April 20, 2016

Foreign Investment in United States Commercial Real Estate

A recent survey by the Washington-based Association of Foreign Investors in Real Estate, or AFIRE,  revealed that a large percentage of foreign investors are expected to invest more in US real estate in 2016 than they did in 2015. It may be noted that the members of AFIRE hold around $2 trillion of the global real estate.

Investors, particularly those living in volatile local markets, perceive the US as the best safe haven for their capital. As per the survey, New York real estate is the top market for investors around the globe. The favorite property types in the US for investment were industrial and multifamily properties, with retail, office, and hotels not too far behind. 64% of respondents were in favor of increased future investments in properties across the US, while 31% intended to reinvest in other American assets or maintain their US real estate holdings. No respondent was in favor of any major reduction in investment.

Chinese Investors Focus on NY and CA Assets

The economic slowdown in China, the immigration crisis in Europe, and the recession in Brazil have been major causative factors for increased foreign investment. Additionally, the real estate market fundamentals in the US are not as expensive as compared to other global markets. Chinese investors have been particularly active in the US real estate market. Rhodium Group estimated that Chinese firms invested nearly $3 billion in New York real estate in 2015 alone. Among the notable transactions were Anbang Insurance Group Co.’s $2-billion purchase of Manhattan’s Waldorf-Astoria Hotel.top-6-news-global-investment

Foreign Investment in US Commercial Real Estate: Facilitating Factors

The FIRPTA or Foreign Investment in Real Property Tax Act was amended in 2015 and such changes will help increase foreign investment in the US. Overseas pension funds now have FIRPTA withholding and tax exemption. Also, foreign shareholders will not incur FIRPTA tax and withholding on 10% of their publicly traded stocks instead of the previous 5% limit.

As per Real Capital Analytics Inc., real estate foreign investment in the US was below $5 billion in 2009, and has now soared to $87.3 billion in 2015. Investors from Asia, Australia, Canada, and Europe have invested heavily in warehouses, office towers, shopping malls, apartment buildings, hotels, and other kinds of US properties in a hunt for stability and better returns.