Global Capital Flows
- Oct 23, 2014
Foreign capital continues to flow into real estate around the world, some top global investors affirmed during the general session “Capital Markets: A Global Perspective” at the Urban Land Institute’s Fall Meeting yesterday. And while legislation, currency risk and economic performance are impacting investment, they are more like speed bumps than roadblocks, according to the investors, who represented three different continents.
In the U.S., “there’s so much demand from around the world for core, stabilized assets,” said Jeff Blau, CEO of The Related Cos. He noted that investors are being drawn to any type of cash-flowing asset. In Europe, the German bond is the highest it’s been in 20 years, and by comparison real estate is inexpensive, according to Olivier Piani, CEO of Allianz Real Estate GmbH. Eventually, he expects bond yields to drop as the bond rate rises further, although that is at least 12 months away. Meanwhile, in Asia, yields have dropped across all asset classes, given tremendous liquidity in the markets. The real question is, how long will they stay low, asked Goh Kok Huat, president & COO of GIC Real Estate, the investment arm of the government of Singapore.
On the debt side, U.S. construction financing has returned strongly, according to Blau, although on a restricted basis. For mid-level deals—say, those needing $50 million to $75 million—commercial banks will lend willingly in major markets or to established borrowers. Those seeking $200 million or more, though, will need to amass financing from multiple lenders.
Goh said the Foreign Investment in Real Property Tax Act has not deterred GIC from investing in the U.S., although it does make the insurance firm less competitive and thus limits the amount of capital it can deploy on U.S. soil. Allianz, on the other hand, limits its U.S. investment to loans “for capital reasons and other regulatory subjects,” Piani added. Overall, Allianz deploys 80 percent of its real estate-focused capital in Europe, with the rest spread around the world.
Allianz, though, considers deal potential with currency risks hedged in on an individual basis, while GIC looks at currency risk on a broader basis. “We tend to be somewhat currency agnostic,” Goh added.
On the other hand, Olivier noted, “we don’t invest in regions—no one does—but in cities.”