Foreign investment capital is quickly flowing into US dollar-denominated assets, including commercial real estate. Moreover, it plows past the traditional entry markets and into secondary and tertiary cities. This represents an outsized opportunity for agents and brokers to court, educate and serve these investors. Here, we’ll look at the macro drivers propelling this phenomenon, and identify actionable steps brokers can take to tap into it.
Foreign investors face several impediments US investors do not in calculating a suitable ratio of potential return-to-risk. Among these are a greater perceived risk deriving from geopolitical conflicts, ongoing currency machinations, and violent demographic implosions in other parts of the world that are simply not present, at least to the same degree, in the US.
First, relative currency valuations. As the Federal Reserve continues to hike short-term interest rates, longer-term rates and their derivatives, including cap rates, must rise themselves or shunt the pressure to rise into other channels.
Second, geographic and geopolitical security. The US is physically isolated from the rest of the world, giving it the advantages of not needing to maintain a standing army on its borders and being able to grow without fear of invasion or conflict that physically disrupts domestic commerce. It can project power globally, thus keeping conflict both handled by proxy and away from its shores. This inherent stability is buttressed by rising rates, lower inflation, and the dollar’s status as the world reserve currency.
Lastly, the stability of key geopolitical actors such as Russia and China is in major jeopardy. Both countries are in terminal demographic decline, have governments desperate to maintain their hold on political power, and are invested in various levels of conflict, from saber-rattling to kinetic warfare, at present. This encourages capital flight, and dollar assets are relatively easy to transition to, secure and on the appreciating end of most currency crosses.
The US dollar is the world reserve currency, which means countries besides the issuing country use it to transact between themselves due to a lack of transaction costs, ease of use, and value retention vs other currencies. Most oil purchases, for example, are transacted in dollars rather than the local currency, regardless of the identity of the buyer and seller. Nearly every nation is therefore a stakeholder in the US dollar in some respect.
The relative sizes of where foreign investment comes from into CRE have shifted in recent years. Specifically, investment coming directly fromO China has dwindled and has been more than supplanted by funds from Singapore, and Canadian investment has increased considerably.
Foreign investors have several acute needs and interests that have been colored by recent developments including the pandemic. Here are five ways brokers and agents can serve these needs and gain the trust of investment managers:
Where foreign flows of capital into dollar assets normally ebb and flow continuously, due to current world demographic structures, resurgent US unipolarity in the world economy, and the stability of the US currency, current flows of foreign capital are surging into commercial real estate, and are likely to grow for the foreseeable future. These flows are charging past gateway cities and into second and third-tier locations, and the managers behind these funds would be well-served by the expertise of US brokers reaching out to offer their expertise and assistance.