Foreign direct investment in the US market is on the rise, with the National Association of Realtors reporting a 47% increase in foreign investors in 2017. Due to the economic recovery of the US, the market is considered stable and offers lucrative opportunities to those with capital who are looking for a favorable risk-return profile. The market is also fairly liquid, offering investors a quick and profitable turnaround, and the Foreign Investment in Real Property Tax Act (FIRPTA) exempts real estate assets held by foreign pension funds from taxation while allowing international investors to make larger investments. Political turmoil, like the case of BREXIT in Europe, has caused disruptions in other popular international markets, adding to the appeal of US properties. While commercial real estate in the US presents an attractive prospect, foreign investors face unique challenges as they attempt to navigate an unfamiliar market. Foreign investors are prepared to put capital toward the right deal but attracting them requires perspective and awareness of the obstacles they face.
Physical Distance from Assets and Lack of Market Awareness
Foreign investors are more physically distant from their assets, which can cause trepidation when deciding to invest capital. Securing equity from foreign investors requires gaining their trust through transparent and detailed communication. In such cases, leveraging technology can give US-based sponsors an advantage when it comes to securing capital. A strong market means competitive opportunities, so attracting investors with a streamlined and simple process is key to gaining the trust and equity of potential investors. The more details investors have about an asset the better, and they expect this information to be available with minimal effort. This sentiment is especially true for foreign investors, as lack of proximity to an asset often necessitates spending more time in the evaluation process. As investors assess options, they want to have all the information about a deal available at a glance. The more efficiently they are able to obtain this information, the more likely they are to invest.
Foreign investors may also not be as familiar with market nuances as domestic ones, and this lack of awareness increases the risk. According to Forbes, US CRE is known for its scale and liquidity, which allows investors more flexibility but also requires them to move at a faster pace when making investment decisions. Having boots on the ground in the form of a financial advisor is helpful, but foreign investors often struggle to keep pace with domestic ones and can miss out on prime opportunities. To compensate for this, many foreign investors are turning to firms with clear-cut online offerings that provide detailed information in a convenient, concise way.
Transparent Communication and Reliable Asset Data
In years past, a face-to-face meeting and a firm handshake created a secure Sponsor/Investor relationship. In today’s CRE market, technology has outpaced this organic relationship-building, and investor expectations have shifted. The average investor already has different expectations when it comes to communication and building trust, and this is particularly important for foreign investors who may not be comfortable with their distance from their assets. Creating personalized investor profiles and providing investors with real-time information about their ventures attracts otherwise-hesitant investors to the table.
Accessibility of information is also imperative to foreign investors. Maintaining lines of communication can be challenging due to different time zones and possible language barriers. But most questions and concerns can be put to rest with a comprehensive investment profile that is globally available 24/7. Putting information in the investor’s hands is the best way to maintain a relationship based on trust and transparency. Foreign investors who feel they can trust a CRE firm are more likely to invest with the same firm in the future, so starting an investor relationship on the right foot is important to securing future capital.
Advancements in CRE technology make it easier than ever to keep international investors engaged and informed. SaaS platforms like IMS support investors through every step of the investment process and automate back-office tasks for the sponsor, minimizing the amount of time spent managing investor profiles and documents. As the US CRE market continues to attract international attention, meeting and exceeding the needs and expectations of foreign investors becomes more of a necessity and priority. And as CRE technology continues to improve, providing international investors with secure and reliable information will only get easier. Leveraging this technology will attract new investors in a competitive market and keep them happy and confident as they continue to invest capital in new deals.