There is a tremendous amount of talk about foreign buyers coming to the U.S. to invest in commercial real estate. But sometimes it is difficult to determine exactly how much foreign investment is going on and where it is taking place. One thing is for sure, foreign investment is certainly taking place in New York City, and a lot of it.
To view the role of foreign investors clearly, it is interesting to look at demand trends from the investing community over the past 10 years or so. Back in the bubble inflating years of 2005 to 2007, institutional capital was the dominant source of demand and were buying everything in sight. When we began to feel the effects of the credit crisis in mid to late 2007, this institutional capital evaporated from the market. In 2008 and 2009, most of the properties Massey Knakal sold were purchased by high net worth individuals and old-line New York families, all of whom had trouble competing with the institutions.
By late 2009 and 2010, economies around the globe were hurting and foreigners who had accumulated wealth decided that, given the tremendous uncertainty in their home countries, investing in commercial properties in the U.S. was a safe bet. Regardless of our perspective on our political system and economy at that time, the U.S. still looked relatively safe from a political and economic viewpoint. Foreign capital started to flow into the market in amounts never seen before. In terms of the number of investors coming to the market, we hadn’t seen anywhere near the sheer number of foreign investors since the mid-1980s when foreign investment was very prominent. Interestingly, most of these investors were not generally real estate investors in their home countries. They make their money in some other business and wanted to invest in hard assets in New York. From the many conversations we have had with foreign investors, as well as observing their behavior, it is clear that the main motivation for this investment was not yield or investment return, but primarily asset preservation. These investors believed that when they wanted their $10 million, $20 million or $50 million back, they would be able to do so very easily.
Since January of 2010, Massey Knakal has sold investment properties in New York City to investors from 47 different countries. China has produced the largest number of individual investors but the source of the largest pool of dollars continues to be Canada, America’s primary trading partner. As we approach the middle of 2014, it appears there is no end in sight to this wave of foreign investment.
By: Bob Knakal
Chairman | Massey Knakal Realty Services
Mr. Knakal is the chairman of Massey Knakal Realty Services and has personally brokered the sale of approximately 1,500 properties in New York City having a market value in excess of $10 billion.
Follow Bob Knakal on Twitter: @BobKnakal
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