GlobeSt.com: How do you differentiate between a flight to quality and a flight to reputation?
Bruck: There is still a lot of investor money coming into the US, but it is investing very carefully, going only to the most experienced developers and funds. If a quality project is being developed by an unknown entity it still may not get funding, at least from foreign sources.
GlobeSt.com: I imagine this would be a problem primarily for smaller funds or developers.
Bruck: Yes, that is true. There is a need on the part of asset managers to invest in things perceived to be safe and conservative right now. But that doesn't mean that if you are a big name developing a risky product you will receiving funding -- a big name developer of condos in Miami, for instance, will be out of luck, because that is perceived to be a dead market right now.
GlobeSt.com: What are examples of projects that foreign capital likes right now in the US?
Bruck: If you are developing infrastructure around a port as one example -- – you will find that the money is flowing in. Consider a developer looking to build a warehouse in the Los Angeles port. The perception is that there will always be demand for warehouse space next to the port – that there will always be a FedEx that will take that space for any price. So if you have a deal in place to build a warehouse at Dulles [International Airport] you are golden. If you are looking to raise money to build more condos in suburban Virginia, on the other hand, you are not. Another problem, for condo developers at least, is that there are other investments right now that are more attractive, such as natural resources.
GlobeSt.com: What else are foreigners investing in?
Bruck: Foreign buyers are looking at secondary and tertiary markets for projects that are near completion but have run out of funding. There is nothing but upside here -- no completion or zoning risk.
GlobeSt.com: Are these signs that the aura around US commercial real estate is beginning to diminish for foreign funds?
Bruck: I wouldn't say these trends are signs of that – but I can tell you that the US is now perceived as being more risky, which has leveled the playing field a bit between it and emerging markets. For instance, markets like Brazil are perceived as being more likely to deliver outsized returns. What kept some investors from seeking out opportunities there was the additional risk. But since the US is seen as almost as risky, now some investors figure, 'why not go to Brazil.'"
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
