Foreign investors are planning to increase their investments in U.S. apartments this year, building on their activity in 2009.
German high-net worth and institutional investors such as Allianz will likely be the most active this year, followed by Dutch private and public pension funds. Middle Eastern investors are also beginning to stir again after remaining somewhat dormant in 2009, according to the Association of Foreign Investors in Real Estate (AFIRE).
In fact, about two-thirds of foreign investors are planning to increase their U.S. investments this year, both in terms of debt and equity, according to AFIRE’s recent annual survey. And for the first time in seven years, more than half of the respondents identified the U.S. real estate markets as providing the best opportunity for capital appreciation.
What’s more, the multifamily sector is the preferred asset class for foreign investors for the second year in a row, according to AFIRE’s most recent survey. “Access to financing is a big part of it—they want to borrow with local currency,” says Jim Fetgatter, CEO of the Washington, D.C.-based AFIRE. “They’re also beginning to understand a little more what the U.S. apartment market’s all about, so it’s a combination of financing and better education.”
Throughout 2009, one of the most active multifamily buyers was Behringer Harvard, which partners with Dutch pension fund PGGM. And last August, UDR announced a partnership with Kuwait Finance House to invest up to $450 million in multifamily assets.
Last year, foreign investors accounted for about 4 percent of all apartment transactions, up slightly than previous years, according to market-research firm Real Capital Analytics (RCA). But these firms made a particularly large splash in the distressed asset acquisition realm. Foreign firms accounted for a whopping 11 percent of all distressed multifamily deals in 2009, as Middle Eastern and Canadian firms in particular scooped up failed condo assets, according to RCA.
While local investors are more apt to invest in a distressed asset, foreign firms are increasingly eyeing the opportunity. “More and more foreign investors are looking at buying distressed debt,” Fetgatter says.
And there are efforts under way on Capitol Hill that would encourage more foreign investment. The Real Estate Revitalization Act, recently introduced in the House of Representatives, aims to help U.S. owners access foreign capital by altering how those investments are taxed. The bill would allow some capital gains and liquidating distributions made by REITs to be treated as ordinary dividends to their foreign investors, modifying the Foreign Investment in Real Property Tax Act of 1980.
