John Manning: The Top 5 Things to Know About Foreign Financing
- Feb 27, 2015
Liquidity in the debt markets is pushing core pricing and strong activity coupled with aggressive lending and competitive structures on the debt side. Banks, life companies and CMBS lenders will all become increasingly competitive, driving growth across more markets and products. Foreign investors and lenders alike are expanding their presence in the U.S. by acquiring assets and placing capital in gateway cities. Here are the top five things to know about foreign financing:
- Foreign Financing: Moving Along the Risk Spectrum: Offshore investment into the United States reached $298 billion in 2014 with foreign investors and lenders alike pursuing core, trophy, Class A assets. Foreign lenders display a strong preference to place capital in gateway markets but are beginning to expand their product types to include hotel, industrial and development assets.
- Foreign Financing: The Learning Curve: Similar to foreign equity chasing U.S. assets, foreign lenders have a slight learning curve relative to domestic lending competition when it comes to local market familiarity and other product-specific fundamentals. Foreign lenders are competitive on pricing but may seem slightly less transparent or atypical: certain terms such as prepayment flexibility, release provisions and recourse provisions can diverge from standard domestic terms.
- Foreign Financing: Offshore Borrowers: International investors will need to prove they are strong sponsors. Conduits and some banks will readily lend to foreign borrowers, after a background check. It may be harder for offshore investors to secure a non-recourse loan since most lenders will want to see a proven track record of U.S. assets.
- Foreign Financing: Life Companies: Foreign life company activity has remained relatively static, with the biggest players hailing from Canada and the United Kingdom. However, some life companies will put their money out through domestic groups including Principal, Aegon and Quadrant as they find it more efficient to partner with established U.S.-based life companies and money managers with “boots on the ground” local knowledge, wherewithal and borrower and intermediary relationships.
- Foreign Financing: Banks Expand their Presence: German, Canadian and Asian banks continue to serve as active lenders for U.S. assets. Deutsche Bank, Credit Suisse and CIBC are the notable players in the securitization space with active subsidiaries engaged in CMBS origination. But watch for a growing presence among Chinese banks: many have been strategically acquiring smaller, domestic banks in order to gain a foothold in the U.S. markets such as the acquisitions of Far East National Bank and Bank of East Asia’s U.S. unit by Bank SinoPac and ICBC, respectively. Additionally, Chinese banks such Bank of China and Bank of Communications are opening offices in the U.S. to establish a stronger local presence.
John Manning leads the Northwest Region’s Real Estate Investment Banking (REIB) practice of JLLs Capital Markets group, overseeing transactions in Northern California and the Pacific Northwest region. He can be reached at email@example.com.