Why Asian Investment Dollars are Flooding into Australia in 2016

As the world continues to shrink (metaphorically, don’t panic), international real estate investment is becoming more popular than ever before. Improved communications, reduced transactional friction, and investment-friendly policies are drawing Asian investment to the U.S. market in record numbers. There’s also been intense activity in Australian real estate, particularly from Asian investors.

iProperty.com conducted a survey at the end of the year which showed that Australia was the first choice of investment location for international property buyers based in Singapore and Malaysia, second for Indonesian investors.

Experts suggest that these investors see Australian properties as a better investment than real estate in other countries. It is often relatively cheap, given currency fluctuations. The Australian dollar has fallen by about 30% in the last few years.

Asian investors arelooking at larger towns like Newcastle and Wollongong. Larger established towns (with) universities in place and also potential for growth from a commercial side of things,” according to a profile posted last summer.

There’s been a high level of investment from China as well. The Wall Street Journal recently reported that Chinese investment in Australian real estate has doubled in the past year. This segment accounts for 16% of the total sales of Australian real estate.  In fact, China invests 3 times the amount in Australian real estate that the U.S. does, and 6 times what Singapore invests. Prior to 2013, the U.S. was the leading investor in Australian property.  China is extremely important to the Australian economy. It is Australia’s largest export destination and also contributes to that country’s growing international tourism.

This is partly fueled by uncertainty surrounding the Chinese economy. Favorable trade agreements and a growing Chinese middle class also encourage the flow of investment to the Australian market. High net worth individuals in China find the Australian market attractive, both in terms of price and economic stability.

Actions by the Australian government at the end of 2015 put a bit of a damper on foreign real estate investors. The government cracked down on property owners who had not gotten the required approval for their investments. It also instated a new fee for international investors registering their Australian properties.  Rules governing newly built properties are less restrictive, and this has led to record participation from foreign investors in development projects.

The international impact is being felt most in the residential market, in part due to the small size of the commercial market, which is dominated by domestic investors. Still, foreign money is going into commercial properties as well as development plans.  Overall, in the past year, 50% of Australian real estate investment capital came from foreign investors, according to Australia’s Foreign Investment Review Board.

Observers predict that this high level of foreign interest will have an impact on all sectors of the Australian market. Demand is expected to grow in hotels and resorts and even in the rural land market. It’s likely that this trend in high demand will continue into 2016.

3 Non-Gateway Cities Where Foreign Investment Dollars May Surprise You

Foreign investment in America, CRE has been booming in recent years, and fierce competition for a limited supply of properties has led some international investors to look beyond the primary markets to find a more suitable deal. Certainly New York still attracts the most foreign capital, including massive sovereign funds as well as high net worth individuals from China and the Middle East.

High profile transactions help to highlight the level of foreign investment going on in the U.S. commercial real estate market. The purchase of New York’s Waldorf Astoria hotel by Chinese insurance group Anbang was big news last year – just one of several major deals struck by foreign investors in NYC.

Along with New York, other American gateway cities also enjoy considerable interest from international investors. Washington and Los Angeles are also notable for the rate of international investments in their commercial properties.

A check of some sources whose business it is to follow the deals involving international capital shows that foreign dollars are being put into some markets that you might not expect.

Miami

It might surprise you to know that this South Florida metropolis ranks among the top global real estate investment destinations, according to a report from CBRE. In fact, it comes in at #19, on a list that includes formidable markets like Paris, Hong Kong, and Tokyo. Nearly a billion dollars were invested there in 2015 by foreign sources, many originating in South America.

Houston

Falling just short of Miami’s influx of foreign capital, Houston also had a strong showing in 2015. The Texas city, with a population rapidly galloping toward 7 million, is one of the most diverse in the country. Residents speak more than 100 languages. Rising rents and low vacancy rates have made commercial properties here very attractive to foreign investors.

The Urban Land Institute reports that international investors are coming to Houston from China, Canada, the United Kingdom, India, Mexico, Japan, Russia, the Middle East, and from additional countries in Latin America, Asia, and Europe.

The Tel Aviv–based Azrieli Group, has been especially active in Houston’s commercial real estate market. In 2014, the firm paid $76 million to buy its fifth Houston property, a four-story suburban office building. Houston is the location of more properties in the Azrieli Group’s commercial real estate investment portfolio than any other, aside from properties in Israel.

Atlanta

International investment in the Georgia capital was reportedly around that $1 billion mark for 2015 as well. Local observers say that foreign investors see the potential for greater returns in Atlanta compared with similar properties in other cities. Properties in the city’s downtown have been especially attractive to foreign investors.

Availability is favorable in these secondary markets, and competition for commercial properties is not as great as in the top tier cities. This is leading international investors to look beyond places like New York, Washington and L.A.  While the largest funds continue to stick with the major markets, smaller funds and individuals in particular continue to expand the reach of international capital in the U.S. commercial market.

3 Big NYC CRE Deals Made by Foreign Investors

2015 was a massive year for CRE deals in New York. Sales of commercial properties in the city set a new record, totaling $70 billion. This is a 12.5% increase from the previous, record, set in pre-recession 2007.

One of the factors that are driving this market is the rate of foreign investment. Foreign investment has been strong all over the U.S. in recent years. Overall, foreign buyers spent more than $87 billion on U.S. properties last year, from less than $5 billion in 2009, according to Real Capital Analytics. Interest in U.S. properties is high among foreign investors, who see our economy as a stable place to stash wealth. In fact, some of the city’s most significant CRE transactions over the past year have involved international investors.

Norges

Norway’s sovereign wealth fund entered into a partnership with church-run Trinity Real Estate to buy a 44% share of the company’s 11-building downtown office portfolio at the end of the year, the Real Deal reports. The price- $1.6 billion.  Totaling nearly 5 million square feet in Hudson Square, the buildings are about 94% leased.

The property occupies 215 acres, and the largest of the buildings is One Hudson Square, with 1.2 million square feet.

Norges is a division of the Norway Central Bank, and also purchased interest in properties at 11 Times Square and Citigroup Center at 601 Lexington Avenue earlier in the year.

AXA

French insurers AXA Financial, in partnership with JP Morgan, made over $3.5 billion in the sale of two midtown office towers in the past year. The properties, at 1285 6th Avenue and 787 7th Avenue, were placed on the market in August.

Both properties comprise about 1.7 million square feet of space, and were sold to RXR Realty and CalPERS, the California public employees pension fund, respectively.

RXR reportedly beat out competition from Chinese and Canadian pension and sovereign wealth funds to secure the 6th Avenue property.

Anbang

Chinese insurance group Anbang purchased the iconic Waldorf Astoria in the most expensive hotel deal ever.  The deal was completed this past year, and Hilton Worldwide received $2 billion for the property, which it has agreed to continue running for the next 100 years.

Five Star hotels are popular with international investors. The Plaza is currently owned by the Sahara Group of India, and the Carlyle is owned by New World Development of Hong Kong. Anbang Insurance Group has announced plans for significant renovations to restore the historic structure, first opened in 1931.

In a year with several billion-dollar deals, New York’s commercial market attracted a record level of foreign investment. Looking at the pipeline, even more major deals are in the works, many involving sovereign wealth funds, pensions, and high net worth individuals from China, the Middle East, and other parts of the globe.  With 40% of commercial investment coming from outside the U.S., it’s likely that international players will be involved in some high-profile deals in the year to come.

Brevitas Announces Collaboration With Embassy Group

SAN FRANCISCO, April 6, 2016 – Commercial real estate marketplace, Brevitas, announced its collaboration with one of India’s largest development companies, Embassy Group. The collaboration serves to further expand Brevitas’ presence in one of commercial real estate’s emerging markets. Brevitas is the leading online platform dedicated to off-market commercial properties. Membership is limited to qualified investors and brokers of commercial real estate assets from around the globe.

The agreement cements the relationship between one of the world’s preeminent asset management and development firms with the most powerful resource for buying and selling commercial real estate privately. With an influx of activity throughout the primary American markets and Western Europe, Brevitas has seen rapid growth since launching this past September, now boasting over ten billion dollars in assets for sale. The collaboration with Embassy Group seeks to build on this growth to create new opportunities for Brevitas members.

“Working with Embassy Group gives us unheard of access to arguably the world’s most important real estate market. We see it as a win-win for both sides of our marketplace,” said Brevitas CEO, Ardian Zagari. “This allows us to connect our members with investment opportunities they would not otherwise have access to.”

The commercial real estate industry has been slow to embrace technology, therefore a vast majority of commercial assets are never sold online. This collaboration is representative of real estate’s biggest players arming up and preparing to adopt new, disruptive technologies in order to gain a competitive advantage.

“The Embassy team is led by forward-thinking individuals who are always pushing the envelope – it was part of why we felt this was such a natural fit. We are giving buyers and sellers of flagship real estate assets unprecedented opportunities to connect and build relationships; our agreement with Embassy Group serves to further these relationships,” explained Zagari. Details of the collaboration between the two companies are expected to be released in the coming weeks.

Foreign Investment in U.S. Commercial Real Estate Market: An Update

The American commercial real estate market has received a sizable shot in the arm from foreign investors in recent years, and indications point to continued growth there. With foreign capital representing about a quarter of all investment sales in the U.S., this activity has been important in enabling commercial developments here. As we settle into 2016, here’s a rundown of where things stand and where they’re likely headed.

Heavy Investors

Interest in the U.S. market is high across regions, with the highest levels of investment coming from Canada, China, and Australia. This hierarchy is shifting, though, as Chinese investment has surged over the past year with strong continued momentum. Regionally, the Asia-Pacific investors lead the field.

A factor driving increased activity is the lack of attractive options in the home country as well as some relaxation of restrictions on outbound investment. The U.S. commercial market continues to represent the most stable and secure investment option for many foreign buyers, although the European market is also likely to attract international attention. The Eurozone has stabilized over the last year and there are some distressed asset opportunities that will be attractive to investors.

Institutional investors with massive pools of capital to invest have helped to boost prices in primary U.S. markets, and foreign investors are looking beyond those to secondary cities like Seattle, Philadelphia, Miami, and Dallas.

Decreasing Friction

The time seems right for international investment, with governments easing restrictions on both ends. Thanks to the Real Estate Investment and Jobs Act of 2015, the tax burden imposed on foreign investors by FIRPTA (Foreign Investment in Real Properties Act-1980) may be considerably lighter. FIRPTA’s original purpose was to discourage cross-border transactions, and it imposed heavy taxes on foreign investors. The JOBS Act goes a long way toward eliminating that barrier.

This legislation increases the percentage of publicly traded stock that a foreign shareholder may hold without incurring FIRPTA withholding and tax upon sale of the stock from 5 percent to 10 percent. It also exempts from tax certain gains on the sale of REIT stocks and capital gain distributions from REITs.

In addition, The Protecting Americans from Tax Hikes Act of 2015 (PATH) heads off the potential for tax increases down the road, and also makes it easier for foreign buyers to invest in development projects in the U.S. Price-Waterhouse recently outlined the changes that impact international investments in U.S. CRE.

These changes are expected to facilitate the flow of capital into the U.S. commercial market from global investors.

Pulling it Together

Overall, international investors are drawn to the U.S. market for safety rather than yield, attracted to the reliable, low-risk options to be found in our primary cities. Those who venture into the secondary markets are looking for better pricing and higher potential yields.

Meanwhile, foreign investment is driving up prices in major markets and competition for properties is high. Supply is not meeting demand. This opens the door for increased investment in commercial development projects.  

On our end, facilitating foreign investment in the U.S. market requires establishing partnerships that are mutually beneficial and assist international buyers in navigating regulations and tax law. It’s critical to understand the objectives of these buyers, and offer expertise in local markets and regulations that help them to achieve those goals.

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.

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.

 

These 5 Stats About Foreign Investment in US CRE May Surprise You

Interest in U.S. properties from international investors has been strong since the financial crisis, and the rate of investment has been accelerating in the last couple of years.  We can see evidence of this in the industry news, and we hear stories from colleagues, but the full scope of foreign investment in American CRE is best demonstrated with a collection of statistics.

Read on for a snapshot of international activity in the market, and the factors that are helping to drive it. They may surprise you –at the very least they are food for thought.

20%

Foreign capital is involved in twenty percent of the deals currently made on CRE in the U.S., with the heaviest investment coming from Canada, China, and Australia. Interest in international investment is surging, and pension funds around the world are looking to increase their allocation rates for real estate.

$70 billion

While figures vary, this is a reasonable estimate of the amount of foreign capital coming into CRE in the U.S. over the 12 months between July 2014 and July 2015.

By mid-year, the amount invested had already surpassed the entire amount for 2014 by nearly 100%.

10% -plus

This is the target average rate of allocation to real estate among institutional investors worldwide, according to a survey by Pensions and Investments. The study also found that Asian investors are the most likely to increase allocations, while North Americans are more cautious. The highest rates are found in Asia, where in 2014 allocations to real estate were at 10.9 percent, according to Cornell/Hodes Weill. Among European institutions they were 10 percent. U.S. institutions trailed at 9 percent.  Implementing these targets would mean more than $500 billion in new capital aimed at commercial real estate globally, in a market that some suggest may see investments of $1 trillion annually in the near future.

200%

Legislative developments play a large role in the level of international investment. One such development is the PATH (Protecting American Taxpayers from Tax Hikes) Act. This law, passed in December 2015, affects foreign investors in 2 major ways.

The law doubles the maximum amount of stock ownership that a foreign investor may have in a U.S. publicly-traded REIT from the previous limit of 5 percent to 10 percent.
 The law also permits certain foreign pension funds to invest in real estate investment trusts (REITs) without having FIRPTA tax treatment apply.

$30 billion

This is the amount of additional capital that some estimate will enter the U.S. CRE market this year as a result of changes to FIRPTA made in 2015. Many of these changes are laid out in the REI (Real Estate Investment) and JOBS (Jumpstart Our Business Startups) Act, finalized last year.

While the overall growth rate of commercial investment may moderate in 2016, favorable legislation and economic conditions in the U.S. will continue to make the CRE market attractive to international investors. Keeping an eye on the data can be key to identifying opportunities and weighing risk.

 

7 Dream Team Players You Need Before Investing in Real Estate

Getting started investing in CRE requires a good deal of preparation and planning. One of the first considerations is forming a team, because this is not something one does alone. You’ll need experts in your corner to navigate this complex environment.

Technology developments have expanded our options and given us unprecedented access to experts and networks. Making use of these tools, investors can cover all of the bases much more efficiently and assemble a dream team.

#1: Property Comps

Access to information on comparable properties is essential in evaluating a potential investment and formulating an offer. While this information was once the domain of agents and brokers, it’s now available online. Several excellent platforms offer comps for commercial real estate.  Compstak is a free source with thousands of comps shared by its users. It is searchable and accurate, so any investor can get the information they need.  Loopnet offers listings and property records, as well as sales comps, for a subscription.

#2: Market Analysis

Understanding market conditions and forecasts is the basis for effective planning. Here again, technology has opened the gate to this information. Data aggregators compile massive amounts of information and analyze trends to develop an accurate picture of current conditions as well as credible forecasts for future growth. There are an array of online services that make Big Data into a manageable tool. Some examples are REIS,  Real Capital Analytics, and Costar.

#3: Accountant

There’s a lot of number crunching involved in CRE investment, so an experienced accountant is a huge asset. A CPA can help you to maximize tax savings and avoid over-extending yourself.  Ask other investors for recommendations, and keep in mind that an accountant that has participated in investing can take your perspective.

#4: Portfolio Management Software

Once investments have been identified and accumulated, tech tools will help you to manage them effectively. Platforms for managing portfolios are sophisticated and intuitive aids. Reoptimizer provides a comprehensive dashboard that lets you get a clear overall picture of your investments and reports and calendar features that help keep you on top of the details.  Argus includes tools for budgeting, risk management, and analyses that help build your portfolio strategy.

Property management

The complexities of property management can be tamed by digital tools created specifically for CRE.  These platforms assist with everything from rent collection to marketing, and can serve small operations as well as large property management firms.

#5: Listings

Access to listings has never been so widespread. In fact, potential buyers often identify properties and then consult brokers for access to the details. The array of portals for CRE is vast, and many platforms are able to provide in depth property information online to interested buyers. Costar’s showcase site is a search engine for commercial properties, and CRBE’s site shares listings for properties worldwide.

Even so-called “off-market” deals, once known only to industry insiders, can now be searched online. One such private marketplace is Brevitas, which in a few short years has compiled a huge inventory of these opportunities.

#6: Attorney

An attorney is essential for navigating the investment process. This is a complex environment, so choose an attorney that spends the majority of his/her time (at least 60%) on real estate, and has at least 5 years’ experience in real estate law.  Their clients should include many investors, in a variety of CRE properties. An attorney that has made some real estate investments of his/her own will also be in a better position to represent investors, in many cases.

#7: Brokerages

Real estate brokerages have seen their roles evolve over the last decade. As clients are empowered by technology, they’re able to find preliminary information independently. The brokerage has become an expert consultant, providing clients with detailed information on market trends, economic and demographic factors, and the ins and outs of transactions.  Major brokerage houses share a wealth of information online. Check the sites of JLL, CBRE, Marcus & Millichap, and others for useful statistics, news, and information. They provide a tremendous range of services relating to CRE.

Assembling an investment team is easier than ever, and these resources mean that your team can include some nationally ranked players.

Where Foreign Investment in U.S. CRE is Headed in 2016

This has been a very strong year for foreign investment in U.S. commercial real estate. Nearly 20% of the total sales volume for CRE in the U.S. now comes from international capital. There are a number of factors that fuel this flurry of activity. Our economy is strong and stable, relative to other markets, and transactions are more transparent. Low interest rates and favorable spreads are attracting the attention of foreign investors with large amounts of capital to park in a safe place. Capital preservation and higher yields help to draw international buyers to the U.S. market.

Continued Expansion

Sources of the most foreign capital continue to be Canada, China, and Australia. It seems likely that China’s share of global real estate investment will grow, as that nation’s participation exceeded $10 billion for the first time last year. This growth continues to accelerate in response to the Chinese government’s loosening of restrictions on overseas investment.

The U.S. government is doing its part to encourage international investment as well, making significant changes this year to FIRPTA, which was originally passed 35 years ago with the intention of discouraging cross-border investment through heavy taxes on foreign buyers of U.S. real estate. Response to developments there as recently as October will surely accelerate as we move further into 2016.

According to a survey released by the Association of Foreign Investors in Real Estate, about 64 percent of foreign investors expect to make modest or major increases in their investments into U.S. real estate this year. And none of the surveyed investors are planning to decrease their investments. The group predicts continued growth in foreign investment for 2016.

Secondary and Tertiary Markets

Although foreign investors still tend to focus on the major U.S. markets, stiff competition and rising prices have led some to explore markets that were previously overlooked. Some of the markets seeing more international participation include Miami, Atlanta, Chicago, San Diego, San Francisco, Seattle, and Boston. As it becomes easier for investors to identify and verify opportunities in multiple markets, we expect this participation to increase.

 

Foreign Investment in High Quality Assets

International investors favor high quality assets such as regional shopping malls, office and industrial properties and multifamily properties. They tend to prefer established, occupied properties, but there is some indication that foreign buyers are more willing to participate in development schemes. As the ability to make connections is accelerated by technology, these buyers can make short work of the required due diligence involved in this sort of investment.

The increased level of international participation in CRE markets is in part a reflection of our shrinking world. Barriers are dropping as business and government alike see the benefits of increased access to the market. Technology has been utilized to create specialized platforms that make transactions more efficient and transparent, and the exchange of information proceeds at a blistering pace. Each of these circumstances points to even greater opportunity for international CRE in the coming year.