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There are four simple rules about capital investment, especially in commercial real estate: It will flow to where it's most wanted, where it's respected, where it's safe, and where it has the highest probability of market-rate adjusted returns.
And that’s exactly what’s driving international capital into commercial real estate right now in the U.S., in ways that will impact everything from rents to the eventual shape of our skylines.
Investors - Economy - Concerns - Brexit - Future
Global investors, concerned by a cooling Chinese economy and ongoing concerns related to Brexit and the future of the European Union, are increasingly turning their attention to the U.S. for safety, cash-flow, higher returns and stability, bringing much of the investment capital that used to flow into Europe and China with them.
Some investment is even coming in from Venezuela, which is mired in strife and turmoil, and many other South American countries.
The big gateway city markets in this country—New York, L.A., and Miami, for example —where international investors tend to focus their attention, may be overheated. Prices in those cities, particularly in real estate, are reaching all-time highs, reducing the potential upside and pricing out even deep-pocketed investors.
Result - Metros - New - York - Inning
As a result, major metros like New York may be in the 9th inning for investors — everyone is getting in their last at-bats. But the music could be over soon. All markets eventually cool off or plateau, as what goes up, comes down eventually.
Yet, there is another side to this trend that’s worth noting.
Gateway - Markets - Capital - Purchase - Cities
Given the overheated gateway markets, international capital is now seeking purchase in second- and third-tier American cities —places like Denver, Phoenix and Nashville. In communities like these, the economic impact from energy (think fracking) and manufacturing (think self-driving cars) are likely to mean rising incomes and values.
Some of these cities are just plain hot. The cost of doing business...
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