Archive for month: February, 2016
According to Real Capital Analytics, $533 billion of commercial real estate changed hands last year, up 23% from a year earlier. The volume also was roughly 4% more than what had been projected as of November 2014.
The total was still well shy of the record $574.9 billion of deal volume that took place during the market’s peak year of 2007.
Foreign investors accounted for $91.1 billion, or 17.1% of the transaction volume last year, up from the 10% average in each of the previous four years. The foreign charge was led by the Canadians, who completed $24.6 billion of deals. Those investors include the Canada Pension Plan Investment Board and Caisse de depot et placement du Quebec (CDPQ). Ivanhoe Cambridge, an affiliate of CDPQ, purchased Manhattan’s Stuyvesant Town/Peter Cooper Village apartment property for $5.3 billion late last year.
Investors from Singapore took the second largest piece of the foreign investment pie, completing $14.8 billion of deals in 2015. Norway followed with $8.5 billion of deals, and Chinese investors completed $6.8 billion of deals.
Under normal circumstances, foreign investors would likely increase their activity going into 2016. After all, certain restrictions have been eased as a result of changes to the Foreign Investment in Real Property Tax Act. (These changes were implemented with the passage of the Protecting Americans from Tax Hikes Act of 2015.) For instance, foreign pension funds are no longer are subject to withholdings under the original act.
However, many foreign investors are likely getting pinched by the sharp drop in oil prices. According to analysis by Morgan Stanley, Norway, the United Arab Emirates and Qatar combined for $18.6 billion of U.S. deals, a substantial volume. Since each country is reliant almost exclusively on oil revenue, their ability to generate cash will decline with the drop in oil prices.
In fact, as oil prices were plunging last year, sovereign wealth funds were redeeming capital from investment vehicles (not necessarily tied to real estate) to which they had committed. Morgan Stanley found that some $100 billion of capital was redeemed from 11 asset managers by oil-dependent investors last year. That trend could continue this year if oil prices continue to decline, or stabilize at today’s lower prices.
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