L.A.'s commercial real estate lures foreign investors

By Gregory J. Wilcox, Columnist
Article Last Updated: 02/02/2008 09:41:17 PM PST


Sometimes being stuck is a good thing.

That's the case with the L.A. area's commercial real estate market, which remained a safe bet for foreign investors last year.

They considered this area the third safest place for their money in the United States for the sixth consecutive year, according to a survey by the Association of Foreign Investors in Real Estate based in Washington.

New York City and Washington, D.C., finished first and second, and San Francisco and Seattle were fourth and fifth in the survey conducted during last year's fourth quarter. Those results were unchanged from the 2006 survey.

This year will probably yield similar results.

Investors who participated in the survey said they plan to increase global spending on real estate this year to $1.692billion from $1.394billion in 2007.

Survey respondents also said that slightly more than half of their planned acquisitions this year will be in the United States, and the dollar amount is expected to increase by 16percent. And for the first time since 2004, a measurable number of investors declared investing in the United States to be somewhat easy.

The association noted the resilience of the U.S. real estate market among seasoned international investors is underscored because the survey was conducted after the credit crunch and subprime mortgage crisis. There was a surprising change, too.

Retail complexes became the most preferred place for


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foreign money, jumping from the fifth spot. The former No.1, office properties, fell to fifth.
James A. Fetgatter, the association's chief executive officer, doesn't know exactly why retail and office switched places.

"I spoke with one of our major Australian investors, and he speculates that ... perhaps retail is now undervalued," he said.

Hotel properties moved to second from third, industrial to third from fourth, and apartments slipped to fourth from second.

Also surprising is the fact that the dollar's falling value, when compared with some foreign currencies, had no impact on investment decisions. "85percent said the currency fluctuations do not affect their investment strategy," Fetgatter said.

That's likely because huge amounts of foreign money flow into the U.S. commercial real estate market, and currency valuations change. "You try to separate the currency risk from the real estate risk and only deal with the real estate risk," he said.

Jack Kyser, vice president and chief economist at the Los Angeles County Economic Development Corp., said it's not surprising commercial real estate here attracts foreign investors.

"They are looking for a place that has some size, a diverse business base and if it has a global connection that is even better. There aren't too many places that meet those requirements," he said.

"You are going to continue to see a lot of foreign money coming in, and the rumor mill is churning. There is a lot of money from Dubai looking for a place to land," he said.

The survey also found:

The top five global cities for foreign investors' money: New York, up from No.2 in 2006; Washington, up from four; London, which fell from No.1; Paris, down from third; and Shanghai, up from ninth.

For the first time in years, members mention "distressed assets" as a new strategic focus.

Foreign investors consider U.S. real estate the most stable and secure in the world, and as having the best opportunity for capital appreciation. China, however, is closing in.

greg.wilcox@dailynews.com