Last year, foreign direct investment (FDI) had record highs. Chinese companies doubled their 2012 investment to $14 billion. Despite these big headlines, the media only reported a small amount of the foreign investment pouring into U.S. real estate.
The media overlooked the foreign investors who partner with domestic operators. Real Capital Analytics looked at deed transfers to determine transfers to foreign investors. Domestic partners have numerous benefits to foreign investors. These benefits include safe and stable returns, the ability to leverage the expertise of a local partner and the ability to mitigate transfer taxes, property tax hikes and higher property taxes.
The domestic partnership not only benefits the foreign investor, but for U.S. operators the partnership offers greater access to capital, and the ability to move quickly in the competitive market. U.S. real estate companies are traveling to the Europe, Middle East, and Middle Asia markets to woo potential foreign investors. Blackstone, Tishman Speyer, Brookfield, and General Growth Properties are some of the companies investing in domestic partnerships. Foreign investors are pulling their money from their home country and placing their funds in U.S. real estate. These investors are a strong asset class for the long term. Since their main goal is to invest in a perceived “safe-haven,” foreign investors have lower return expectations and a longer time horizon. The return on the investment is sometimes their secondary goal.