UW survey finds foreign investors favor U.S. and New York City real estate

The United States remains the preferred country for foreign investors’ real estate dollars, according to a University of Wisconsin–Madison survey of global real estate investors released today.

The survey also found that for the first time since 2001, New York City has emerged as foreign investors’ top U.S. city for their investment dollars.

The survey of members of the Association of Foreign Investors in Real Estate (AFIRE) was conducted on behalf of the association by UW–Madison’s Center for Real Estate. This is the 15th year AFIRE members have been surveyed, but the first time the survey was conducted by the Wisconsin center.

“The findings reflect investors’ desire to invest in U.S. real estate, despite macro uncertainties and competition from U.S. institutional investors,” says real estate professor Francois Ortalo-Magne of the UW–Madison School of Business, who directed the survey. “Consequently, foreign investors are showing a greater willingness to consider diversification strategies into secondary markets outside of the core property types, and with creative financing and ownership structures.”

The survey found that global real estate investors say their U.S. real estate investment strategies for 2007 and beyond will include properties traditionally considered to have higher risk. Thirty percent of respondents said they would explore new property types as part of their U.S. investment strategy, including infrastructure, resorts, senior housing, storage, student housing, research and science projects, and the acquisition of real estate companies.

Those surveyed said new measures to place new capital in the U.S. market over the next five years will draw on off-market transactions, the development of joint ventures, and the execution of a broader focus and geographic diversification.

Mark Preston, AFIRE’s newly elected chairman, says: “The U.S. still remains the strongest and safest conduit for cross-border real estate dollars, by a substantial margin of 63 percent. But it is clear that our members are taking advantage of some of the opportunities inherent in emerging markets.”

Respondents to the survey say that “value-added” real estate is expected to comprise 25 percent of their portfolio in 2007, up six percentage points from 2006. The survey reflects the buying preferences of members of the association, who collectively own $601 billion of real estate globally, including $184 billion in the U.S.

While the U.S. remains the preferred global country for foreign investors’ real estate dollars, only 23 percent of respondents say it has the best potential for capital appreciation, down from 44.4 percent in 2005 and 53.8 percent in 2004. India emerged as the country having the second highest potential for real estate capital appreciation.

The U.S .has always held the top spot, but this is the narrowest margin (5 percent) between first and second place in the survey’s history. With 15 percent of survey respondents’ votes, real estate in China continues to rank third.

The Real Estate Center at the UW–Madison School of Business has been a leading player in real estate education, research and outreach for more than 30 years.