The U.S. commercial real estate property market has been expanding since 2010 following the recession, and it’s safe to say that the market has officially returned. The combination of the positive fundamentals in the U.S. commercial real estate market coupled with foreign investors’ interest in investing their capital in the U.S. has helped increase sales volume to new 2007 record levels.
In an analysis of the recent Real Estate Consensus Forecast by the Urban Land Institute, ULI leader William Maher noted that “professionals predict three more years of smooth sailing for U.S. real estate”. He also pointed out, “The forecast represents almost the perfect combination of strong economic and property market fundamentals, combined with an orderly wind-down of monetary stimulus.”
Earlier this year, the 23rd annual survey of the members of the Association of Foreign Investors in Real Estate, a group of member firms that have an estimated $2 trillion or more in real estate assets under management globally, reported that the U.S. is a magnet for foreign investment.
The other major points of the survey noted:
• More than 90% of survey respondents said they plan to maintain or increase the size of their U.S. portfolio in 2015.
• By a wide margin, the U.S. was voted the most stable and secure country for investment.
• The U.S. also offers the best opportunity for capital appreciation.
• Two-thirds of survey respondents expect China to become the largest source of capital into the U.S. in 2016 and beyond; ten percent expect that could happen as early as 2015.
Chinese investors are particularly bullish with regard to investment in commercial real estate in New York City and other money center cities. This spring, China’s two largest insurance companies joined the group of other Asian investors by buying a major stake in a $500 million project in Boston.
In another deal, China Life Insurance Company and Ping An Insurance Company of China will serve as co-investors in Tishman Speyer’s prime waterfront site on Pier 4 of the Boston Seaport district.
China Life and Ping An are other significant players on the scene. China Life, through its subsidiary China Life Investment Holding Company, and Ping An, through its real estate investment platform, Ping An Real Estate Company, are investing alongside Tishman Speyer Real Estate Venture VIII.
These insurance companies are following the lead of China’s Anbang Insurance Group, ranked as China’s second largest insurer with assets of $114 billion, who set a record late last year for the largest acquisition of a U.S. real estate asset by a Chinese buyer, with the purchase of the New York Waldorf Astoria for $1.95 billion.
Another Chinese insurance company, The Sunshine Insurance Group Co., announced in February that it agreed to pay more than $230 million or more than $2 million per room, for the Starwood Hotels and Resorts brand new, Baccarat Hotel in Midtown Manhattan.
Chinese investors are no strangers to commercial real estate in the U.S., particularly in New York City. In October 2013, Fosun International, a Chinese conglomerate run by billionaire Guo Guangchang, purchased One Chase Manhattan Plaza in Lower Manhattan for $725 million. Another notable investment was the acquisition by the Chinese government-owned Greenland Holding Group in October 2013, which purchased a 70 percent stake in the $5 billion Atlanta Yards development adjacent to the Barclay Center. The investment includes 14 residential apartment towers which are currently being branded as Pacific Park.
In late 2014, one of the big four Chinese state-owned banks, Bank of China, announced it will be purchasing from Hines the soon to be completed office tower 7 Bryant Park, which the company is developing with backing from an asset management firm belonging to JP Morgan. The bank is purchasing approximately 470,000 square of the tower for $600 million.
Sovereign wealth funds have been major investors in commercial real estate for more than the past decade. One of the most active new players in this arena is Norway’s giant sovereign wealth fund, Norges Bank Investment Management, which is officially called the Government Pension Fund Global. This Fund announced it planned to invest one percent of its overall portfolio, which would be about $9 billion, in the private real estate market over the next three years. According to Real Capital Analytics, the fund made an investment of $1.74 billion last year, including the purchase of minority interests in Class A office buildings at 11 Times Square and 601 Lexington Avenue, once known as Citigroup Center. They also made purchases in Boston’s Atlantic Wharf Office Building and 100 Federal Street, San Francisco’s Orrick Building. For the year, Norway was the second largest global investor in U.S. real estate, with 11% of direct foreign investment of $4.4 billion representing a 120 percent increase year over year.
According to CBRE, Canada is the unrivaled global investor in U.S. real estate with nearly $10 billion of direct investment in 2014, ahead of Norway, China, Japan and Germany. Canada was the leading global buyer of U.S. commercial real estate last year with 26 percent of direct foreign investment of $9.7 billion. For all property types combined, New York is the leading destination for Canadian real estate capital, followed by Boston and Broward County in Florida, which made the list due to a significant hotel acquisition. For the past year, Canadian investment in Manhattan was $3.346 billion, including Ivanhoe Cambridge, the real estate arm of Quebec’s Caisse de Depot et Placement, and Chicago- based Callahan Capital Properties’ acquisition of the 42 story 1095 Avenue of the Americas for $2.25 billion.
Each and every day, more and more foreign investors are meeting with investment sales brokers and owners of U.S. commercial real estate seeking to own properties in New York and in prime locations around the U.S. Expect this trend to continue for the foreseeable future.