Opportunities in U.S. commercial real estate for Latin American investors

John Greenman

Letter from Denver

In this blog post, we comment on a Special Foreign Investment Report titled Foreign Investment in U.S. Real Estate Remains Elevated; Capital Preservation and Stability Often Prioritized Over Yield from the research group at Marcus & Millichap (M&M), a U.S. brokerage company specializing in commercial real estate investment sales in the so-called “private market” (the market for transactions amounting to $10 Mn or less).

We concur with the report’s contention in its headline that foreign investors often tend to seek different qualities in their U.S. real estate investments than do their domestic competitors, valuing capital preservation and stability over yield, but we would add that this different acquisition profile provides the foreign investor with an advantage in today’s market. Right now, although supplies of higher-yielding, short-term holding opportunities have largely dried up, those of higher-quality stabilized assets abound. This niche is best for buyers who have longer investment horizons. International capital can fill this niche.

We also concur with the report’s observation that, notwithstanding the newsworthy multi-billion-dollar property acquisitions by a handful of Chinese buyers, most transactions for international buyers, like those for the overall market, occur in the $10 Mn and under size range. TransEconomics, you may recall, monitors for its largest investors the office sector for opportunities of up to $25 Mn. While it’s true that office assets tend to require larger capital investments than other property types, we do notice that, even for U.S. office properties, the best opportunities in this segment are often found at around $10 Mn.

Though most foreign capital continues to favor the gateway cities of the east and west coasts of the USA, we agree with the report’s comment that secondary cities are increasingly attractive to the international buyer, and that better risk-adjusted returns may be found there. As we have said previously, the cities of the Southwest that TransEconomics follows on behalf of its clients are all located in states where job growth is the strongest it has been since the year 2000.

The report highlights a traditional preference for Florida by Latin American investors, but we see active investment by Latin American capital in the U.S. Southwest region as well. For example, just earlier this year, a six-building office park in Denver sold to a Chilean pension fund for an impressive $190 Mn, while a suburban office property was sold to a Mexican family for $16 Mn. Mexican high net worth capital also continues to be an active buyer of multifamily properties in all the major Texas markets. Also, TransEconomics channels Latin American capital to the U.S. commercial estate market, be it through outright acquisition of a single property or minority ownership interest via private real estate investment funds.

Already this year, we have placed several clients in a fund specialized in acquiring and managing neighborhood shopping centers located in the U.S. Midwest. This fund pays a strong current dividend and holds its properties for appreciation over a five to seven-year period. We also offer investors participation in a new fund targeting commercial properties located along Denver’s expanding passenger rail network, again with a focus on good current return and long-term potential appreciation, and are working on a similar fund for self-storage properties. The U.S. commercial real estate market is both broad and deep and can meet a wide range of investor needs.

Finally, the M&M report offers a brief discussion of the EB-5 investment program, which offers foreign investors the opportunity to earn a green card for permanent residency in the USA for themselves and their immediate families in return for making an investment of $500,000 in a job-creating project. TransEconomics represents one such EB-5 project in Colorado that is fully approved by the U.S. Treasury and issuing green cards to its investors; we can assist clients in pursuing this alternative. Although, as the report states, to date, most EB-5 visas have gone to Chinese nationals, people from all nationalities may apply and, in fact, the Colorado project we work with is keenly interested in diversifying its investor base to include Latin Americans.

To discuss any aspect of this report or your investment needs, please call me by dialing +52 (442) 219-9682 or writing to gsignoret@genevievesignoret.com.