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WHY INVEST IN AMERICA?

Kamil Homsi, President of Global Realty Capital,* offers his view on why he thinks investors would be smart to place capital in the U.S.

Type in the acronym “FDI” into your web browser’s search section, and you will most certainly come across a myriad of lists compiled by various investment strategists expressing preferential  status of investing and placing capital in the United States.  The top rankings for capital inflow into the U.S. are not surprising given the stability of an existing political system, the grandeur of the country’s economy, steady population growth, increasing human capital, vast resources, rebounding GDP, and unlimited choices for venturing into a variety of sectors.

Although, in comparison with other industrialised markets, the U.S. tax regulations affecting many foreign investors are not deemed as the most favourable in the world, the overall firm positive factors compensate and balance out its shortcomings.

Currently, the U.S. economy attracts investors from the entire globe ahead of its peers in Europe, SE Asia and the rest of the G20 biggest economies. This coveted status is mostly due to its transparency, well-established banking and monetary systems, and relatively easy exit strategy.

Furthermore, the swift rebounding since the financial debacle of 2007 firmly positioned the U.S. on top of the list of the most trusted countries for investment on basis of its geographic security, fiscal policy and expansive outlook for demographic and economic growth.

Discerning investors clearly recognise the benefits of the federal government’s early intervention designed to control the meltdown, reduce the velocity of the free-fall through bailing out of worthy firms and extending the much needed assistance to financial institutions. Maintaining a sense of security within a disarrayed population, which at times seemed oblivious to the gravity of the events taking place, was also not an easy task to undertake.

The initial goal of the emerging economic policies was to contain the situation, to assure the public that the banking system was safe and that the government could stand up for its commitments, reduce the collateral damage and ultimately retain as many jobs as possible.

Through initiation of financial reforms and implementation of strong consumer protections, the U.S. government further reduced the chances of excessive risk and volatility of financial markets from recurring, eventually resulting in increased consumer confidence in the greater economy and in investment within all sectors across the board.

It was inevitable that the economies of the fifty states of the union would recover following the economic turbulence of the last eight years.  Depending on the states’ geographic location, their resources, local economic circumstances and consumer and investor appetites, the occurring financial recuperation exhibited itself in various degrees and fashions throughout all regions.

Much of the country’s progress was assisted by investments from abroad.  That trend continues to date, with China leading in investments by capital volume, followed by Japan, United Kingdom, Luxembourg, Canada, Switzerland, Ireland, Netherlands and Norway.  Capital mostly streams from institutional and sovereign funds, Family Offices and private equity sources.

Investor attraction

The United States attract FDI due to its diverse geography, growing population, advanced technological innovation and strength in its political and financial structures.  Perpetual improvements in infrastructure through the addition of modern seaports, airports and highway networks also contribute to continuous development.

The capital flow to the United States has been rather consistent and has further gradually increased in the last few years due to the emerging uncertainty throughout the world, and especially Europe.  The sharp drop in the value of the Euro, compounded by disturbing global events, along with destabilising governments and economies of various third world countries further increased the volume of investment capital seeking placement in the USA.

These days, every sector of the United States economy offers quite attractive investment opportunities for foreign investors starting with real estate, manufacturing, chemicals, finance, healthcare, technology, and insurance.  Historically foreign investors on a cumulative basis have invested heavily in the United States in all of these sectors while helping to create jobs and significantly contributing to the country’s economic growth.

Traditional global investment executives carefully determine risk thresholds and tolerance levels when selecting countries, cities and economic sectors that they are interested in.  In the last few years, we find that FDI focused on placing capital in the financial sector as the generous returns exceeded those of fixed income instruments.  Simultaneously, the undervalued real estate sector, propelled by low interest rates and eagerness of the lending institutions to jump start their industry, also magnetised investors towards U.S. properties.

Sector growth

The healthcare sector grew exponentially subsequent to the passing of the Affordable Care Act.  As an added bonus, the increased demand for medical and healthcare services and facilities further benefited the real estate segment.  The urbanisation of several metropolitan areas around the country increased the demand for hotels, development of housing and industrial facilities.  Regional retail centres grew at the same pace as demand encouraged investors to participate in this vital sector.  Lastly, the technology sector went on to reach new historic highs in investments which has not been seen since prior to the collapse of the dot-com era of the previous decade.

The technology sector continues to attract FDI candidates willing to invest in the existing growing firms and in the seemingly endless list of start-ups, both of which constantly compete for the consumer’s demand for newest and most useful products and applications which aim to improve our daily lives.

For the most part, real estate investment in U.S. markets differentiates itself from other countries due to the velocity of transactions, transparency of records, and exchange incentives. Foreign investors pride themselves on owning real estate in America and for many it represents a safe haven that is expected to grow steadily in value.

New York leads the way

During the last five years, New York has led the pack of competing cities for foreign investments in the U.S. and the world.  The city government followed through with plans to grow its position as the leading gateway city of the western hemisphere and as a financial hub that swiftly rebounded from the economic turmoil of 2008.  Rapidly filling the inventory of its office space and adding new inventory of millions of square feet of residential and commercial space within its five boroughs proved to be beneficial for everybody.  New York was also a leader in gaining recognition as the most desirable American city for foreign investors, who capitalised on the strengthened Euro during the period from 2010 through 2012 by purchasing vast amounts of remaining vacant land and residential properties.

Although New York remains in its current first place position, Washington DC comfortably asserts it second place position as a sound investment.  The area contains the largest concentration of embassies, international missions, government agencies and NGO’s, all of which encourage the creation of public and private projects within the city and its surrounding suburbs.

Boston, in the meantime, continues to emerge and grow as the country’s leading centre for the insurance and pharmaceutical industries.  The city further continues to cultivate investment in all related services that require increased demand for office space, convention facilities, hospitality, housing, retail centres and warehouses.

As the commodities exchange epicentre and the industrial capital of the U.S. central region, Chicago capably attracts Canadian and European investors due to the volume of mid-size industrial firms and government contractors located within its borders.

Shifting to the West Coast, San Francisco attracts the bulk of the foreign capital coming from Asia due to its closeness to the Asian Pacific basin and added advantageous proximity to Silicon Valley.

Los Angeles is vibrant on all fronts – real estate development, hospitality sector and shopping centre construction. The expansion of the international airport, while also increasing the capacity of the area’s seaport to accommodate mega-ships, is expected to increase tourism and the region’s distribution capabilities.  All such combined aspects aid in creating ideal conditions for a robust economy, enduring job growth, enhancement of residual income, all the while drawing global investors to California.

Rounding out the final remaining spot on the list of leading investment gateways in the USA is the state of Florida, and particularly the city of Miami.  This area was severely affected by the financial meltdown, as thousands of properties and vacant units ended up in foreclosure. Amazingly within three years, Miami’s vacancy rates reached the minimum levels of 2006. Construction cranes filled the city skyline.  The massive flow of capital marched toward Miami from Europe, Asia and South America, eventually spreading north to find a home around the rest of the state.

Outlook

Investment executives are aware that the immense size of the U.S. economy and the diverse individual state economies will always open doors to new opportunities for investors.  As the markets of the gateway cities become saturated with capital and as asset valuations increase, other secondary and tertiary markets will open to offer higher returns and less competition for investment seekers.

Looking forward, location will not be the sole determinant of where global investors park their money.  Changing lifestyles, climate conditions, access to transportation, ease of communication, industrial innovations, financial and tax implications, will also likely influence future investments not just in the US but all over the world.  But, given the momentum of steady growth offered on the US shores, the country is on pace to continue attracting record investment capital from abroad.

Headquartered in New York, Global Realty Capital offers its clients of international investors, family offices, and financial institutions opportunities to acquire and co-invest in all types of commercial real estate and other types of alternative investments. Kamil Homsi can be reached on kamil@globalrealtycapital.com

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