Real estate investment is increasingly becoming a global business, with widening competition as more players place money around the globe. Depending on investment goals, players may be drawn to the recovering U.S. markets or the lagging European markets. And while U.S. investors seek opportunities in Asia, local investors there are already well entrenched.

Foreign investors are so eager to pursue opportunities in U.S. real estate that they are racing to join the biggest deals, making it sometimes difficult to differentiate between clients and competitors. That was a conclusion among speakers on the Urban Land Institute Spring Meeting keynote panel, “Capital Markets: Who Has the Capital and Who is Getting It,” which was moderated by Christopher Ludeman, CBRE Group Inc. president of brokerage services and the capital markets. Capital is flowing in from around the globe, ranging from the top-ranking Koreans—now permitted to invest abroad and only held back in the U.S. by FIRPTA limitations—to those from the Middle East and Canada, noted LaSalle Investment Management global head of the capital markets Jon Zehner. And he is keeping an eye on China and Australia as capital sources.

The Japanese, too, are eager to invest outside their slow-growing borders, noted J. Michael Stedman, senior executive vice president of Union Bank, whose employer is owned by Bank of Tokyo/Mitsubishi.

Meanwhile, some big U.S. investors see more opportunity overseas than in their own backyards. Zehner observed that the spread between assets in primary and secondary markets is now 75 to 100 basis points in the U.S. and Canada but 250 to 350 basis points in Europe. In fact, his company is representing a major Asian financing source venturing with a regional European fund to invest in U.K.-located residential property. The U.K. economic cycle is six to 12 months behind the U.S.’s, according to Charles Fedalen Jr., executive vice president & group head of the Wells Fargo CRE Institutional and Metro Markets Group and the Wells Fargo Real Estate Banking Group.

Elsewhere, John Miller, senior managing director for Tishman Speyer, pointed to a fund his company recently put together using Chinese currency to invest in that country. He noted a lot of pent-up demand there.

Wherefore Art U.S. Returns?

Speakers on “The Next Best Bet: Making the Case in a Capital Constrained Market” all expressed interest in European investment. But they also see opportunity in various segments of the U.S. market, although with the U.S. recovery at something of a midway point, identifying risk-adjusted returns can be challenging, they said.

The multi-family sector continues to attract attention, and PIMCO vice president Chris Flick is no exception. He said he still sees room for growth even though the best deals were done two years ago. Damian Manolis, managing director at Prudential Real Estate Investors, advised seeking out micro areas that work, even in more concentrated cities like Seattle and Washington, D.C.

Starwood Capital Group senior vice president Mark Deason, however, sees more opportunity in recovering sectors such as the office market, where he said you can still achieve cash-on-cash returns in the double digits (although largely only as much as 10 percent). Pricing is far ahead of fundamentals in the primary markets but more closely aligned in secondary markets, he noted, although he confessed to remaining focused on the primary cities. And Manolis pointed to the recovering job market and lack of development as contributing to a more solid office sector, even while companies are pursuing smaller space-per-person ratios and hoteling to minimize office size. Flick was less optimistic about the sector but allowed that opportunity could increase as conditions improve.

The panel as a whole was less optimistic about retail and industrial property, although Flick suggested a “barbell” model to retail opportunities, with high- and low-end properties offering the best bets. Grocery-anchored centers, he said, are too popular to offer good deals. That makes it necessary to focus on in-line retailers for growth—and that, the panel agreed, requires strong relationships with national retailers, the better to identify expansion plans. As for industrial, only development offers returns, Flick affirmed.

It is also challenging to find good hotel deals, especially in the limited-service segment, Deason said, although his company has been an active hotel buyer. The panel agreed hotels may have hit the bottom of the cycle and are about to turn upward again.

A series of audience polls turned up continued favor for the multi-family, industrial and retail sectors, with office and hotel eliciting a more negative response.

Canyon Capital Realty Advisors and Citi are joining forces to kick off Canyon Multifamily Impact Fund, a new investment vehicle that will target the acquisition of workforce housing in underserved communities across the country. The partners are bringing  ample resources to the endeavor; Canyon Multifamily Impact Fund will purchase as much as $800 million in assets.

CCCRA and Citi are wasting no time getting started. The team helming the effort will comb areas in California, Texas and Illinois, with a goal of purchasing properties ranging in price from $20 million to $90 million. The fund will manage the properties, and institute upgrades in an effort to boost the living experience for residents, as well as realize enhanced value and financial returns.

“Amid increased housing costs across the United States, the need for quality workforce housing near employment centers is higher than ever,” said Dan Millman, principal at Canyon Capital. “We are focused on acquiring and improving well-positioned properties that offer affordable rental housing options for local residents.”

The gap between supply and demand in affordable housing has never closed in the U.S., and in the wake of the Great Recession, the disparity is monumental. The numbers at the peak tell the story. According to a 2012 report by Harvard University’s Joint Center for Housing Studies, 8.1 million low-income renters competed for 5.7 million affordable units in 2001, and by 2010, the shortfall had more than doubled to 5.1 million units.

More evidence that the housing market is in recovery mode: CoreLogic reported on Tuesday that home prices nationwide, including distressed sales, were up 10.5 percent in March 2013 compared to March 2012. According to the company, that’s the largest year-over-year increase since March 2006. The month-over-month increase in March was 1.9 percent.

Take distressed sales out of the equation, and the result is almost the same, with U.S. home prices increasing year-over-year by 10.7 percent in March 2013. On a month-over-month basis, excluding distressed sales, prices were up 2.4 percent in March. Per CoreLogic definition, distressed sales include both short sales and REOs.

“For the first time since March 2006, both the overall index and the index that excludes distressed sales are above 10 percent year-over-year,” Mark Fleming, chief economist for CoreLogic, noted in a statement. “The pace of appreciation has been accelerating throughout 2012 and so far in 2013, leading into the home buying season.”

Job Openings Edge Down

The Bureau of Labor Statistics released its latest JOLTS on Tuesday—Job Openings and Labor Turnover Summary—as it does every month following the report on the employment situations. According to JOLTS, there were 3.8 million job openings on the last business day of March, down a bit from 3.9 million in February. The hires rate (3.2 percent) and separations rate (3.1 percent) were little changed in March.

The number of job openings, which is one measure of the health of the employment market, has essentially moved sideways in recent years. As more job openings appear in some industries, others disappear in other industries. For example, according to the BLS, openings decreased over that last 12 months for nondurable goods manufacturing and federal government, while openings increased over the year for accommodation and food services.

The quits rate is another indicator published by the BLS every month in JOLTS. Quits are generally voluntary separations initiated by the employee, and so the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. In March, the rate didn’t budge, coming in at 1.6 percent. Lately the quits rate has been stagnant; the number of quits was little changed over the 12 months ending in March for both private employers and government.

Consumer Credit Increases

The Federal Reserve said on Tuesday that U.S. consumer credit increased at an annualized rate of 5.75 percent during the first quarter of 2013. Revolving credit was little changed, but nonrevolving credit—mainly student loans—increased at an annualized rate of 8 percent. In March, consumer credit increased at an annualized rate of 3.4 percent.

Wall Street didn’t spike too much on Tuesday, but there was enough upward movement to set a record for the Dow Jones Industrial Average. The index was up 87.31 points, or 0.58 percent, to close above 15,000 for the first time ever. The S&P 500 gained 0.52 percent and the Nasdaq advanced 0.11 percent.

At the 2013 Mortgage Bankers Association CREF/Multifamily Housing Conference, David Durning, president and CEO of Prudential Mortgage Capital Co., explains Prudential’s targets for balance sheet, Fannie Mae, Freddie Mac and FHA, CMBS and bridge financing for 2013.

Jamestown, the real estate investment and management firm that has raised more than $5 billion in equity for its U.S. funds, is tapping into Latin America, where it has created a new division headed by a veteran executive with emerging markets experience.

Philip Fitzgerald, who has more than 20 years of institutional real estate investment and management experience, has been named CEO of Jamestown Latin America. Fitzgerald recently served as managing director of emerging markets for Paladin Realty Partners, where his team managed investments in more than $4 billion worth of real estate assets.

“Latin America presents an incredible opportunity for real estate investment. Over the past two decades, the countries on which we are focusing have implemented crucial economic and political reforms, leading to a growing middle class that has unmet demands for every type of real estate product,” Fitzgerald said in a news release. “There is another 20 years of opportunity ahead of us, based on Latin America’s youthful demographic and growing prosperity.”

The firm will open two local offices — in Rio de Janeiro, Brazil, and Bogota, Columbia — and staff them with teams that are experienced in the company’s core markets. Jamestown Latin America also plans to partner with local operators and developers with proven experience in those markets, while at the same time leveraging the company’s existing infrastructure, resources and institutional relationships for a best-in-class investment platform.

“Jamestown has been studying and analyzing the merits and opportunities of emerging markets for the past decade, and we are convinced now is a good inflection point at which to enter the market,” Matt Bronfman, global CEO of Jamestown, noted in the release.

Founded in 1983, Jamestown has offices in U.S. cities including Atlanta, New York City, Boston, San Francisco and Washington, D.C., as well as an office in Cologne, Germany. The firm has 27 core and core-plus funds and five opportunity funds. The funds have acquired more than 80 properties including more than 25 million square feet of space. Their high-profile properties include Chelsea Market and One Times Square in New York City, the Newbury Collection in Boston and 799 Market St. in San Francisco.

Other commercial real estate firms are also finding Latin America ripe for investments. Transwestern, the commercial real estate services firm, recently announced it was boosting its activities in Latin America, naming Chip Clarke, a longtime company executive, as president of the Americas region. Clarke’s responsibilities will include overseeing the firm’s efforts to expand in the region.

Fitzgerald’s former firm, Paladin, founded the PALVAL Homebuilding Platform to develop and market condominiums for the growing middle class in Colombia. Paladin is investing $15 million in PALVAL, and its partner, Grupo Immobilario y Constructor Valor S.A., is investing $5 million to develop approximately 1,000 units worth about $100 million.

Prudential Real Estate Investors noted in its ”Latin American Quarterly Outlook” for January 2013 that “Latin America’s real estate market is growing through capital inflows in public markets, increased participation from institutional investors and rising construction and transaction activity.” The report stated that construction of shopping centers and office buildings is on the rise to meet the growing demand. Mexico’s industrial market is particularly strong due to the automobile sector.

Robert Knakal, chairman of Massey Knakal Realty, said the New York City commercial property investment sales market is currently red hot, but warned that sustained periods of low interest rates typically lead to real estate bubbles.

“Things are phenomenal now if you are in the sales business,” said Knakal. Knakal gave an address as keynote speaker at the New York City Real Estate Career Expo, held yesterday at the New York City Bar Association.

Knakal said that the state of the New York City land market is currently “unprecedented.” Land prices in New York City have increased by 20 to 25 percent in the past three months, and have even exceeded levels achieved at the peak of the market in 2007. He said that the Upper West Side is registering prices of $600 per square foot, compared to $400 in 2007. And in Tribeca, land prices are $1,000 per square foot, up from $500 per square foot at the last market peak. “Land prices are on fire,” he said.

By dollar volume, the New York City investment sales volume in 2012 was $40 billion, compared to $63 billion at the market peak in 2007. Knakal noted that more buildings sold last year than at any time in New York City’s history. The relatively high sales level in 2012 was driven in part by the increase in the capital gains tax rate, said Knakal. He expects the number of buildings sold this year to decrease by 20 to 25 percent, but the dollar volume of sales to nevertheless increase. “If you are a sales broker, you are feeling pretty good.”

Knakal said that price per square foot of New York commercial properties has increased by 13 percent in 2012, and by 15 to 20 percent in the first three months of this year alone.

The drivers of the investment sales market are the low interest rates, the “same pool of capital fighting over” a limited pool of real estate, and relatively small yields in other investment vehicles resulting from a mediocre economy. Knakal emphasized that values are increasing not because of underlying fundamentals but above all because money is cheap as a result of low interest rates maintained by the Fed.

“The government is artificially manipulating interest rates.” The leasing market, he added, is not as hot as the investment sales market.

“Things right now look great, but are we in another period of asset bubbles? History tells us that sustained periods of low interest rates create asset bubbles.” And he said that in the past few real estate cycles, a spike in land prices has always preceded a downturn in the market. The sky-high price of land, he said, “makes us nervous.”

He said if interest rates eventually rise because of traction in the economy, that will be not pose as much of a threat to the real estate market as if interest rates rise as a consequence of the high level of government debt.