It’s not uncommon to see strong foreign real estate investment in United States cities, but up until recently it has been centered on the largest of the coastal cities. Cities like New York, Los Angeles, Miami and San Francisco have long been attractive to foreign investors looking for a prestigious office building or hotel property. Heavy residential investment is relatively new, however, and what’s most unusual about it is that non-traditional markets are being targeted. Denver has made its way to the top of the list for many of these investors.
In 2015, at least 9% of all commercial real estate sales in Denver were to foreign entities, representing $980.5 million dollars in total. That number only represents single foreign buyers who spent at least $2.5 million, however. An estimated $1.6 billion in total was spent when organizations that have a foreign partner as part of a joint venture are included, according to a report from the Denver Post.
Why are Denver and other non-traditional markets so interesting to foreign investors? The money is mostly coming from markets that are unstable for various reasons, and United States real estate is seen as a safe investment that promises a good rate of return. In other words, these investors are largely not looking to move here; they’re just looking for a safe place to park their money. Non-traditional markets like Denver have become attractive because they still offer the same security and potential yield, but at far less of an asking price than is found in the high-dollar coastal areas.
This is all part of a larger pattern of $91.1 billion in foreign real estate spending across the United States in 2015, a number that is projected by research firms to increase in 2016. In general, investment has still been centered on offices and hotels, but the new wrinkle is that cities like Denver, Houston and Atlanta are now being targeted by these buyers when they never were before.
Much of the foreign investment in the Denver area has been centered on industrial and office buildings thus far, but investors have also bought up apartment complexes and suburban real estate. Investors that are buying homes are almost exclusively interested in those that are valued at a minimum of $500,000. An early dip in the stock market has slowed foreign investment in luxury homes in 2016 throughout much of the United States, but Denver is one of the few markets where sales have remained strong.
While this investment is great for sellers who have these types of properties and has brought a welcome cash infusion to the area, there is some natural long-term concern about housing price inflation. Though foreign investment was not solely to blame there, Vancouver stands as the most prominent example of what can happen if foreign real estate investment goes unrestricted in a market that becomes hot enough. Wealthy buyers able to pay cash on the spot have tilted the market there such that middle-class residents find it impossible to purchase a home or even rent affordable housing, with middle-class families who need space for their kids being the hardest-hit of all.
Vancouver is a unique example with unique market conditions and pressures, however, sort of a “perfect storm” case of foreign investment disrupting the equilibrium of the housing market. Denver is nowhere near that point and unlikely to ever get there. There has been a local boom in residential real estate, but that has been almost completely driven by domestic demand. In the meantime, Denver still has very attractive pricing for luxury homes as compared to similar metro areas. Interested in learning more about what’s available? Call me, Mike, and I will be happy to assist you with any and all of your real estate needs.