AFIRE
in the News: 2004 AFIRE Annual Survey
Foreign Investors Will Reduce US Real Estate Portfolio Allocations
As the "degree of difficulty" in finding attractive real estate investment opportunities increases, foreign investors are losing their appetite for US real estate. According to the results of a survey released today, members of the Association of Foreign Investors in Real Estate (AFIRE) say that while overall spending will increase both globally and in the US, they will reduce the US percentage of their total global real estate acquisitions from 71 percent in 2004, to 55 percent in 2005, and invest a greater percentage of their portfolios in an ever-widening global arena that includes Japan, Eastern Europe, and Australia. The 13th annual survey was conducted by Kingsley Associates among AFIRE members who collectively have nearly $300 billion invested globally.
Nearly 60 percent of survey respondents this year said that it has become 'very difficult' to find attractive real estate opportunities in the US. As a comparison, in 2003, only 38 percent of respondents said it was very difficult; in 2002, an even smaller percent, only 32 percent said it was very difficult.
"It has been a challenging market, particularly for organizations like ours which are committed to offering both stable rates of returns, and the ability to sell in the future at a profit," said Steve Zoukis, partner, Jamestown, a German, closed-end real estate fund with US assets of $4.375 billion, and the association's newly elected chairman of the board. "However, I believe a significant part of the capital wave will remain invested in real estate, since some of the drivers are long-term phenomena, and the US remains of great interest to investors around the world," he added. "The transparency, openness, and liquidity of the marketplace, as well as its huge size, continue to attract large amounts of foreign capital."
Washington Remains Top Global City
"This is not to say that foreign investors in real estate are pulling out of the US," added James A. Fetgatter, AFIRE's chief executive. "In fact, according to our survey, by substantial margins, the US continues to rank both as the number one country for 'stable and secure' real estate investments and the country offering the 'best opportunity for capital appreciation.' In addition, for the third year, Washington, DC, continues to rank as foreign investors' top global city and the best city for investment in US. It's just that in an increasingly global market, investors are open to exploring new opportunities." concluded Mr. Fetgatter.
Southeast Florida Makes the Grade
For the first time since the survey was conducted in 1992, cities in Southeastern Florida were among the top five US cities for foreign investors' dollars. Miami / Ft. Lauderdale / West Palm Beach took fifth place following Washington, DC, New York City, Los Angeles, and San Francisco.
"We see Southeast Florida as an attractive, long-term market," said Randy Mundt, president and chief investment officer, Principal Real Estate Investors. "As foreign investors diversify both geographically and in terms of property type, the region will appear more frequently on foreign investors' radar screens. Miami, in particular, has emerged as a 24-hour city with an internationally friendly business climate, but the opportunities go beyond Miami / Dade County and also include Broward and Palm Beach Counties. Perhaps most importantly," he added, "is that investors have been rewarded with strong returns. Over the past year, NCREIF's Southeast Florida total returns have been 14.5 percent, surpassing NCREIF's overall returns of 12.4 percent."
Value-Added Strategies
As they purchase new US properties in 2005, survey respondents say that the majority of new allocations (51 percent) will continue to be concentrated in private equity/core strategies. However, investors say they plan to shift more than six percent of their new acquisitions from REITs into private equity / value-add and private equity / opportunistic strategies. In fact, when asked what measures investors were taking to place new capital into US real estate; 21 percent said they were seeking non-core and alternative assets; 31 percent said they were seeking operating partnership or joint venture investments; and 23 percent said they were looking for off-market deals or making unsolicited offers.
Preferred Property Types
For the second year in a row, multi-family and retail properties, tying for top rank, remain foreign investors' preferred properties for investment. Office properties, which were in fourth place in 2004, were second-ranked, their best showing since 1999, when they took first place. As they did last year, hotels and industrial properties were ranked respectively in third and fourth place.
Other Global Trends
After the US, the UK and France were regarded as the countries providing the most stable and secure real estate investments. The top three new EU countries targeted for investment are The Czech Republic, Poland, and Hungary. Survey respondents said they would be shopping primarily for retail (78 percent) and office (72 percent) properties in these countries.
Eye on Japan
For the first time since the question was asked in 2001, Tokyo was named one of the three top global cities for real estate investment, taking third place after Washington, DC, and London. Japan was also the second ranked country in terms of the potential for capital appreciation, and survey respondents believe that Japanese investors, who had been predominant players during the late eighties, will be the third most active buyer of US real estate in 2005, following Germany and Australia.
Graphics
2004 Top Cities for Real Estate Investment
Real Estate Investment Portfolio, Geographic Distribution
2004 Top Countries for Capital Appreciation
Planned vs. Completed Acquisitions
Difficulty in Finding Attractive US Investment Opportunities
Attractiveness of US Property Types
2004 US Re-investment Vehicles
2004 Top Actions Investors are Taking to Place New Capital
AFIRE members may go to Members Only / Publications to see the survey results summary and report.
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