Foreign Investors Fueling New Urban Developments in America

Foreign Investors Fueling New Urban Developments in America

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It would seem that foreign money is finding it’s way back into American real estate, not in residential homes, but in big lots primed for new development. As housing prices began to rise in the United States in 2012 and have continued into 2015, foreign investors also began to find the prospect of buying homes for cheap and then renting them out for profit diminishing. Instead, these wealthy beneficiaries are thinking bigger in commercial office buildings and large multi-family unit complexes. According to an article from the Wall Street Journal, “foreign investors bought $45 billion of U.S. commercial real estate in 2014, second only to 2007’s $47 billion, according to research firm Real Capital Analytics.”

Foreign investors are concentrating their efforts in many major metro areas across the United States, particularly in New York City where leasing prices are high and real estate of any kind is typically considered prime. Investors are coming from many Asian and Middle Eastern countries, particularly Japan, China, South Korea, Kuwait, and sovereign wealth funds from the Emirates. Many are wondering why these foreign investors are taking part is such traditionally risky ventures that many American investors have shied away from, but according to Ken Riggs, president of Situs RERC, “in their mind, it is worth the risk given that the alternative—well-leased, established buildings—bring much lower returns than successful developments.”

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Many U.S. investors are less keen to spend millions of dollars on new developments because of their uncertainty since many were burned during the real estate bust a few years ago; costs were high for the initial build and investors were disappointed when no one could afford to lease space. Experts also say that these foreign investors are looking to diversify their properties and have found U.S. property to be more lucrative than anywhere else in the world because of the growth potential.

Here are some of the recent deals that have gone through for foreign investors:

  • Mitsui Fudosan Co., a Japanese developer, paid $259 million for a 92% stake in a $1.4 billion office tower in Manhattan, NY
  • Pontiac Land Group from Singapore are building a 750,000 sq ft condominium tower in NYC
  • Korean Air is building a hotel and office complex in Los Angeles that is set to be the tallest building in the western United States

What do you think about so many foreign investors taking interest in U.S. properties? Do you think more American investors should get back into the game? Let us know on our Facebook page!