At home, Canadian real estate investor Armin Martens faces a
soft economy and a declining currency. But when he looks south
of the border, the president and CEO of Winnipeg,
Manitobabased Artis Real Estate Investment Trust sees a
commercial property market teeming with opportunity.
The U.S. is not just the largest economy in the world;
its not just the largest real estate market in the world;
its also the best-performing, says Martens, whose
firm owns C$5.4 billion ($4.07 billion) worth of properties
there and in Canada. Todays outlook in the U.S. is
U.S. real estate investment trusts generated profits of
$13.4 billion in the third quarter of 2015, up 13.1 percent
from $11.8 billion during the same period in 2014, according to
the Washington-based National Association of Real Estate
Artis is one of many international investors buying into the
countrys hot real estate market, a trend that has
prompted whispers of frothy conditions.
Foreign investors spent $84.6 billion on U.S. real estate in
the first ten months of 2015, according to Real Capital
Analytics. That investment is on pace to eclipse the previous
record, set in 2007, says Jim Costello, senior vice president
at the New Yorkbased research firm.
Through September, 14 percent of U.S. commercial real estate
investment came from abroad, versus 10 percent for the same
period in 2014, reports CBRE Group, a commercial real estate
brokerage based in Los Angeles.
The world loves the U.S., and theyre continuing
to put money into this market, says Jeanette Rice,
Dallas-based head of investment research for the Americas at
CBRE. The U.S. is fairly stable. We have our economic ups
and downs, but overall the economic cycles are somewhat
In one recent splashy deal, Middle Eastern sovereign wealth
fund the Qatar Investment Authority bought 44 percent of New
Yorks $8.6 billion Manhattan West development from
Brookfield Property Partners, a division of Toronto-based
Brookfield Asset Management.
This past summer Spanish billionaire Amancio Ortega, head of
fashion brand Zara, ponied up $370 million through his real
estate investment arm for a block of Miami Beachs Lincoln
Road, the second-largest deal in Miami-Dade County history. In
March, Ortegas company paid $176 million for the former
Esquire Theater in Chicago.
Last year Beijing-based Anbang Insurance Group Co. paid
$1.95 billion for the Waldorf Astoria New York hotel in
Manhattan. Since Chinese insurance regulators allowed carriers
to move investments outside the country, Chinese insurers have
emerged as active buyers, Costello explains.
Even after a flurry of activity, Chinese managers must keep
diversifying their portfolios. Theyre horribly
overweighted to China right now, so I think that outflow will
continue, Costello says.
Some worry about an influx of Chinese money. The
Chinese savings glut has fully disrupted global financial
markets, says Morris Davis, academic director of the
Center for Real Estate at Rutgers Business School in Newark,
New Jersey. I have no idea how this ends, but these
things typically dont end well. In 1989,
Japans Mitsubishi Estate Co. bought 80 percent of New
Yorks Rockefeller Center, only to jettison its $2 billion
stake in the mid-1990s when the landmark building filed for
But Costello says theres so much international capital
chasing U.S. real estate that the financial fate of any one
nation poses no real threat. If Chinese buyers were to
disappear, I dont think prices would collapse, he
contends. There are plenty of domestic buyers right
behind them hungry for the same yield opportunities.
Although cash from exotic locales grabs headlines, skeptics
should probably be more worried about Canadian investors, the
most active buyers by far. Canucks spent $23.6 billion on U.S.
real estate in the first ten months of 2015, followed by $14.8
billion from Singapore, $9.3 billion from Norway and $6.4
billion from China, Real Capital Analytics reports.
Artiss Martens says that 28 percent of the
landlords assets are invested stateside, a proportion
that it expects to hit 35 percent by the end of 2016. With
falling petroleum prices hurting Canadas oil-sensitive
economy and property market, collecting rents in U.S. dollars
provides a hedge, he adds.
The Canadian dollar has weakened along with oil as of
late November it was trading at about 75 cents U.S. and
Artis has benefited from the favorable exchange rate. Although
Martens says the faltering loonie gives cause for
pause, his REIT is sticking with its strategy.
Tellingly, Artis isnt focusing on New York and San
Francisco, the first stops for deep-pocketed foreign investors.
Its targeting Arizona, Colorado, Minnesota and Texas.
Secondary U.S. markets appeal to investors in a way that
lower-tier markets in other nations dont, says Ryan
Severino, director of research at Reis, a real estate data firm
in New York. An investor that finds London prices too dear
wouldnt look to Liverpool or Manchester, but foreign
players shopping in the U.S. arent shy about turning to
Atlanta or Seattle for cheaper alternatives.
Also, secondary markets can offer better capitalization
rates a propertys annual income divided by its
purchase price which fall as values rise. Because
we have more land and buildings available for sale, cap rates
in the U.S. are higher than in other parts of the world,
The latest wave of foreign investment has caused little
hand-wringing over Americas place as an economic
superpower. Thats in stark contrast to the national
soul-searching that ensued after Japanese investors snapped up
Rockefeller Center and Californias Pebble Beach a quarter
It seems silly in retrospect, CBREs Rice
says. We are in a much more global world now, and we are
so much more connected with other markets.
Still, Costello notes that there remains one area of
geopolitical sensitivity: Middle Eastern investors take pains
to disguise their purchases of U.S. properties.