Foreign R.E. Investors Prepared to up U.S. Ante, Four U.S. Cities in Top Five Global Picks

Washington, D.C. Falls Out of Favor

Jan 06, 2014, 09:12 ET from Association of Foreign Investors in Real Estate (AFIRE)

WASHINGTON, Jan. 6, 2014 /PRNewswire/ -- Relief from the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) would have a "positive" or "major" effect on foreign investors' plans to invest in the U.S., and investors have placed four U.S. cities among their top five "global" picks according to the results of the 22nd Annual Survey taken among the members of the Association of Foreign Investors in Real Estate (AFIRE) and released today.   Thirty-five percent said the impact on their investments would be "positive." Forty-one percent projected a "major" impact; 66% percent of respondents also said they supported increased investment beyond the prime U.S. "gateway" markets.

The second through fifth place "global cities" are: New York, San Francisco, Houston, and Los Angeles. Investors' number one pick was London, which after three years displaced N.Y. Washington, D.C., a perennial darling among foreign investors, did not rank among the "top five global cities" this year. It fell into ninth place after Tokyo, Madrid, and Munich.

AFIRE member firms have an estimated $2 trillion or more in real estate assets under management globally. The survey was conducted in the fourth quarter of 2013 by the James A. Graaskamp Center for Real Estate, Wisconsin School of Business.

"Our members' increasing interest in cities beyond the powerhouses of New York, Washington and San Francisco points to the recognition of additional investment opportunities for foreign investors," said James A. Fetgatter, chief executive, AFIRE. "However, there is no question that some relief from burdensome and complicated FIRPTA laws will be necessary to turn that interest into meaningful investments."

The U.S. Remains the Strongest Investment Market Among Foreign Investors

  • The U.S. remains the most stable and secure country for investment by a wide margin of more than 50 percentage points over the second country, Germany. This is the widest margin since 2006.
  • The U.S. remains the country providing the best opportunity for capital appreciation by a 26% margin over second-ranked Spain.
  • The U.S. leads the rankings for planned real estate acquisitions in 2014 with 48% of respondents projecting a modest increase in their U.S. portfolio size and 20% projecting a major increase. No respondents projected a major net decrease.
  • Investors are extremely positive about the direction of the U.S. real estate market. When asked how their perspective on the U.S. real estate market had changed since the beginning of 2013, 65% said it had remained the same; 30% said it was more optimistic.

"Foreign investors' continued and growing interest in the U.S. real estate markets reflects fully functioning capital markets for both debt and equity that provide access to a broad range of investment opportunities," said Steven Hason, Managing Director and Co-Head of Americas Real Estate for APG Asset Management US Inc and the newly elected Chairman of AFIRE. "Within the U.S, investors can participate in investments ranging from predictable core investments in gateway markets to potentially higher-yielding investments in secondary markets. And, in today's markets, the survey reinforces AFIRE members' beliefs that the U.S. provides an advantage for both safety and stability."

Europe Gaining Attention
For the first time since 2009, London was named as investors' top global city, beating New York out of first place. Spain was named the second best country for capital appreciation, receiving 21.1% of the votes, almost half of what the first-place U.S. attained. Last year, Spain was barely mentioned, a distant fifth. Madrid and Munich appeared among the top ten global cities, eclipsing Washington, D.C. While the U.S. remains the primary target for foreign investment, 69% of survey respondents projected they would also have modest to major net increases in their European portfolio.

Latin America Emerges
After China, in first place and moving up a notch from last year, the next four emerging countries  were in Latin America. Brazil fell from first place into second and Mexico advanced into the third slot followed by Columbia and Peru. Mexico has appeared on the emerging market list since 2009, but always in fourth or fifth place.  Last year Columbia and Peru were tied for seventh place.

Forty-four percent of survey respondents project a modest increase in their investments into Latin America while 19% project a major increase. Thirty-one percent say they intend to maintain or reinvest their allocations.

Global Snapshot

Top Global Cities

  1. London (#2 last year)
  2. New York (#1 last year)
  3. San Francisco (#3 last year)
  4. Houston (#5 last year)
  5. Los Angeles (#14 last year)

Most Stable and Secure Countries for Foreign Investment

  1. United States (#1 last year)
  2. Germany (#3 last year)
  3. UK (#5 last year)
  4. Canada (#2 last year)
  5. Australia (#4 last year)

Countries Providing the Best Opportunity for Capital Appreciation

  1. United States (#1 last year)
  2. Spain (#5 last year, tied with Australia and Mexico)
  3. UK (unranked last year)
  4. China (#3 last year)
  5. Australia tied with Mexico (last year, Australia and Mexico were tied for #5 along with Indonesia)

Top Five Emerging Countries

  1. China (#2 last year)
  2. Brazil (#1 last year)
  3. Mexico (#5 last year)
  4. Columbia (#7 last year tied with Peru)
  5. Peru (#7 last year, tied with Columbia)

U.S. Snapshot

Top Five U.S. Cities

  1. New York (#1 last year)
  2. San Francisco (#2 last year)
  3. Houston (#4 last year)
  4. Washington, D.C. (#3 last year)
  5. Los Angeles (#6 last year)

Top Five U.S. Property Types

  1. Industrial (#2 last year)
  2. Office (#4 last year)
  3. Retail (#3 last year)
  4. Multi-family (#1 last year)
  5. Hotel (#5 last year)

AFIRE members have a common interest in preserving and promoting investment in cross-border real estate. Founded in 1988, AFIRE currently has nearly 200 members representing 21 countries. AFIRE is located at 1300 Pennsylvania Avenue, NW, Washington, D.C. 20004.

SOURCE Association of Foreign Investors in Real Estate (AFIRE)