Why Foreign Investors are Betting on Commercial Real Estate
When foreign investors think about buying real estate in the United States, they often picture a luxury condominium in a major metropolitan area like Miami, New York, or Los Angeles. However, since 2010, international investors have purchased more than $365 billion in commercial real estate in the United States across a wide range of locales. This is largely due to the U.S. market’s size and liquidity, which allows foreign investors the ability to exit their investments relatively easily if they decide the pursue other opportunities.
For South Florida, the trend of foreign investors shifting from residential to commercial real estate started to increase in 2014 as condominium prices began to rise disproportionately. By 2016, foreign investors who had traditionally bought condominiums soon realized that they were not going to see the type of return and cash flow they had anticipated. Many turned to commercial real estate because they recognized that commercial assets generally have higher rates of appreciation and predictable, steady cash flow than their residential counterparts.
In Miami alone, foreign investment in commercial real estate increased to $2.3 billion in 2015, considerably higher than the $468 million that was invested in 2014. Although the number decreased to $1.72 billion in 2016, foreign interest in U.S. commercial real estate remains strong.
International investors come from across the globe and their taste in commercial real estate is equally diverse. Some focus on large buildings and industrial parks. Others view single-tenant, triple-net leased properties as attractive due to their stability and easiness to manage from abroad. While some choose to invest in a diverse portfolio of smaller office, retail buildings, and strip malls.
Foreign investors are also looking beyond the typical large tier I metropolitan markets to smaller, tier II communities. These tier II communities offer a varied assortment of commercial opportunities that are more attainable for smaller investors that are moving away from condominiums but are not in a position to buy a large asset in a major market. For example, a smaller investor may not be able to by a large asset in Miami, but will look to an outlying, suburban community to find a small office building or strip mall.
The various markets in the U.S. have different types of properties with varied risk and benefit profiles. The decision of where and what type of commercial asset to invest in should be made carefully and with a detailed analysis of the many relevant factors. A multi-tenant office building or apartment complex will require considerably more management and oversight than a single-tenant, triple-net retail or industrial property. In a typical triple-net leased property, the tenant is responsible for all expenses of the property such as taxes, insurance, maintenance, and repair. This leaves relatively little for the owner to do with respect to property management.
Often, foreign investors don’t have the resources or experience to conduct thorough analysis and due diligence to determine the most beneficial market or property type for their investment. That is why it is critical that they consult the appropriate professionals to assist them in navigating the complicated world of commercial real estate.
Barbosa Legal has a team of experienced attorneys that focuses on international and domestic taxation, corporate law, real estate, and commercial transactions. We analyze and structure transactions for the acquisition, financing, leasing, and disposition of commercial real estate. . If you are considering investing in commercial real estate, we highly recommend that you engage an attorney at the beginning of the process to ensure that the transaction moves smoothly and your interests are adequately protected.