Foreign
investors have historically been interested in one type of property: trophy
office assets in the central business districts of gateway cities. But as the
foreign investment climate diversifies and evolves, Texas has come to stand out
as one of the most attractive markets for global dollars.
Courtesy: KDC, Four CityLine in Richardson, Texas
Texas now
outpaces both California and the U.S. average for foreign investment as a
percentage of total sales volume, according to CoStar. Its increase in direct
foreign investment since the Great Recession is rivaled only by New
York. (CoStar tracks mainly direct and announced joint ventures and does
not typically include fund investments.)
“Foreign
investments in Texas have changed, and while I wouldn’t say it’s been a huge
paradigm shift, you should pay attention,” Cushman & Wakefield executive
managing director Beth Lambert said. “As [foreign investors] get more
sophisticated in our country, they tend to spread out from product type and
still need to chase yield. If you’re looking to gather incremental return,
gateway cities are tough to do that.”
Since 2011,
Texas has been behind only New York and California for total new foreign direct
investment projects. Last year, foreign buyer sales volume exceeded $5B in
the Lone Star State, or about 15% of all sales, according to CoStar. That is a
huge leap from 2008 and 2009, when foreign investment accounted for less than
2% of all sales volume in Texas. The tail end of 2016 and Q1 of 2017 saw a
modest decline in Texas, but that seems to represent a blip rather than a
strong negative trend.
More than 50%
of foreign direct investment projects into Texas originated from western
Europe, predominantly the United Kingdom, Germany and France, according to the
Texas Economic Development Corp.
Courtesy of CoStar Foreign Buyers in
Texas, California, New York and the U.S.
Different
asset classes, particularly industrial, have become more attractive in recent
years. Industrial’s low cost per SF allows investors to buy more property, CBRE
vice chairman Jack Fraker said. Metros with high concentrations of industrial
assets, including many Texas cities, naturally benefit from more foreign
interest in the asset class. And more recently, a trend of acquiring industrial
portfolios has arisen.
In 2015,
$3.1B of cross-border investment was pumped into the Texas industrial sector
compared to $4.6B of domestic investment, according to Real Capital Analytics.
That $3.1B far exceeds the $156M invested into industrial assets from
cross-border funds in 2016. So far in 2017, foreign investment has pumped $227M
into Texas industrial product.
“Ten or 15
years ago you started to see industrial portfolios spread across multiple
cities [trading],” Fraker said. As e-commerce and last-mile distribution become
more imperative, industrial portfolios offer opportunities of scale, Fraker
said.
Part of what
makes Texas ripe for global investment is its infrastructure, PPA
Group chief investment officer John Latham said. PPA's value-add
multifamily acquisitions throughout Texas are funded largely from Chinese and
other foreign investors. More direct flights and better highways allow
investors to tour properties before they invest, Latham said.
Plus, high-quality infrastructure makes the industrial markets in Texas
that much more attractive for transporting goods.
“Over the
last 20 years, it’s gotten easier to get to Texas from the coasts. But Texas is
the next logical place,” Latham said.
Kyle Hagerty, Bisnow, Downtown Houston
skyline
Push factors
can be just as important as pull factors, Latham said. Many countries with high
concentrations of wealth are facing currency valuation issues, overbuilding and
government instability.
“The demand
is driven by what’s going on in their home country besides what’s going on
here. We often look stable comparatively,” he said.
While those
factors do not make Texas more attractive than, say, New York or San Francisco,
the Lone Star State often serves as a next frontier for foreign money looking
to spread itself out into other markets or increase its amount in real
estate holdings.
“When looking
at risk profile, there’s a natural tendency to diversify, and Texas is a
diverse state in all aspects,” Lambert said. DFW's economy is supported by many
sectors, Houston has strong ports, Austin is blossoming into a major metro, and
San Antonio provides incremental and stable economic growth.
Margaret Hunt Hill Bridge in Dallas
Institutional
investors, both foreign and domestic, have also increased their percentage of
real estate holdings from about 5% of total equity 10 years ago to double that
today, Fraker said.
As real
estate becomes a larger percentage of total investments, Lambert has seen a lot
more direct investments from foreigners who have opted to drop their local partner.
The opportunity to
generate positive yields transcends foreign investors specifically. “The demand
for yield is common across most investor groups; that’s not a U.S. phenomenon,”
Transwestern Corporate Properties president Laurie Dotter said. Dotter and
her Transwestern Investment Group team bought State Farm’s campus in Richardson
in a sale-leaseback with Seoul-based Mirae Asset Global Investments last fall.
“We see foreign investors saying, ‘I can comfortably generate good yield here
in Texas,’” Dotter said.
Source: Bunch, Julia. "More Over Gateway Cities: Why Texas Is Attractive To Foreign Investors". Bisnow Dallas/Fort Worth. 23 May 2017. Web. 27 July 2017.
