|
Anecdotally,
it seems that there has been a recent rush by foreign investors
into secondary markets in the U.S. As prices rose in proven major
markets like New York, where German funds and other foreign investors
have been major buyers, some of those entities began looking to
the hinterlands and even beyond Class A space for deals with greater
upside potential. That was the consensus among panelists at a recent
meeting of AFIRE, the Association of Foreign Investors in Real
Estate, in Boston. They said that foreign buyers were more in evidence
in markets such as Tampa, Fla. and San Diego, Calif.
However, it may be that the trend has already petered out. Last
year, the amount of foreign money that went into deals in secondary
and tertiary markets nearly tripled over 2004, reaching $8.8 billion,
or about 42% of the total foreign investment tracked by Real Capital
Analytics. But the pace has slowed considerably. Through September
1, according to Real Capital Analytics, foreign investment in such
assets totaled $3.7 billion, or less than 30% of the total.
| Where
Foreign Buyers are Shopping (deals of $5 million or
more) |
Market
|
Primary Markets
|
Secondary/Tertiary
Markets
|
Totals
|
2001
|
$2,290,365,629 |
$737,830,604
|
$3,028,196,233 |
| 2002 |
$6,904,369,022 |
$1,329,618,382 |
$8,233,987,404 |
| 2003 |
$6,343,676,262 |
$2,749,617,244 |
$9,093,293,506 |
| 2004 |
$12,132,746,961 |
$2,923,358,870 |
$15,056,105,832 |
| 2005 |
$12,190,128,637 |
$8,810,793,632 |
$21,000,922,270 |
| 2006* |
$8,757,913,640. |
$3,732,370,601 |
$12,490,284,241 |
| *through
09/01/2006 |
|
Dan Fasulo, an analyst with Real Capital Analytics in New York
says that the change may be explained by the behavior of two
different sets of foreign buyers: investment groups
and wealthy families.
The investment groups are often syndicators, who buy up assets
in the U.S., then resell partial interests to other investors
back home. “Those groups have been boxed out of the
market in the last 18 months,” says Fasulo. “That
worked when yields were 7% or 8% but now you see Manhattan
cap rates of 4%
and 5%.” Indeed, Jamestown, one of the top German closed-end
funds, has been taking profits on its New York trophy buildings,
selling 620 Avenue of the Americas for $280 million last year
and 1211 Avenue of the Americas for $1.5 billion this year.
Such lofty prices, Fasulo notes, do not scare off a certain class
of individuals and wealthy families, especially those with petrodollars. “They
are buying for their grandchildren,” he explains. “They
have to be in New York or Los Angeles or Chicago—and they
don’t care what they pay.”
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