A Banquet of Potential: An Increased Foreign Appetite for U.S. Markets

January 4, 2024

Recently, Berkadia’s JV Equity & Structured Capital team, led by Chinmay Bhatt, Cody Kirkpatrick and Noam Franklin, traveled overseas to major markets in the Middle East and Asia to better understand how international investors are considering investment into the U.S. commercial real estate market.

The U.S. market is continuing to evolve. For Berkadia, and more specifically for our team, we have approached market shifts with open minds and ears. Instead of putting pencils down, we believe a proactive approach, focused on listening and learning, is what allows us to stay active.

To gain a better understanding of how investors are approaching the U.S. market, it’s imperative to explore markets outside of the U.S. Our team has been doing this for the past ten years, frequently traveling overseas to learn about different investment strategies, the active and inactive players in today’s market, and the various opportunities available. Additionally, before joining Berkadia, Chinmay Bhatt and Noam Franklin worked in the UAE collectively for over a decade.

As the U.S. market continues to evolve, having a deeper understanding of the different cultures and conversations happening around the world becomes increasingly valuable.

International Alliances Reveal Global Recipes

In addition to our personal experiences, we also leverage our strategic alliance with Knight Frank, a well-established global firm with deep relationships in Asia and the Middle East. This alliance provides Berkadia with access to international capital sources, enhancing our awareness and enabling us to inform clients on the latest investment themes and trends that are happening worldwide.

It’s also important to remember that navigating cultural differences is an intrinsic part of conducting business in various parts of the world. In these situations, trust is paramount, and building relationships is key. Unlike the U.S., where transactions are often the primary focus, establishing a rapport and winning the trust of individuals is crucial before any business or insights can be shared.

This is precisely why our partnership with Knight Frank is invaluable. With their deep-rooted relationships in these regions, we can leverage these connections to gain advanced insights and further cement these bonds of trust. Over the course of two weeks, we conducted more than 40 meetings with 100+ institutional investors, gaining invaluable insights to stay ahead of the curve.

Diversifying Financial Ingredients

Japan’s real estate market is thriving at present, primarily owed to its low cost of capital and stable interest rates. Despite success in their domestic market, Japanese investors are keen to broaden their participation in the U.S. markets. This is significantly influenced by current socioeconomic factors, as well as historical influences, which have instilled a sense of confidence in their investment decisions.

The rapidly declining population of Japan, which is expected to reach just 87 million people in 2070, and the value of the Yen, which has lost 13 percent against the dollar this year and is currently near a three-decade low, are major influencing factors. These components, in addition to the ample capital present in Japan’s market, provide a great opportunity to diversify portfolios, mitigate risk, and take advantage of foreign opportunities.

Our team’s extensive itinerary also included visits to Seoul, Dubai, Abu Dhabi, and Kuwait. During our visit to Seoul, we observed that investors are actively participating in the U.S. markets and are gradually gaining confidence. Similar to Japan, investors in South Korea are comfortable with diversifying their assets in the U.S. markets, driven by geopolitical and market-size factors.

Investors in the Middle East are confidently seeking out emerging markets for opportunistic returns beyond the region while preferred equity and mezzanine investments are at the top of their lists for U.S. strategies. While they have a long-standing history of investing in office opportunities within the U.S., they now appear most interested in exploring the multifamily space. Moreover, the thriving UAE economy has contributed to an influx of capital.

According to Knight Frank, Middle Eastern economies are currently some of the fastest growing in the world and the UAE recorded the highest net inflow of millionaires globally in 2022, attracting 5,000 newcomers. Additionally, oil prices peaked year-to-date in September at US$94 per barrel and it now sits at a stable US$79 per barrel. This has ultimately resulted in an increase in government revenues this year and could easily lead to an increase in outbound investment into 2024 as both sovereign wealth funds and private long-term investors take advantage of repriced buying opportunities.

International Investors Already Digging into U.S. CRE Markets

In the last few months, our team has already had multiple overseas groups providing term sheets and showing very significant interest in several deals. Our expanding network and deep relationships have played a crucial role in us capitalizing four transactions in the past six weeks. They included both development and existing multifamily projects in markets including Nashville and Phoenix. We are currently in dialogue with a handful of overseas relationships that are looking to become programmatic partners with experienced developers in the U.S.

Deep relationships are key to delivering successful outcomes for our clients, even in the face of challenging market conditions. As U.S. markets continue to evolve, we are confident that 2024 will be a year where diversifying portfolios and pursuing a wider range of opportunities will be ever so critical. In this context, global capital will be more important than ever, and we are well positioned to help our clients navigate this landscape with confidence.

Chinmay Bhatt, Senior Managing Director, Cody Kirkpatrick, Managing Director, Noam Franklin, Managing Director