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Thank foreign capital for real estate's long, vigorous run


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Thank foreign capital for real estate's long, vigorous run

Foreign capital has served as essential nourishment, rather than as a mere supplement, to the real estate industry's health in the current real estate cycle, private real estate players said at a conference this week.

"I think it if it wasn’t for foreign investment in U.S. real estate in the last five years, the U.S. real estate market would not be as robust as it has been, clearly," Gregg Bloomberg, partner at CohnReznick LLP, said.

Bloomberg and other attendees at IMN's Winter Forum on Real Estate Opportunity and Private Fund Investing in Laguna Beach, Calif., credited the foreign money influx for the length and strength of real estate’s run, and included it in their explanations of why, in their view, a bubble scenario is not imminent.

"There really aren't any bubbles forming," Perry Pinto, principal at Walton Street Capital LLC, said during a panel session. "The amount of capital that is lined up still trying to get into the United States, and [the fund managers] trying to figure out a way to deploy that capital, is massive."

Indeed, the bulls far outnumbered the bears at the event, and foreign investors — the vast majority of whom say they plan to maintain or increase their investments this year, according to surveys — gave the bulls added swagger.

"It’s been a big mover in our industry, and it’s going to continue to be, and it's probably going to grow," David Bryant, partner at the law firm Katten Muchin Rosenman LLP, said of foreign capital on a panel, "as we are looked at, on a risk-adjusted basis, as a very safe place to invest in real estate."

Traditional wellsprings of foreign capital like Asian and Middle Eastern sovereign wealth funds continue to be major capital sources, but less prominent players like Japanese institutional investors have shown more interest of late, according to Ernie Ceberio, chief counsel of Americas for PGIM Real Estate. High-net-worth individuals from all regions, and the aggregators of that wealth, have also become more prominent.

"Growth may not be great in the U.S., but it's much better when you compare it to Europe and Asia," Ceberio said during a panel discussion.

Ceberio noted that foreign investors' asset class preferences tend to track those of U.S. institutional investors: Core assets in core markets like New York and San Francisco are top preferences.

China, the most significant source of foreign capital in recent years, also remains a vital capital source. Chinese corporations are executing direct investments, and Chinese developers are buying U.S. land.

Foreign investors are entering the market through a variety of structures, but Chinese institutions prefer the REIT model, according to Chad Carpenter, chairman and CEO of Reven Housing REIT Inc.

Carpenter pointed out another often-overlooked vector of foreign investment: Chinese retail investors buying U.S. homes. In China, homeowners can own their homes but, by law, cannot own the land underneath them. Investors are looking for a stable investment where they do have rights to the land.

Carpenter said companies with asset-management platforms are forming rapidly in China to guide investors through the purchase process and to help them resolve tax and other issues.

"It’s happening right now," he said.