There’s been a lot written recently by investment analysts on why Europeans can benefit from investing in U.S. real estate. Here are some excerpts from the recent pension fund investment report by TIAA-CREF on asset management:
In addition to providing diversification benefits for dollar-denominated portfolios, investment in U.S. real estate can also be viewed as a diversifier vis-à-vis European real estate. In fact, diversification is perhaps the most powerful rationale for cross-border investment. Research has shown that domestic stock and bond portfolios benefit from international components.
… Second, we demonstrate that U.S. real estate can be a source of attractive risk-adjusted return visà-vis stocks and bonds, and further, that U.S. real estate can be a source of attractive risk-adjusted return as compared with European real estate. Finally, we show that U.S. real estate is a key component of a “market-neutral portfolio,” and especially when viewed from a global perspective. The two other reasons for investing in U.S. real estate discussed in our initial paper — real estate’s inflation-hedging capacity and solid cash flows, especially for those concerned with liability matching — still apply …
The amount of foreign investment in US real estate has shown dramatic growth:
In 2004, for example, European purchasers accounted for over 40% of total real estate purchases while Australian purchasers accounted for 19%.
Also, from the National Real Estate Investor:
Foreign investors poured $163 billion into U.S. commercial real estate in the first half of 2007, a 37% increase over the first half of 2006, according to real estate services provider Jones Lang LaSalle.
Nowhere is the shift more pronounced than among German funds, historically the largest source of foreign capital in U.S. commercial real estate. In 2006, the funds sold more than $11 billion in assets in the U.S. and bought only $2.8 billion. In the first half of 2007, German investors spent $2.26 billion — nearly as much as they spent in all of 2006 — even though they still remained net sellers by $1.4 billion.
Real estate in the United States, according to this early 2008 article, continues to look like a bargain for European investors:
Meanwhile, returns on investment for European real estate are declining because an excess of capital in those markets is driving up the prices, real estate executives said. By comparison, especially to European investors, American real estate looks cheap.
The analysts appear accurate, based on my observations of recent buyers coming into the Santa Fe, New Mexico luxury home market. They view this market as providing tremendous value, and upside investment potential.
