Archive for April, 2008

Developers are reporting strong interest in commercial properties from investors in England, Ireland and Scotland.

Despite a growing focus on Asia, U.S. real estate has climbed to the top of the global property market among foreign investors – and by a wide margin.

New York City and Washington are the top two global cities for foreign investors’ real estate dollars, according to the results of the 16th annual survey by the Association of Foreign Investors in Real Estate (AFIRE), but experts say Florida is also seeing its fair share of European investment.

“The ascension of New York and Washington, D.C., as the two top global cities – with London tied for second place – represents a very strong showing for U.S. real estate,” said AFIRE Chairman Karin Shewer, who is also principal at Real Estate Capital Partners, a U.S. real estate investment advisor headquartered in New York City. “It is the only time since the global city category was added to our survey that U.S. cities have taken first and second spots.”

The foreign investment interest in commercial real estate – and residential real estate as well – started rising last year. Now, some are pointing to an all-out European spending frenzy that is expected to continue in 2008 thanks, in part, to a stable long-term U.S. market, declining property prices and a strong pound and euro.

Adrian Pennie, associate director of the Lloyd’s TSB Offshore Banking Miami office, credits both the strengthened pound and the crunch of the subprime mortgage market in the U.S. for the so-called European spending frenzy trend.

“In the UK, we hear quite emotional phrases about the U.S. market, like ‘property crisis’ and ‘credit crunch,’” Pennie said. “We have seen a great many U.S. banks and other lenders close their doors to foreign nationals. That has created another economy for people who have the finances and are able to invest with British pounds.”

Though China is gaining momentum, the U.S. is undeniably a European investment hotspot. On average, AFIRE survey respondents report that slightly more than 50% of their real estate planned acquisitions in 2008 will be allocated to the U.S. While that percentage remains roughly the same as 2007, the actual dollar amount is expected to increase by 16%. In all, global spending on real estate is expected to total $1.692 billion this year.

Garrett Kenny, president of Feltrim Developments in Davenport, Fla., won’t go so far as to say Europeans are stampeding through his doors, but he does see more Irish investors interested in Florida commercial real estate.

In fact, Kenny just closed on a 1.5-acre parcel of land on US 27, the future site of a 48,000sf office building. Feltrim received a $200,000 investment from an Irish investor on the deal. Kenny also cited another Irish investor who offered $500,000 to purchase a hotel site on US 27. Of course, Kenny admitted, he has affinity with Irish investors since he is an Irish developer.

“The weak dollar is attractive, however the Irish invest in euros and want to be repaid in euros, so we have to take a read on the currency situation,” Kenny explained. “The good aspect of using European investors is they appear to be more patient than their American counterparts. My Irish investors are in deals for four and five years.”

Josh Regan, co-founder and the managing partner at New Your City-based Madison Realty Capital, a private commercial lender providing senior-secured bridge loans, has seen increased interest from European institutional investors. MRC has $600 million in capital under management, and a large part of its investor base is in Europe.

“While Europeans were a little more cautious for a period, they are starting to dip into the New York and Florida markets more aggressively,” Regan said. “There is continued interest in distressed properties in particular. Europeans are basically paying half price compared to U.S. investors.”

While the common sense answer to what’s driving European investments in U.S. commercial real estate is “a weak U.S. dollar,” 85% of survey AFIRE respondents said recent fluctuations in the dollar have not prompted them to increase their U.S. allocation. The interest, rather, is driven by U.S. property’s strong stability and appreciation characteristics, survey respondents insist.

The percentage of AFIRE respondents saying it was “very difficult” to find attractive U.S. real estate fell to 22.8% from 37.5% in 2006. This represents the smallest percentage expressing this sentiment since 2003. In fact, for the first time since 2004, a measurable number of investors declared investing in the U.S. to be “somewhat easy.” And for the first time in years “distressed assets” are mentioned in the survey as a new strategic focus, as Regan mentioned.

The question is, how long will it last? Regan said it does depend, in part, on the strength of the dollar. But it also depends on the lack of liquidity in the U.S. market, of which European investors are taking full advantage.

“It could be a year. It could be two years. European investors are serving as a form of liquidity where liquidity is absent,” Regan said. “Some perceive, for example, that the Florida market had much more room to go in terms of decreased values. Others believe now is the turning point and some are willing to enter the market.”