smaller U.S. markets

Cash deals prevail in smaller U.S. markets

Wednesday, June 7, 2017

International investors are predominantly paying cash for commercial acquisitions in mid-sized and smaller U.S. markets. A newly released report from the National Association of Realtors (NAR) focuses on transactions for foreign clients who bought, leased or sold properties last year, involving about 225 brokers and/or sales professionals or 20 per cent of 1,125 survey respondents.

“Nearly half of Realtors reported that they experienced a greater number of international clients looking to buy commercial space over the past five years,” observes Lawrence Yun, chief economist for the association, which largely represents brokers and sales professionals in secondary and tertiary markets where deal values tend not to top USD $2.5 million. “Forty per cent expect an increase in foreign buying clients this year. The healthy labour markets and lower property prices in smaller markets are poised to make up a larger share of activity.”

Properties in Florida and Texas captured the greatest share of incoming capital in 2016, accounting for 26 per cent and 19 per cent of foreign purchases respectively. California, at 8 per cent, and New York, at 6 per cent, were the next most popular destinations, but the survey reports sales in a total of 28 states with the median price at USD $1 million.

Sixty per cent of sales were all-cash transactions, while 34 per cent of investors received financing from U.S. lenders. Only 1 per cent of investors relied on mortgage financing from their own countries. Retail, apartment and industrial properties represent 57 per cent of the acquisitions, but the undefined “other” category was the most popular investment, attracting 23 per cent of the deals.

Together, Chinese and Mexican purchasers were behind more than 30 per cent of acquisitions, with investors from United Kingdom and Venezuela each covering another 7 per cent. Investors from 14 nations account for more than three quarters of sales volume, while the complete field of purchasers represents 32 different countries.

“Multiple years of steady job growth and the strengthening U.S. economy — albeit at a modest pace — makes commercial property a safe bet for global investors looking to diversify their portfolios and generate returns outside their country of origin,” Yun says.

Foreign vendors generally traded lower valued properties, demonstrated in the median price of USD $550,000. Nearly 60 per cent of properties sold for less than USD $1 million. However, 13 per cent sold for more than USD $10 million.

Chinese vendors were most active among the top five foreign sellers, representing 15 per cent of sales, while vendors from Brazil, Canada, France and Mexico each offered up 10 per cent. Land was the top commodity, accounting for 30 per cent of sales activity.

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