International investors, especially from China, continue to pour money into U.S. real estate—favoring apartment development. “The thing that’s been skyrocketing is the Chinese purchase of development sites in the U.S.,” says Jim Costello, senior vice president for Real Capital Analytics (RCA), a data firm based in New York City.
For example, last September, the Wanda Group, China's largest commercial property developer, bought 7.95 acres at 9900 Wilshire Boulevard in Los Angeles, Calif., with plans to create a $1.2 billion condominium development. “With its premier Beverly Hills address, 9900 Wilshire is expected to rank among the most well-known addresses,” according to a statement by CBRE Capital Markets, which arranged the deal with Savills Studley.
Low-interest rates in the U.S. and weak economies in the rest of the world continue to attract international investment to the multifamily business in the United States. In the last 12 months, investors from China have been especially enthusiastic buyers of development sites for apartment and condominium properties. However, much of the money is now invested through sponsors or fund managers that are based in the U.S.—so the money doesn’t show up on tabulations of investment kept by data firms like RCA.
Investors based in China now account for 5 percent of the total purchases of all development sites in the U.S., according to RCA. The investors seem to be replicating a business model that they used in China of acquiring land to develop condominium and rental apartments properties to sell or lease, says Costello.
“The international capital coming from all over the globe is more pronounced that ever,” says Brian McAuliffe, executive managing director, institutional properties for CBRE Capital Markets. Since 2014, CBRE has brokered at least $2.6 billion of foreign capital buyer deals in multifamily, including both land developments and purchases of existing properties.
Foreign investors are increasingly likely to invest through private equity funds or other investment vehicles based in the U.S. For sellers of apartment properties or development sites, potential buyers interested in your property are likely to be firms based in the U.S. using money from overseas. “The majority of international capital is accessing the U.S. real estate market through a sponsor,” says McAuliffe. “They are seeking operators or fund managers.”
As a result, the amount of foreign capital invested in apartments may be even larger than the billions recorded by data firms like RCA. Foreign investors directly purchased $4.3 billion in apartment properties in 2014, down from $5.3 billion in 2013. “The vehicles that cross border investors have been using to access the MFH market may be part of the issue,” says RCA’s Costello.
Big plans for 2015
An overwhelming majority of foreign investors says they plan to keep pouring money into commercial and multifamily real estate investments in the U.S., according to the 2015 survey of the members of the Association of Foreign Investors in Real Estate (AFIRE).
More than 90 percent of foreign investors say they plan to maintain or increase the size of their U.S. portfolio in 2015. They voted the U.S. the most stable and secure country for investment, outstripping both second-place Germany by 55 percentage points. The U.S. also offers the best opportunity for capital appreciation, out-performing second-place Spain by 34 percentage points and the third-place United Kingdom by 40 percentage points, according to the AFIRE survey.
Two-thirds of survey respondents expect China to become the largest source of capital into the U.S. in 2016 and beyond, according to the AFIRE survey. Ten percent expect that could happen as early as 2015. Seventy-two percent of survey respondents said they expected this investment to be a long-term, permanent inflow.
”With a stable and transparent market and an economy that appears to be steadily improving without the fits and starts experienced in other regions, the U.S. has become the first stop for foreign real estate investors,” says Thomas Arnold, who heads the Americas real estate division for Abu Dhabi Investment Authority and is the chairman of AFIRE. “With the continued creation of wealth in China, it is not surprising that they, along with