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Canada and Asian powers headline RCA's foreign-investment rankings


South Korean and Singaporean investors flexed their capital-export muscles in real estate investments last year — just not as much in the United States.
CREConstruction

That’s one of the takeaways from the newest global-investment report from Real Capital Analytics (RCA). The New York-based commercial real estate data-analytics company also released a combined February report on international real estate acquisitions in the United States.

Singapore’s cross-border investors, who have been active on the global stage for two decades, are currently the largest exporters of capital from Asia in total dollar volume. In 2018, they bought $24.7 billion in income-producing assets abroad.

South Korea, on the other hand, is only starting to make its mark as a player on the world stage, investing $8.4 billion in 2018.

But the emergent powers’ activities in the U.S. weren't quite proportional to their global firepower in 2018, said Jim Costello, RCA's senior vice president.

“I was a little surprised at the way some of the money from other parts of Asia hasn’t stepped up in some ways I thought it would,” Costello said.. “A lot of those folks, when we talked to them, they really want to put more toward [investments] here. But it seems like the deals haven’t presented themselves quite the way they were hoping.

“They both are doing a lot. They both had pretty high exposure to the United States in 2018. But it wasn’t as great as in the past. They’re trying to put money in here still, but the opportunity set just isn’t as great as it has been.”

Singapore was the third-largest source of cross-border investment in U.S. commercial real estate in 2018, displacing China, which slipped to fourth. The Chinese, who have fallen from their first-place standing in 2016, have changed their cross-border strategy, Costello noted.

“The Chinese authorities and regulators really clamped down on what they termed ‘speculative’ real estate investment,” he explained. “A lot of the Chinese investors came here doing different things than other cross-border investors. A lot of them came here to do development-type deals and that kind of construction activity. There are a lot of risks to that and perhaps they didn’t understand a lot of the risks that they were taking on. The [Chinese] government has curtailed money for that type of activity, although there are investors putting money to work globally in other vehicles.

“There’s a consortium of Chinese investors that bought out [Singapore-based warehouse operator] Global Logistics Properties," Costello added. "There’s heavy exposure to the U.S. markets in that portfolio. Something like $4 billion out of the $7 billion that Chinese investors put to work in the United States in 2018 was tied up in that one portfolio. So, there’s still Chinese money coming here, but that portfolio is different than, say, a Chinese investor coming in here and doing the retrofitting of the Waldorf Astoria or selling off condos. It’s not that kind of sexy development product that has a high potential return. It’s more of a safe, stable yield-oriented investment focused on the logistics market.”

Topping the Asian powers to finish second on RCA's cross-border investment list was France — due in large part to the purchase of Australia-based shopping-center operator Westfield by Unibail-Rodamco of Paris. Westfield has interests in 32 malls across America.

The top spot on RCA's rankings, however, went to Canada, whose investors placed $47.9 billion into U.S. commercial real estate deals this past year, accounting for a whopping 50 percent of total cross-border dollar volume in 2018.

“Here’s the funny thing — it’s both normal and out of the ordinary,” Costello said. “It’s normal for Canada to be our No. 1 investor, simply because of our close ties. … But it’s unusual in the sense that the relative scale is much higher than usual. They’re not normally half of all cross-border money coming into the United States. There were some unusual deals involving [Toronto asset-management company] Brookfield putting a lot of money to work. There was their acquisition of GGP, [as well as] the acquisition of the IDI platform. That kind of M&A (mergers and acquisitions) type activity lifted Canada above a normal pace of investment.”

Costello said that 2018 was notable in that cross-border investment remained strong, but it came in bursts.

“There was a lot of cross-border capital that came into the United States in 2018, but it was really ‘chunky,’” Costello said. “By that, I mean it came in by way of a lot of very large deals, as opposed to a large number of smaller deals.”

Merely looking at the deal volume, Costello said, would be ignoring the bigger picture.

“There’s kind of something in there for everybody,” Costello said. “I do think it creates a little bit of a false sense of security. You can look at deal volume and how it grows, and you can think that the deal volume gives you a sense of investor interest in the sector and how liquid the markets will be. But when you strip out big portfolio and [mergers and acquisitions] stuff that happened, the markets just aren’t as liquid as you think.

“They’re certainly liquid. There’s a lot of investor interest out there. There’s still a lot of transactions. There’s still a lot of capital worldwide that wants the kind of safe, stable yield that’s in place in the United States. But [larger deals] made the total activity, both for the market overall and for cross-border activity, look higher than those investors underwriting individual building purchases would be willing to push the market.”


 

Questions? Contact at (425) 984-6019 or arniea@scotsmanguide.com.

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