Surprising Investments: How Global Investment Dollars Are Pouring Into Unexpected Places

Commercial Observer is serving as U.S. media partner to MIPIM, the leading global commercial real estate conference held March 12-15, 2019 in Cannes, France. At the show, Commercial Observer co-organizes the U.S.-focused panel at MIPIM, “Developing and Investing in the United States: Where, What & How?” composed of top commercial real estate professionals. Panelists will discuss which assets and markets in the U.S. are on the rise and why; provide tips for investors looking to expand their portfolio stateside; and give insights on choosing the best development and financing partners. Click here to learn more.

In uncertain times, nontraditional assets are among those seeing the greatest potential for profit and growth.

In the 2019 Emerging Trends in Real Estate report released by PricewaterhouseCoopers (PWC) and the Urban Land Institute (ULI), the companies anticipate “declining investment prospects in five of six major property types (with single-family housing being the only exception), coupled with weakening development prospects in four of six categories (with only industrials and hotels improving).”

The good news emerges from nontraditional corners of the market.

The companies note that industrial development looks to be a key growth sector due to “the need for facilities to accommodate a denser distribution network” stemming from the expansion of e-commerce. The report also anticipated a strength in the garden apartment segment, which bested the overall multifamily sector by almost 50 percent with a close to double-digit return of 9.33 percent.

The potential for nontraditional assets was also noted in Deloitte’s 2019 Commercial Real Estate Outlook report, which writes that “nontraditional assets such as mixed-use properties and new business models such as properties with flexible leases and spaces are expected to attract an increased allotment of investment dollars.”

From a global perspective, New York is still the big apple of many investors’ and developers’ eyes, but other cities are building comparable clout. According to the Association of Foreign Investors in Real Estate (AFIRE), London overtook New York, which had been #1 for the past seven years, as the most promising city for foreign investment. For U.S. cities, New York is now tied with Los Angeles, with Seattle, Washington, D.C. and San Francisco following.

AFIRE CEO Jim Fetgatter told Globe Street that L.A.’s rise is attributable in part to “the overall love affair investors are having with all things industrial and distribution right now,” noting that “the Port of Los Angeles is a very important destination for Asian imports and exports.”

Certain cities have seen global investors play a particularly significant role. At a time when international investment is holding strong—cross-border acquisitions make up 11 percent of all U.S. property investment dollars, or $51.6 billion in purchases, according to the PCA/ULI report—international investors are involved in 46 percent of Washington D.C.’s transaction volume, followed by 32 percent of Manhattan’s, and San Francisco and Houston coming up next at 23 percent each.

Sources of foreign capital shift with the tides along with the rest of the real estate industry. One major source of late, the EB-5 Immigrant Investor program, looks to be less available moving forward, as the program has been rife with fraud and uncertainty.

From a fully domestic perspective, investors are seeking “markets with potential for more growth over the traditional gateway markets.” Dallas Fort Worth came first in the PCA/ULI report, followed by Brooklyn, Raleigh/Durham, N.C., Orlando, Fla., and Nashville, Tenn.