More than $450 billion found its way into U.S economy from other countries in 2016, making the U.S the country with the largest Foreign Direct Investment in the world. From the Bureau of Economic Analysis at the Department of Commerce’s report, it can be assumed that foreign investment in the United States continues to maintain its stronghold. Of these, a significant portion belongs to Commerical Real Estate, a popular choice among the investors.
59 percent of Realtors who confessed to completing a commercial real estate deal in 2017, about 18 percent were with international clients. Among these, 60 percent were foreign buyers who reside abroad and about 57 percent were where sellers who took up temporary residence in the U.S. or were on non-immigrant visas.
A visible drop from 22 percent in 2016, 2017 saw 19 percent realtors completing a lease agreement on behalf of a foreign client. 2017 also saw a rise in the lease value for international lease transactions, with the value being $200,000 this year as compared to 105,000 in 2016. It is assumed for space under 2500 square feet in most cases.
For people interested in real estate, Florida coming in 1st in the foreign investment scene wouldn’t be surprising. While Florida won by a clear margin of 23 percent, Texas came in second with 16 percent. Canada wasn’t far behind, with its total investment being 13 percent.
The higher end of the market saw a varied number of commercial buyer and seller transactions on an international level. In 2017, the transaction for the buyer side was $975,000 while the seller side had a transaction of $1 million. Overall, the median commercial transaction is calculated to be $625,000.
Due to fear of loan denial, foreigners tend to purchase properties with cash. Commercial property typically finds more cash buyer in the foreign segment than residential and housing real estate does. 70 percent of the sales came in through cash and the rest was closed through mortgages from U.S. sources. The most popular reason for buying commercial real estate seems to be for renting or for personal business.
This situation brings a vital question. What makes the U.S stand out among other countries for foreign investors? This is due to U.S’ rapid expansion in business and its creation of the job for the people. The U.S recovered from its economic crisis quicker than other countries, compared to Europe — which is still recuperating from the devastation led by Brexit. The U.S also promises higher returns as opposed to its counterpart Europe and parts of Asia. The scale and liquidity of the U.S market also mean foreigners can pull back any time and invest elsewhere if they feel they aren’t getting the desired result.
For these reasons, places like Florida gets a significant amount of investments, due to the perks of its growing population, an increase in wage rate and looser tax regulations as compared to other states. There is also the sheer range of real estates, varying greatly from each other; so investment can sometimes bring with it a large amount of risk too.
As U.S investment price is again returning to the pre-crisis era, there is a chance of another economic fall soon. Keeping this cycle in mind, investors should make smart decisions on whether to invest in CRE debt or CRE equity. Experts prefer the CRE debt, as it has better protection in case of a fall.
Keeping all these factors in mind, this might be the peak time to invest in commercial real estate.