Asian Buyers Are Transforming The U.S. Investment Landscape
March 1, 2017
The Carlton Group specializes in raising large amounts of equity and debt from the Far East. We work with international pension funds, insurance companies, family offices, real estate developers, private equity funds, as well as high net worth individuals.
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Asian buyers are transforming the U.S. investment landscape
By The Investor | February 22, 2017
Be it Brexit or the U.S. election, 2016 was a year of uncertainty for the U.S. commercial real estate market as well as the broader global landscape.. But one group found U.S. real estate more appealing than ever before: Asian investors.
According to JLL’s U.S. Investment Outlook, Asian investors accounted for 34.6 percent ($16.8 billion) of 2016’s offshore acquisitions in the U.S., an increase of 3.8 percent from 2015.
The vast majority of that activity (97 percent) came from five powerhouses: China, Singapore, South Korea, Japan and Hong Kong.
“It’s incredible to see the marked shift in Asian inbound capital,” says Lucy Fletcher, a Managing Director with JLL’s Global Capital Markets. “Whereas these top Asian countries accounted for just 5 percent of total inbound investment on average from 2004 through 2007, now they account for 33.5 percent.”
South Korea puts pedal to the metal
One standout is South Korea, a country that only made its first big splash into U.S. commercial real estate in 2009. Since then, South Korean investors, mainly life insurance companies and pension funds, have taken a selective, yet aggressive, approach at buying up mainly Class A assets in the U.S.
“These investors are under pressure to diversify, and they see U.S. real estate as a way to do that outside of stocks and bonds,” said Miyeon Lee, Director of JLL’s Asia Pacific Capital Markets team.
That attempt to diversify has manifested in a very deliberate investment strategy. Nearly two-thirds (66 percent) of South Korean real estate investment goes to the U.S. and 65 percent of that investment is in the office space. Seventy percent of that total investment comes in the form of debt. That disciplined approach has led to a remarkable shift: South Korean investors have transacted in the U.S. at a ratio 11 to one this cycle versus last.
“Debt deals are faster and have the potential for quicker returns, and office has become the preferred asset class thanks to its relative overall stability and availability,” Lee added. “Investors typically look for Class A assets with long leases and credit tenants.”
To date, Korean investments have focused on the gateway cities such as New York, Los Angeles and Chicago. But some investors have begun shifting to secondary markets, especially in markets experiencing significant job and population growth such as Seattle where opportunities that fit their desired profile have become available.
But, Lee notes, you won’t find Korean investors anywhere near development. According to Lee, many life companies and pension funds invested in developments just before the Global Financial Crisis, and that created a lasting impact.
The kind of uncertainty often associated with development projects has typically kept South Korean institutions away, but concerns over a new administration have not dampened sentiment about U.S. real estate.
“We haven’t seen an immediate reaction to the election, but people will be watching closely,” said Lee. “Regardless, the main focus for Korean investors will remain on the U.S. as we move forward.”
