Commercial Real Estate Finance

Posts Tagged ‘foreign investment’

For this one, I took another look at the Emerging Trends in Real Estate 2013, the annual report published by the Urban Land Institute (with research from PricewaterhousCoopers). You can download the article as a PDF here. Previously, I’ve discussed trends affecting specific asset classes and markets. Now I want to look at funding. Here are the Top 10 Most Improved Capital Sources in 2013:

(Note that ULI scores each funding source with a number from 1 to 9. 5 indicates no change, while anything lower shows deterioration and anything higher shows improvement. Both debt and equity types are included in this ranking). 

10. Public equity REITs (ULI score: 5.66)

9. Private local investors (5.79)

8. Nonbank financial institutions (5.81)

7. Commercial banks (5.85)

6. CMBS (5.87)

5. Mezzanine lenders (5.92)

4. Insurance company lending (5.97) Read the rest of this entry »

Traditionally, the U.S. immigration process involves navigating a labyrinthine bureaucracy–red tape, hoops to jump through, etc.  For those without the resources or time for the legal route, there’s always the option of braving the dangerous wilderness of the U.S.-Mexico border. While neither route can be described as “convenient,” these are certainly the most popular methods of entry. But another route of immigration is proving increasingly promising: investing in U.S. business ventures to obtain a green card.

A while back, I discussed some of the details of this investment/immigration strategy. The EB-5 Visa for Immigrant Investors first appeared over 20 years  ago as part of the Immigration Act of 1990. Designed to stimulate economic activity (as the country emerged from the Savings & Loan crisis, etc.), the policy offered the incentive of a green card to foreign investors with either $1,000,000 or $500,000 (depending on the area) in a venture that created at least 10 U.S. jobs. While some have criticized the EB-5 Visa as a way for wealthy investors to circumvent the country’s usual immigration process (a legitimate complaint), the citizenship-for-investment program has seen very few takers because of its cumbersome requirements and inefficient management.

Still, anything that draws foreign capital is worth looking into, for real estate endeavors or anything else, and it looks like EB-5 still has a future. Last fall, Congress approved the continuation of this program (in a shameful act of bipartisan effectiveness). Recent policy changes are making the green-card-for-capital strategy more viable, particularly, I think, for private investors in U.S. real estate.  Read the rest of this entry »

Once again from Jones Lang LaSalle (NYSE: JLL)’s Global Real Estate Transparency Index, here is a ranking of the Top 10 Most Transparent Real Estate Markets in the Asia Pacific Region:

(Note: The lighter the color, the higher the market’s transparency level. The markets in this ranking range from semi-transparent to highly transparent.)

10. Indonesia

9. Philippines

8. China (Tier 1)

7. Taiwan

6. Japan

5. Malaysia

4. Singapore Read the rest of this entry »

Robert Knakal, chairman of Massey Knakal Realty Services, reports “double” the foreign investment in U.S. real estate compared to last year:

Read the rest of this entry »

Foreign investors have a growing affinity for U.S. commercial real estate, especially multifamily properties. According to MultifamilyExecutive.com, “Foreign investment in U.S. multifamily continues to heat up, despite a 25-year-old tax law that imposes stiff penalties on cross-border investors.” One would think that stiff tax laws would prevent some investment, but that is not the case.

Read the rest of this entry »

CNN’s Lisa Sylvester Discusses the Increasing Number of Foreign Investors Tapping into U.S. Real Estate

Richard David, CEO of Treasury China Trust, Sheds Light on China’s Revenue Growth in the Commercial Real Estate Sector

James A. Fettgater, Chief Executive of the Association of Foreign Investors in Real Estate, Addresses How Foreign Investors Feel About Supporting US Assets?

Richard Bloxam, EMEA Head, Discusses the Incline of European Investment Transactions in 2011 and The Intent to Increase REIT  and Real Estate Portfolios.

Robert J. Hellman
Managing Director, Real Estate
David Landau & Associates, LLC

Rob Hellman has over 30 years of professional experience, including 27 years in the real estate and financial services industries. Prior to joining DLA, he was a Managing Director at Ackman-Ziff Real Estate Group, working with clients to structure their capital needs and source debt and joint venture/preferred equity for real estate acquisitions and development. He began his career in real estate as part of Lehman Brothers’ efforts to raise equity and debt for real estate investment transactions. During his 16 years at Lehman Brothers, he also served as president and/or chief executive officer for several public real estate funds that acquired over seven million square feet of retail space, 1.8 million square feet of commercial space and over 1,600 multifamily residential units. Rob also sat on the investment and risk management committee of Lehman’s Diversified Asset Group responsible for approving dispositions, major lease transactions and financing decisions. Following his career at Lehman Brothers, Rob became a Senior Managing Director at Newmark & Company Real Estate, Inc., where he was a Principal of Newmark Capital Group and the firm’s Retail Financial Advisors. He subsequently formed Riverstreet Realty Advisors. Among his DLA engagements, Rob has been retained as head of asset management for a major real estate investor owning a $2.5 billion portfolio in the US.

Q: As a company, tell me about the niche you have carved out for yourself and how you feel you are different from the competition. Why do you find this product type more appealing than alternative real estate asset classes?
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The Week of December 12-18

- Is all of the loose spending by world governments creating a massive asset bubble risk?

- If Fed funds and interest rate hikes aren’t coming, then we’ve got one confused futures market.

- Dollars from Dhabi to Dubai: One Arab nation is bailing out a neighbor.

- Specialized investment banks are ramping up to prepare for CRE turmoil.

- Fairfield Residential, one of the biggest U.S. apartment landlords, is filing for Chapter 11.
Read the rest of this entry »

As of March 16, 2009, the total U.S. federal debt was $11,042,553,971,450.47. A traditional defense of the national debt is that Americans “owe the debt to themselves”, but that is becoming increasingly less accurate. The US debt in the hands of foreign governments was 25% of the total in 2007, virtually double the 1988 figure of 13%. Despite the declining willingness of foreign investors to continue investing in US dollar denominated instruments as the US dollar fell in 2007, the U.S. Treasury statistics indicate that, at the end of 2006, foreigners held 44% of federal debt held by the public. About 66% of that 44% was held by the central banks of other countries, in particular the central banks of Japan and China. In total, lenders from Japan and China held 47% of the foreign-owned debt. And recently, word is spreading that the Chinese have pulled back their investments in US Treasuries.

When it comes to real estate, however, foreign investment is not very common, because it simply isn’t very easy.

The Foreign Investment in Real Property Tax Act (FIRPTA) is a statute that requires that a seller, who is a foreign person, permit a withholding of a part of the selling price (generally 10%) against the United States gains taxes that the foreign person will owe on capital gains earned on the sale of real property.

FIRPTA was enacted in 1980. A senator from Michigan was concerned about farm land and wanted to protect “the American heartland” from foreign interests. The world has changed, but FIRPTA has not. Many of the rules that were written in the 1980s look outdated and unsuited to modern investment practices because they were written with a particular paradigm in mind, that being a single foreign investor or a small group of foreign investor acquiring US real property.

Non US investors in US real property are subject to fundamentally different US federal income tax rules than those that apply to their investments in US corporations or other capital assets. Most notably, a foreign person’s gains attributable to the disposition of capital assets other than US real property interests are not subject to US tax. FIRPTA discriminates against the asset class of real property.

To exacerbate this problem, most of the US debt that China and Japan do own is bought by Asian banks, which in China are controlled by the government, and the governments themselves in addition. It is very difficult for wealthy Chinese businessmen to funnel personal money out of China and into the US for personal investment in real estate for this reason in addition to FIRPTA. Yet, there is an increased flavor for it. This is due to the United States general macroeconomic and governmental stability relative to other foreign countries, and the relative weakness of the dollar and the economy. As we all know, the yields, by almost any metric used, in commercial real estate have increased by hundreds of basis points across all sectors in the last year.

If FIRPTA was repealed, not only would this stimulate foreign investment in the US, but it would make it easier for the investment to be private, rather than public investment. Just among domestic ownership of commercial US real estate, the percentage of private ownership is staggeringly high. If we make foreign investment easier, logic would suggest that the ratio would be similar. In an overall foreign investment ratio, foreign real estate investment would help balance public versus private investment. This would provide a good hedge against any sudden and potentially economically catastrophic and ruinous move by the Chinese government to stop investing in the US, or essentially financing our burgeoning debt ratios.

Repealing the outdated FIRPTA law would simply allow us to avoid potential economic disaster, as it spreads risk from one large powerful investor, the Chinese Government, to a lot of individual, and therefore less powerful investors. By allowing this foreign investment, we increase foreign equity in the US, rather than continuously inflating our debt to foreigners. This, in and of itself may provide enough influence to foreign governments to continue financing our debt, because their citizens interests are economically more aligned with US citizens. If Asian Governments decide to pull the proverbial plug, sending our economy into disarray, their own domestic private sector would stand to lose as well.

For those of you who agree with that Michigan Senator from 1980 who helped put FIRPTA into law, I would remind you that the Fart East already owns America anyway. Repealing it is simply a way to make sure foreigners don’t really control our fate as a nation by aligning their interests with our own. After all, this isn’t 1980, and we do live in a global economy.