Global real estate investors say their U.S. real estate investment strategies for 2007 and beyond will include properties traditionally considered to have higher risk according to the results of the 15th Annual AFIRE Survey from the Association of Foreign Investors in Real Estate (AFIRE).
Respondents to the survey say that "value-added" real estate is expected to comprise 25 percent of their portfolio in 2007, up from 19 percent in 2006.
"The findings reflect investors' desire to invest in U.S. real estate despite macro uncertainties and competition from US institutional investors," says François Ortalo-Magne, Robert E. Wangard Chair in Real Estate, The Center for Real Estate, University of Wisconsin-Madison. "Consequently, they are showing a greater willingness to consider diversification strategies into secondary markets, outside of the core property types, and with creative financing and ownership structures."
The survey reflects the buying preferences of members of AFIRE who collectively own $601 billion of real estate globally, including $184 billion in the United States. The survey was conducted among AFIRE members by The Center for Real Estate, University of Wisconsin.
New Measures to Place New Capital
Members say that new measures to place new capital in the US market over the next five years will draw on off-market transactions, the development of joint-ventures, and the execution of a broader focus and geographic diversification.
Thirty percent of respondents said they would explore new property types as part of their US investment strategy. These include:
-infrastructure,
-resorts,
-senior housing,
-storage,
-student housing,
-research and science projects, and
-the acquisition of real estate companies.
Big Apple Floats to Top
For the first time since 2001, when it shared the number one spot with Washington, DC, New York has emerged as foreign investors' top US city for their investment dollars. This year, Washington drops from first place into second.
Other top cities:
No. 3 Los Angeles (unchanged from 2005),
No. 4 San Francisco (unchanged from 2005),
No. 5 Seattle (ranked fifteenth in 2004; ninth in 2005).
San Diego fell from fifth to ninth place in 2007, dropping it from the list.
Globally, this year's survey indicates a median investment of $500 million dollars by respondents in cross-border real estate investments in 2007, including $250 million in the U.S., AFIRE says. In 2006, the median investment was $400 million globally, with $200 million targeted to the U.S. "It is significant that for the second year in a row, the portion of the investment targeted to the US has remained consistent," says Fetgatter.
Global Shifts
"The results of this year's survey manifest the most global viewpoint our members have ever expressed," says Mark Preston, chief executive, UK and Ireland, Grosvenor, and AFIRE's new chairman. "The US still remains the strongest and safest conduit for cross-border real estate dollars, by a substantial margin-63 percent. But it is clear that our members are taking advantage of some of the opportunities inherent in emerging markets."
While the USA remains the preferred global country for foreign investors' real estate dollars, only 23 percent of respondents say it has the best potential for capital appreciation, down from 44.4 percent in 2005 and 53.8 percent in 2004.
Both globally and in the US, office buildings are the mainstay of respondents' portfolios.
-Respondents hold a slightly higher percentage of office buildings in the U.S. (56 percent to 50 percent) than they do globally.
-They hold a slightly higher percentage of retail globally than they do in the US (22 percent to 18 percent).
-Both globally and in the US, respondents say multi-family comprises 12 percent of their portfolio.
