, even if returns are not stellar. Foreign investors are looking for low-risk opportunities.

Changes to U.S. investment regulations over the last year have helped to sweeten the deal for international investors. FIRPTA, originally passed in 1980, was modified at the end of 2015.  The existing law put a considerable tax burden on the gains of foreign investors from U.S. real estate. The changes increase the size of the stake a foreign investor can take in a U.S. Real Estate Investment Trust (REIT), and also exempt U.S. real-property interests held by foreign pension funds from FIRPTA altogether.

A strong commercial market, combined with these favorable regulatory adjustments, makes U.S. commercial properties very attractive to international investors.

Diversity

U.S. transactions can involve multiple properties and large, mixed-use development schemes.  U.S. developers hungry for capital have a ready audience on the international market, and foreign investors are fueling the continued growth in new commercial projects in major U.S. cities. A piece from Price Waterhouse put it this way:

With banks on the sidelines, international capital is helping to produce as well as extend a balanced recovery, providing domestic investors with new sources of partnership, capital, and confidence.

Stability

Foreign investors are all about minimizing risk, and U.S. properties offer steady yields that make sense for them in the current climate. At the same time, those investors are extending our economic recovery and creating new opportunities throughout the CRE market.

What’s next for the international investment market? Keep watching our blog for more updates and trends in this quickly-changing environment.

Who Uses Real Estate Technology?

Guest post by Caleb Koffler

There has been a lot of buzz around real estate technology recently, from startup pundits to the Wall Street Journal, citing mostly the astonishing rise in number of companies and the growth in venture investment to $1.6 billion in 2015 – a 350% increase over 2010.

When I began to explore real estate technologies, I wrongly assumed its narrow parameters. I decided to break it down by players in the ecosystem to better understand their pain points, and the ways in which technologists are addressing them.

The Developer

Developers are taking note primarily in a subcategory called property tech in which companies are working to increase energy efficiency, enhance security, and improve tenant experience. With global warming, rising costs of energy, heightened security concerns and more demanding competition, developers are using new technologies to lower construction costs, identify key development opportunities, and attract discerning tenants and buyers. Predictive mapping and zoning software from CartoFront, is uncovering prime development potential by using actionable data to maximize decision-making.

The “internet of things” (IoT) revolution is also having a huge impact on new development. I recently visited a newly built home in Vermont that has over 70 devices installed in the home and connected to WiFi ranging from the kitchen appliances, and light fixtures, to surveillance and entertainment systems. With this type of constant connectivity, smart electrical use will become even more critical in real estate development – especially with after hours processes, which are being modernized by Genea to more effectively manage HVAC and lights, among other services.

The Sales Broker

Anyone who has discussed marketplace technologies with old-school brokers knows that it can be a touchy subject. There is a real fear of disintermediation, but evidence suggests that the most successful companies are tapping the brokerage community as primary users of their platforms.

This is especially true in residential sales brokerage, where Zillow and StreetEasy have used brokers as a way to grow their marketplaces while providing brokers and leasing agents a medium to connect with new and prospective clients.

Brokers across the country have adopted technology to prospect for new business, and to more effectively market their listings. One such company, Floored, creates interactive 3D graphics for space visualization to assist brokers in illustrating the possible uses of a space.

While the aforementioned fear of disintermediation is real, and it may impact brokers eventually, we’ve seen that both tech companies, and consumers value the relationships and expertise brokers provide – that the human-touch of a broker goes a long way.

The Lender

Mortgages are a commodity; they are impacted by a number of relatively standard factors such as credit, leverage, risk, term, and location. They are also a competitive business with many players vying to underwrite the most attractive assets.

Tools such as Reonomy and Credifi are providing lenders with more accurate market information, and better data to effectively prospect and strengthen their pipeline for financing opportunities.

Alternative forms of lending, including peer-to-peer and crowd funding, have introduced competition into the market. Platforms like Better Mortgage, and marketplaces like Raisal are forcing lenders to work faster, be more transparent, and provide better terms to prospective clients.

The Property Manager

The need to collaborate, track jobs, compare bids and report on every event occurring with a property can be a nightmare of disorganization and inefficiency. While many managers continue to communicate with tenants by phone or email and work manually through issues, platforms like Yardi and Appfolio are helping managers improve communication, provide faster service and ultimately save money.

Online property management software (OPMS) has provided smaller shops with best practices and the opportunity to compete with the larger companies, which has been a factor in prices declining overall. Lastly, cross-departmental integration of these software’s and mobile compatibility has led to a significant uptrend in its adoption.

The Investor

In my opinion, the most exciting and disruptive technologies coming out of the recent real estate tech “boom” are in this space – broadening access to real estate investment and changing the way deals are sourced and transacted.

Traditionally, commercial real estate investment was reserved for the high net-worth individuals and investment firms that had relationships and could participate in exclusive syndications. Today, crowd-funding platforms have lowered the barrier of entry to average investors who are seeking to diversify and reap the benefits of strong returns larger real estate investments can offer.

Even for more sophisticated individual and institutional investors, access to strong deal flow can be hard to come by. With new tools and online marketplaces, deal flow is improving and the transactional process is being streamlined with better data to improve due diligence.

Tech’s Competitive Advantage

Traditionally seen as lagging in terms of technology adoption, the current generation of real estate professionals is forging ahead with unprecedented technology adoption. The leaders of the real estate tech revolution understand that their competitive advantage – and ultimately their success – is based on their ability to leverage the tools available to them to provide better services to their clients.

3 Commercial Real Estate Technologies to Keep an Eye on in 2016

Developments in tech tools for commercial real estate have been coming hard and fast for the last few years. Adoption of commercial real estate technologies improve efficiency, accuracy, security, access, and transparency.

CRM platforms have become an essential tool for handling contacts, scheduling, transactions, and property management tasks. They streamline routine processes and enable customer service to reach levels that weren’t possible before.

Big data offers a wealth of practical applications for increasing productivity and efficiency in commercial real estate. This Forbes article makes a clear case for the critical advantages that can be found in the masses of data that we generate and to which we all have access.

Data is only useful if you understand it and can explore relationships and effects. In some cases, it may be worthwhile to employ data visualization services. These help clarify conditions in a given market and helps us to identify trends. This sort of service converts spreadsheets into a more digestible format that is also interactive and ready to share with clients.

In addition to software tailored especially to the CRE industry, there are specific technologies that are coming into wider use in the business, providing new ways to communicate effectively and new sources of data for better decision-making.  These are part of what is called the “Internet of Things,” in which devices communicate with each other, sharing and aggregating original data that combine to create a richly detailed picture- of specific properties, markets, or demographics.

Virtual Reality and 3D

One of the more futuristic technologies that’s becoming widely used in CRE is virtual reality (VR).  This is used to create a customer experience that is as close to a physical tour of a property as we can get today. Services like Foundry 45 are blazing a trail and expanding our idea of how VR can be used.  One avenue for innovation seems to be in ‘augmented reality,” through the use of headsets, like Hololens.

Digital tools are available that provide detailed 3D models of properties, and create digital floor plan templates that allow for very accurate planning and can be shared in an instant.  Sites like Floored also offer interactive 3D models, video fly throughs and other digital experiences.

Sensors and Smart Buildings

We think of sensors as little assistants that can be stationed at a given location to gather information, non-stop, with little or no supervision. Sensor technology is becoming an important source of data in CRE.

City planners have known for years the value of understanding pedestrian and traffic patterns in a given location. This information is very valuable in planning for optimal use of a space and for ensuring public safety and convenience.

The real estate industry, particularly the retail segment, has begun to apply this technology with great results.  The actual hardware is very inexpensive and simple to set up. Support for these devices is provided by services like Motionloft, which also gather and aggregate data Property owners or managers can access this data at will and send useful reports to tenants and potential investors.

Other smart building technologies can help save electricity and lower expenses. One such company is Genea which automates afterhours HVAC and lighting use.  Their technologies can be controlled through their cloud application from any device.

Drones

Drone footage is a visually striking way to present information and is changing our ideas about property tours and site selection. Also called “unmanned aerial vehicles,” drones can be used to photograph properties from previously unavailable viewpoints. A new, clearer perspective on building size and location, as well as proximity to transportation and other facilities is available through the drone’s camera.

The FAA continues to develop regulation for the commercial use of drones. Currently there are limitations on use of devices weighing more than 55 lbs, as well as how high they are allowed to fly. There are only to be flown in daylight, and always within sight of the operator. Small inexpensive drones can be useful for individual firms, but a more elegant and comprehensive solution can be found with companies like Spark Aerial, which specialize in creating amazing marketing pieces for a variety of industries.

This is just the beginning of what we’re capable of in the commercial real estate industry. What technologies do you have on your “must watch” list?

3 Reasons Why Mixed-Use Developments are in High Demand in 2016

Mixed-use developments have been on the radar for several years, and are increasingly attractive to both domestic and foreign investors. A subtle slowdown in the hot multi-family market may be attributed in part to a preference for the live/work/play environment, especially in urban markets.

Experts point out that as much as 33% of the population desires to live in a walkable, mixed use neighborhood, for a variety of reasons. The national supply of such developments is not nearly enough to meet that demand.

This type of environment, which combines residential, commercial and retail space, offer advantages to each type of tenant, as well as to the investor. Residents enjoy the convenience of having dining, shopping, and parks right near home, and retail establishments can benefit from a built-in customer base.

There are several key factors that contribute to the rising interest in mixed-use developments.

Multi-family demand has dropped

While still brisk in many markets, overall demand for multi-family investments has eased up, causing investors to look elsewhere.  This is partly due to demographics. The millennial generation, with its strong preference for central locations and easy access to city amenities, favors the mixed-use model. It enables them to leave a smaller carbon footprint, spend less time commuting, and create a sense of community.

More diversified developments entail less risk

A basic tenet of diversification is that a collection of different types of investment exposes the buyer to less risk than investing in a single type of asset. A key issue in diversification is the correlation between assets, the benefits increasing with lower correlation. Mixed-use developments are diverse by their nature. Residential units can provide steady income in times when retail markets may be struggling, and the longer leases common to commercial properties create more continuity than one-year residential agreements.

Investors can in effect have 2 income streams, and be less vulnerable overall to commercial downturns or population shifts.

Residential tenants fuel demand for retail space

Basically, the mixture of tenant types feed on each other in a mixed-use development. Residential tenants want the convenience of nearby businesses, and the presence of thriving businesses attracts new residents.

Some of the specific benefits to retailers are:

Greater exposure to customers

Retail businesses located near residences are seen daily by the people who live there. They’re much more likely than stand-alone stores to attract interest and foot traffic.

Easier code and safety compliance

Mixed-use developments are built and maintained to residential standards, and they’re more likely to already comply with the strictest standards for things like fire alarms, wiring, ventilation, sprinklers, handicap access, and elevator codes and inspections

Better property management

Professional management services are necessary for mixed-use properties, to address the diverse needs of the entire community.  In general, this means more accessible and responsive performance and support.

As the popularity of mixed-use spaces continues to grow, we look for a corresponding increase in investor interest. Along with their advantages to society –more efficient transportation and parking, less fuel dependency, and more people walking- these developments present solid advantages to real estate investors.

Who are NYC’s Biggest Foreign Real Estate Investors?

The dollar volume for commercial real estate continues to mount, with a jump of 45% in the first quarter of last year. This growth is related to the fact that many transactions involve multiple properties –buying in bulk, so to speak.

About a quarter of this capital comes from foreign investors, often in the form of pension funds and other institutional investors with large amounts of capital. These investors favor the U.S. market because of its comparable stability, showing more interest in security than on yield.

In New York City, the Middle East and Asia have dominated the CRE market, creating intense competition for properties and driving up prices overall. A recent article on The Real Deal lists the city’s top 10 international investors, ranked by the capital each has pumped into New York’s CRE market.

1. China

Chinese buyers led the way in 2015 in terms of foreign investment in NYC commercial properties, spending $8.61 billion. They’re also the most active investors in the city’s residential market.  One factor at play here is the EB5 Immigrant Investor program, which grants green cards in exchange for investment in the U.S. Of the 10,000 participants last year, more than 92% were Chinese nationals.

2. Qatar

The Qatar Investment Authority is a major investor in city properties and projects. In October it purchased 44% of Brookfield’s Manhattan West mixed-use project, valued at $8.6 billion.

3. Norway

Norway’s massive sovereign wealth fund spent 1.95 billion on Manhattan CRE last year. Purchases included a major stake in Trinity Real Estate’s Hudson Square portfolio.

4. Abu Dhabi

This oil-rich country’s sovereign wealth fund, ADIA (Abu Dhabi Investment Authority) invested $1.16 billion in NYC real estate last year. ADIA bought the London NYC at 151 West 54th Street in Midtown for $382 million and the New York Edition hotel at 5 Madison Avenue in the Flatiron District for $343 million in 2015.

5. South Korea

The economy here has been weak and South Korean’s investors put their money into Manhattan properties, including the Palace Hotel, purchased for $805 million in 2015. Their contribution to the market: $1.1 billion.

6. Japan

Deals in NYC are extremely attractive to Japanese investors, who have seen short-term interest rates at home move to below zero. Their economic stagnation encourages Japanese investment here, to the tune of $1.03 billion in 2015.

7. Germany

German investment appears to be losing strength, but accounted for $580 million in NYC commercial investment last year.

8. Israel

Israel’s investors contributed about $445 million to the Manhattan commercial market in 2015.

Rounding out the top 10 are Brazil and Russia. These economies have been struggling with high inflation and problems in Russia caused by Putin’s invasion of Crimea. While they were a significant source of capital for the New York market in 2015, they appear to be pulling back from previous spending levels.

Economic challenges overseas can spell opportunity for U.S. real estate, and the outlook is favorable for interest from foreign investors. As competition tightens and prices climb, some may look to secondary markets for better deals, but the capital is there and the NYC market is universally regarded as a solid option.

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Brevitas was founded as an exclusive marketplace for the acquisition and disposition of commercial real estate assets. Brevitas was built for owners, principals, and brokers who are dissatisfied with traditional methods to acquire and/or sell CRE Assets. Focused on private, open, and off market listings, Brevitas is an international platform that provides security, efficiency, and exposure to qualified investors.

 

 

4 Real Estate Marketing Techniques to Attract International Investors

International investors are a huge potential source of business for CRE. Foreign capital already represents over 20% of the total investment in U.S. commercial properties, to the tune of more than $100 billion last year. Certain real estate marketing techniques can help attract these buyers. 

These buyers are primarily institutional funds originating in Canada, China, and Australia, with significant activity from the Asian Pacific as well. China alone has about 2.7 million high-net-worth individuals (earning $1.5 million plus), and the upper-middle class in China includes about 60 million people.

These international investors tend to favor American properties due to the relative stability of our markets and the increasingly transparent deal-making process. Despite this interest there are unique challenges to marketing to these buyers.

Identify and Differentiate Buyers

In planning the best strategy to reach potential international buyers, the first step is to identify and understand them. It can be helpful to categorize these investors according to whether they originate in Emerging or Developed markets. This makes a difference in how they approach investment.

Generally, buyers from emerging markets have more wealth and are comfortable with higher-priced transactions. They are more focused on capital appreciation than on yield, and will be most interested in properties in major cities. Buyers from developed markets are more concerned with yield and have more in common with U.S. buyers.

Understanding these basic (and admittedly broad) differences can help customize real estate marketing efforts to make them more effective.  There are tools available to help identify potential investors and save the time it takes to collect that information. Brevitas creates communities of vetted investors based on interest and locale, so you can be sure that you’re targeting the right buyers.

Clear Barriers

Attracting and holding the attention of international investors is impossible if your message can’t be understood.  Ideally, materials should be in the native language of the client, but online information can be translated. Nearly as many people get their online information in Chinese (20.9%) as in English now (25.9), and users are adept at getting access to material that may have originated in a language they don’t speak.

In creating material for an international audience, it’s important to avoid acronyms and colloquial language that may have no meaning outside the U.S. Another consideration is providing information on regulations and taxes that is accurate from the foreign viewpoint.

Local Language Website

One of the first products you should develop is a website in the local language that is optimized for the dominant search engine in that market. These include Baidu in China or Yandex in Russia.  The local marketing effort should also include paid online ads, which can include social media ads, banners, and property portals.

Interaction

Once initial contact has been made, follow-up is critical, and should be pursued through as many “touch points” as possible. These can include drip email, social media, phone calls, and any other channels that are used with domestic clients.   It is often necessary to find “channel partners” in the international location who can direct information to their local client network.

The basics of international real estate marketing are the same as those for efforts closer to home. Know your audience, tailor the message, and keep in touch. It’s all on a larger scale, and there are cultural and regulatory differences, but at the end of the day, many foreign buyers are keen to invest in U.S. properties. Making contact is often the biggest trick.