Despite New York being the epicentre of the 2008 banking meltdown, all seems to have been forgiven, at least where investors are concerned. The United States — and gateways like New York, San Francisco and Los Angeles — remains the most popular destination for global investors at all levels in the world. Even though global property investment fell 6.3 percent in 2014 according to Cushman & Wakefield, the US racked up US$324 billion worth of real estate investments.
On the Rebound
There are a number of reasons investors have rekindled their romance with American property (China leapfrogged over the US in recent years), among them continued low interest rates, an improving US economy, a strengthening dollar and its continued status as a safe haven, regardless of the GFC, a government shutdown and any number of hiccoughs in recent memory. “From the conversations I’ve been having with my own clients based in Hong Kong and China, most tend to feel that the real estate market in their home country is softening and they are now looking abroad for safe places to park capital,” theorises Charlie Rosier, director of investment consultancy Blackfish in Hong Kong. “There is also a sentiment of wanting a home back in the US that they or their children may use someday in the future if things keep sliding in China.”
The recent float of the RMB and its immediate drop in value (nearly 5 percent) isn’t worrying too many, but it will have an impact that will be felt, especially if the greenback continues to climb. Though admittedly foreign exchange isn’t her forte, Rosier concedes that, “the devaluation of the Yuan will indeed hurt Chinese investors who haven’t yet purchased real estate overseas. In my view, purchasing into a market with a strengthening currency is attractive to investors.” With a cooling domestic market exporting wealth is on the rise. “As the Yuan weakens, those that have already locked in their USD price and continue to collect a passive income in USD stand to do much better than if they had just kept their money on shore in a sputtering economy.”
Which is where first-tier US comes into play. Los Angeles has taken a turn for the better with its downtown rejuvenation, a city strategy that is paying dividends in terms of tourists and residents alike. With new leisure facilities in the downtown area and targeted redevelopment (beginning in 1999), residential prices in LA grew over 150 percent between ’99 and 2013 and LA’s fundamentals are strong: the area is undersupplied, the population of professionals is growing and rental demand is strong. Yet prices in LA still average just over US$600 per square foot. Up the road, San Francisco has been dealing with skyrocketing rents and prices for years (average prices are up 74 percent since 2012 alone), but that’s done nothing to deter investors from buying in the city. This is still ground zero for the tech industries and start-ups (though Seattle is catching up), and the staff they draw want to live in the city. There’s also Manhattan.
The Big Three
Though Boston, Houston and Chicago (among others) are coming on strong, and Miami continues to gain traction because of its links to South America, New York is still at the top of the list for where to invest, closely followed by San Francisco and LA. “I would agree with that. While there are definitely better yields and perhaps more potential for appreciation in third tier cities, I see more interest from foreign buyers into [those] marquee cities,” says Rosier. She goes on to argue that most investors are looking at wealth protection rather than income, and are happy with low-risk, conservative yields that come without the stress of managing an asset in an unfamiliar city. “The catch is that it’s very difficult for foreigners to secure investment grade real estate in any of these cities while their local markets are so strong.”
Those markets are competitive too. In Manhattan, perhaps the most popular single investment destination in the world, more cautious lending and limited supply are simply stabilising the market. “On the residential side, the vast majority of condo purchases are at US$10 million or more and those are all cash purchases. In the $1 to $3 million range we see financing as it’s used in most markets,” explains Scott Latham, vice president of the New York Capital Markets Group at Jones Lang LaSalle. “When rates inevitably start to move up it will affect buying power but not in a meaningful way. There is such a demand that if a buyer has trouble with financing there’s another one right behind them,” he notes.
Which is not to say there’s nothing out there, particularly for those with deep pockets. Extell Development’s One Manhattan Square on the Lower East Side is an 80-storey, 800-unit tower on two acres in the revitalising downtown core. The one- to three-bedroom apartments are priced up to approximately US$3 million (HK$24 million) and are positioned to take advantage of the area’s rebirth as a residential hub, similar to what’s happening in LA. “Years ago it was Wall Street, and at the end of the day business closed and that was it,” says Anthony Mannarino, executive vice president of Extell. “People are moving downtown and there’s a great deal of building going on and business are moving back.” Elsewhere, CIM Group and Macklowe Properties’ luxury project at 432 Park Avenue is in a more traditionally appealing spot near Central Park. That tower’s 104 residences range in size from 3,575 to 8,255 square feet, and remaining units begin at US$16.95 million (HK$130 million).
The news is better in LA, where nearly 6,700 new units are set to enter the market by the end of 2016, including in 888 Hope Street in the financial district and the Garey Building in the arts district; a further 14,000 units are in the proposal stage. According to The San Francisco Business Times, the city has 60,000 units under development and 9,000 under construction.