AFIRE
in the News: 2003 AFIRE Annual Survey
Drive on for US Real Estate
Washington,
DC (February 18, 2004) – After 7.3% shortfall
in planned investment in the year 2002, foreign investment
in US real estate rose by 59% in 2003 and is expected
to increase by another 11.9% in 2004 as foreign investors
earmark 56% of their cross-border allocations for US
real estate. The top five US cities on foreign investors’
shopping lists are: Washington, DC, New York, Los Angeles,
San Francisco and Chicago, according to the results
of a survey released today by the Association of Foreign
Investors in Real Estate (AFIRE).
Global real estate investing followed a similar trend
as cross-border investments in 2004 rose by 21.3% over
2003 investment levels. The 12th annual survey was conducted
by Kingsley Associates among AFIRE members who collectively
have nearly $300 billion invested globally with about
half of that invested in the U.S. “As an asset
class producing very respectable returns in an extremely
volatile equities market, real estate has become a serious
competitor for investors’ dollars,” said
Jim Fetgatter, chief executive officer of AFIRE.
Competitive
Marketplace
According to the survey, the US, garnering 60% of the
vote, is regarded as the most stable and secure country
for real estate investment; tied for second place with
9.4% of the vote, were Canada and France. With 54% of
the vote, the US also far-out-distanced Japan, in second
place, as having the best opportunity for capital appreciation.
Survey respondents indicate that on average, North American
real estate comprises 50% of foreign investors’
global real estate portfolios.
Despite the fact that (94%) of survey
respondents said they found it “somewhat”
or “very” difficult to find attractive US
opportunities in 2003, as compared to 78% in 2002, 73%
of respondents said that their appetite for US investments
was “somewhat” or “much” stronger
than it was for opportunities in other countries, up
from 66% in 2002. In response, investor’s commonly
cite “altering their investment criteria”
and using local joint-venture partners to successfully
place capital in the US.
“The United States real
estate market always has attracted offshore investors”
said Erwin F. Stouthamer, Director International Real
Estate, Mn Services Investment Management, and newly
elected chairman of AFIRE, “and there’s
no question that because of the current competition,
deals are much harder to come by. This is true especially
for yield-driven investors looking for fully leased
trophy buildings.
“However,” he added “there
are pockets in the market where an investor prepared
to take some risk will get a better reward for the investment.
In addition to the diversification benefits that an
allocation to US real estate brings, US real estate
returns that bear some degree of risk may still weigh-up
to expected risk-adjusted returns elsewhere.”
Mn Services manages the assets for several institutions,
among them PMT, a pension fund headquartered in the
Netherlands. After having sold a substantial part of
PMT’s portfolio between 2000 and 2002, Mn Services
began investing again in 2003 by committing nearly $110
million in equity to three different local partners.
Leading Global Cities
For the second year in a row, investors selected Washington,
DC as the best city globally for their investment dollars.
In 2002 Washington rose from the fourth-ranked spot
to displace London as the best global city and this
year had nearly twice as many votes as London. The remaining
slots were filled respectively by Paris, New York, and
for the first time, Los Angeles in fifth place, displacing
Milan.
US Property Preferences
High on investors’ shopping lists are retail properties.
Just one year ago, retail ranked fourth among investors’
preferences. Multi-family, which ranked as the most
attractive investment in 2002 fell into second position.
Hotels, which had consistently ranked in last place
since the mid 90’s, moved into third position.
“After several years of having very low investor
interest, hotels showed the biggest move in investor
perception moving from fifth place to third,”
added Fetgatter. In addition, while nearly half of the
average foreign investor’s global real estate
portfolio is allocated to office properties, its attractiveness
for new investment has declined steadily since 2001
to the last position of the five property types assessed
in 2003.
Ownership Options
Survey respondents expressed an overwhelming preference
for equity ownership of properties at the expense of
REITs. Respondents said 58% their current U.S. real
estate portfolio asset allocations were in private equity
with another 16.5% in private mortgages and only 16%
of their assets in REITs. Respondents said that 36.9%
of their allocations were in core investments; 17.5%
in opportunistic funds, and 15.1% in value-added strategies.
Respondents further said that they expected the rate
of return on REITs to fall dramatically in 2004, from
an average of 29% to 8.5%.
Graphics:
2003
Best Cities for Global Real Estate Investment
2003
Best USA Cities for Global Real Estate Investment
2003
Attractiveness of USA Real Estate Property Types
2003
USA Real Estate Acquisition and Disposition History
and Plans
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