With the amount of foreign capital increasing in the US real estate market, there is a growing number of sponsors who want to get involved.
In 2014, the amount of cross-border acquisitions specific to properties in the United States reached almost $40 billion, this according to Real Capital Analytics in New York. While this is approximately $6 billion less compared to the market peak in 2007, it represents a steady climb over the past several years.
Being able to accurately measure foreign capital volume coming into the US is challenging because some acquisitions have remained quiet and there are a number of unique forms. Even so, percentage wise it is estimated that foreign capital for total activity has stayed around 7.5 percent over the last 10 years.
As stated by Bob O’Brien, global real estate sector leader with Deloitte, the volume from a percentage perspective last year was 11 percent, which comparatively is much higher.
Opportunities for all Investment Groups
For all investment groups to include private equity funds, publically traded REITs, and groups that offer various ownership structures such as joint ventures and limited partnerships, foreign capital is alluring. O’Brien added that the majority of larger real estate fund sponsors and private equity firms have increased activity for fund raising in the past year and a half, which indicates an inclusion of foreign investors for raising capital.
A prime example of this is seen with Syndicated Equities in Chicago. This firm targeted individual investors outside the United States with high net worth. So far, the firm has welcomed investors from roughly 24 countries such as mainland China, Canada, Norway, and Israel.
Richard Kaplan, CEO of Syndicated Equities confirmed that interest from overseas investors specific to US real estate has increased, primarily deals on the more conservative side. Kaplan said that to date, his company has achieved great success with this.
Recently, about $6 million was raised by Syndicated Equities in acquiring two properties in two student housing properties located in Austin Texas. For that equity, approximately 12 percent came from foreign individuals, a huge increase from two years ago when on average foreign investment was at 3.5 percent.
Syndicated Equities is pleased with the increase since the goal has been to grow foreign direct investment in syndications to about 20 percent of available equity. This year, the company is working toward equity of about $48 million and acquisitions of $120 million.
Kaplan points out that there is a similarity between US and foreign investors with everyone trying to gain an edge and more control. He stated that the company appreciates having a say in what is and is not chosen specific to the type of real estate but also market.
Growing Interest in the US Real Estate Market
From private investors to sovereign wealth funds, there is a lot of interest in the US real estate market. In connection with foreign capital there are many more joint ventures, partial interest sales, and club transactions.
For many overseas investors, the first step involves putting capital into a reputable REIT, one with investments in a gateway market. As such, this creates an incredible opportunity to gain knowledge about the US real estate market. From there, some investors get involved with a fund structure as a means of becoming more directly involved with ownership. Throughout the process, this allows foreign investors to be more careful in choosing partners, those who are responsible in the way the operate.