Tag Archives: U.S. real estate investment
Breathless over Brexit: What will it mean for U.S. Commercial Real Estate?
As the world markets reacted to last week’s decision by U.K. voters to leave the European Union, one of the many potential economic impacts is the effect on U.S. commercial real estate.
For the foreseeable future, the only thing certain is uncertainty – which traditionally drives investors to seek out stability. U.S. commercial real estate will continue to be an attractive and stable investment for many sources of capital. In fact, as the fallout from the Brexit vote was driving down markets last Friday, many REITs were actually trading higher. Market volatility and the stronger dollar also mean that a long-anticipated increase in interest rates will likely be on hold until the dust settles, ensuring continued access to money at current levels.
The possible negative impacts on the commercial real estate industry are less certain. The comparatively stronger dollar could mean an increased cost of capital for some foreign investors, particularly from Europe and the U.K., potentially reducing some sources of investment. New trade barriers – real or anticipated – could also lead to diminished exports, adversely impacting export-dependent businesses and related asset classes.
Any negative effects may take some time to materialize, if at all, especially when considering that the process of withdrawal could take a number of years. Overall, interest rates will remain low in the near term, and investors from Asia and the Middle East will continue to find U.S. real estate attractive. Increased demand for investment properties could also open up new opportunities outside of high-profile areas such as New York.
Real estate aside, U.S. investors might take one small comfort in the Brexit fallout: with the pound trading at 31-year lows, traveling to the U.K. has not been this cheap in decades.
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Foreign investors remain bullish on U.S. real estate investment, according to a new survey that was conducted before Congress passed federal tax reforms that likely will provide even greater inventive for foreign investment.
The annual survey of the Association of Foreign Investors in Real Estate (AFIRE) found that 64 percent of respondents intend to invest more in U.S. real estate in 2016 while 31 percent plan to keep foreign investment in the U.S. at the same level as last year, according to a CoStar News report. None of the respondents said they planned to decrease U.S. real estate investments.
Globally, New York took the top spot for foreign real estate investment for the second year in a row, outranking London, while Los Angeles leaped into third place, up from 10th last year, in the survey of the 200-member AFIRE, which represents institutional real estate and other organizations with a combined estimate of more than $2 trillion in real estate assets under management, CoStar reported.
Seattle joined the top five U.S. cities for the first time, tying with Boston for fifth place, according to the news report. Reflecting the downward spiral in oil prices that played a key role in Houston’s real estate and general economic slowdown, Houston dropped from the third position to the 11th position in the latest survey. CoStar also reported that San Francisco dropped from second to third, although rental rates and property prices have continued to appreciate rapidly.
Washington, D.C., which tumbled from 10th to 15th place last year, placed well both globally and among U.S. markets, ranking 8th worldwide and fourth in the U.S., up from fifth in 2015.
The AFIRE survey was conducted late in the fourth quarter 2015 before Congress enacted wider tax exemptions for foreign investment in the U.S. under the Foreign Investment in Real Property Tax Act, or FIRPTA, a 1980 bill that imposes income tax on foreigners disposing of U.S. real estate interests, CoStar said. The tax reforms, which were adopted on December 18 as part of the federal appropriations bill, exempt qualified foreign pension funds and their entities from taxation under FIRPTA.
A key executive at AFIRE told CoStar the FIRPTA changes had been under considered in Congress for some time and foreign investors did not necessarily expect them to pass in 2015. The changes will provide foreign investors a welcome relief from certain taxes and, in time, further incentive for U.S. real estate investment, James A. Fetgatter, chief executive officer of AFIRE, told CoStar.
Fetgatter noted that the most recent survey demonstrated strongest level of confidence in years about foreign investment in the U.S., even without the FIRPTA changes.
“We have a clearly recovering real estate market and the dollar is increasing. There are not a lot of roadblocks to worry about, like for example the immigration crisis in Europe, stock market fluctuations and a possible recession in China, and bubbles in the Brazil real estate market,” Fetgatter told CoStar.
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