Strategic Considerations Surrounding Foreign investment into U.S. Commercial Real Estate Assets

The fact that commercial real estate in the United States has historically been recognized as a favored asset class yielding steady appreciation without the fluctuations that are characteristically present in competing asset classes have long made commercial real estate an attractive investment to foreign investors. The political and economic stability of the U.S., the absence or threat of government appropriation or nationalization, and the recognition of the historical strength of the US Dollar have no doubt also been contributing factors to the lure of foreign investors.

Given the attractive market characteristics described above, there has been a tendency for foreign investors to allow the sense of urgency surrounding the placement of funds and the desire to maintain competitive yields to drive their entry in to US commercial real estate markets. While resulting in great velocity with respect to time to market considerations, this scenario is regrettably akin to letting the tail wag the dog. If either ignored or misunderstood, navigating the complexities of international real estate finance with respect to the structuring of foreign investment into the US commercial real estate market can lead to a veritable plethora of increased costs and risks.

Experience shows that a rush to place capital on the part of foreign investors will result in the selection of the wrong assets in the wrong markets and in a resultant sub-par investment performance. This scenario coupled with poor tax planning, insufficient infrastructure and the lack of a hedging strategy has caused many a horror story about what can happen to foreign investors with an ill-conceived investment strategy.

To maximize returns, create operational leverage and manage economic risk the foreign investor should assess the following items prior to expatriating capital into US investments:

· Financially engineer a business model that leverages the best of both foreign and domestic strategic tax planning;

· Assess the need for, and cost of currency hedging;

· Determine best practice methodology for accessing deal flow in alignment with investment strategies;

· Understand the increased costs and complexities of logistics and operations;

· Choose a business model that will lend itself to maximizing US capital markets access

Authored by Mike Myatt
Executive Managing Director of Pacific Security Capital
Contact Pacific Security Capital today 1-800-844-6085