Time Warner Inc (NYSE:TWX) has announced that it is close to competing a deal to sell its downtown Manhattan headquarters to a group backed by financiers in Abu Dhabi and Singapore, who have agreed to finance 80% of the acquisition. This sale would mark one of several major American real estate purchases by foreign governments and companies.
Given global conditions, American real estate is looking more attractive than ever. With real estate markets surging in Asia and other emerging markets, the risk of a bubble has increased.
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Singapore, for example, now has the 6th most expensive real estate market in the world, ahead of both New York City and Los Angeles. Meanwhile, Hong Kong is the world’s second most expensive market, while Shanghai comes in at number 10. With real estate costs in such regions exploding, investors may be looking elsewhere in an effort to diversify.
Real estate still recovering from financial crisis
During the 2008 financial crisis, real estate prices across the world collapsed. The United States was among the hardest hit countries. Moody’s Corporation (NYSE:MCO) U.S. commercial real estate index, for example, hit 185 points in 2008 before collapsing to 111 points. Since then the real estate index has recovered to 163 points, but prices still remain well below their 2008 peak.
While U.S. investors may be pessimistic about real estate prices, many foreign investors are beginning to see them as bargain deals. Not only are prices well below their 2008 peak, but for many investors from Asia, Russia, and Europe, real estate costs are significantly cheaper and/or less risky than their home markets. It should come as no surprise than that foreign investments in real estate have begun to recovery from their 2008 peak.
Foreign real estate investments peaked at nearly $70 billion dollars in 2007. After real estate markets collapsed, foreign investments dropped to less than $10 billion dollars in 2009. Investments quickly rebounded, however, reaching over $30 billion by 2011. For 2013 investments will likely top 45 billion dollars and many analysts believe that momentum will continue through 2014.
Foreign investments diversified across the globe
Traditional players, such as Singapore and Abu Dhabi, are among those leading the charge to invest in U.S. real estate, but they aren’t the only ones. The Norwegian government is also using its extensive wealth fund to partner on U.S. real estate projects, such as the 7 Times Square office towers. Canada remains the single largest investor, with Canadian entities investing some $14 billion dollars last year.
China is also starting to ramp up its investments. After a decade of largely sitting on the sidelines, Chinese investments jumped to $4.3 billion dollars, more than the previous ten years combined. The Chinese government is believed be sitting on wealth north of a trillion dollars in its various sovereign wealth funds. Now, at least some of that money might find itself parked in American real estate investments.