Investors Lining Up for U.S. Real Estate

Foreign banks, American private equity firms and a leading Chinese sovereign wealth fund have been investing in commercial real estate in the United States in the hope that interest rates stay low.

This increasing interest from investors could be a sign that the market is experiencing some stabilization.  According to Bob Steers, co-chairman of Cohen & Steers, a real estate investment firm, “We believe the real story is that capital is ready to buy, even though it may not be so visible today.”  As one example, the state-owned China Investment Corporation has enlisted several investment firms to identify commercial real estate opportunities in the United States.

Another sign of incipient recovery is the fact that Colony Capital won a Federal Deposit Insurance Corporation (FDIC) auction for $1 billion worth of commercial property loans previously held by banks that had failed.  The transaction valued the loans at 44 cents on the dollar and is structured so the FDIC put up $136 million owns 60 percent of the equity.  Los Angeles-based Colony put up $90 million for a 40 percent share.  Colony’s founder, Tom Barrack, said the investment is “an implicit bet that rates stay low.”

In another example, JPMorgan Chase raised $625 million for Inland Western, which put $500 million into CMBS.  The deal was significant because it closed without assistance from the Term Asset-Backed Loan Facility (TALF).