Do ‘foreigners’ pay more? The effects of investor type and nationality on office transaction prices in New York City

Abstract

Are commercial real estate prices in metropolitan New York affected by the type or nationality of the investors involved in a transaction? Previous research has highlighted differences in pricing between in-state and out-of-state investors and between different types of investors, but there are few extant studies that consider the influence of nationality on pricing at a microlevel. Foreign investors might pay more than domestic investors for commercial real estate assets because of a lack of information or experience in the market concerned. However, they might use local partners or brokers to mitigate such problems. To explore these issues, we use data provided by Real Capital Analytics on over 3,000 office transactions in the New York metro area from 2001-2015. We use hedonic regression techniques and propensity score matching to examine whether pricing differs across investor groups after controlling for asset attributes. We find that foreign investors pay more than domestic investors at acquisition, but receive more when selling assets. Tests suggest that it is unmeasured aspects of quality that explain any apparent overpayment for offices in this location, not information issues.

Estimating the value, ownership structure and turnover rate for investible commercial real estate from transaction datasets

“…According to Newell et al (2013: 6), RCA is "the largest and most comprehensive commercial property transactions database available globally". Their coverage is cited to be most, if not all, CRE transactions in the US over $2.5m (see Devaney and Scofield, 2017;Freybote and Seagraves, 2017), and CRE sales over $10m at a global level (see Newell et al, 2013;Chegut et al, 2015) [4].…”

“…For nationality of buyer and seller, countries are attributed by RCA based on head office domicile. Yet international investors, particularly global investment management firms, can have many local offices and source capital from many locations when making investments (see McAllister and Nanda, 2015;Devaney and Scofield, 2017). Nonetheless, we use RCA descriptions of nationality to classify investors as domestic, foreign or unknown.…”

International Real Estate Review

“…Recently, Oikarinen and Falkenbach (2017) focus on the office market in Helsinki, Finland, and find a statistically significant result which suggests that the office capitalisation rates in Helsinki have decreased by approximately 30 basis points for every 10% point increase in the proportion of volume of crossborder investments compared to the total volume transacted. With a focus exclusively on the New York City commercial office market, Devaney and Scofield (2017) explore the connection between cross-border investment and transaction prices. Their study finds that foreign buyers are more likely to pay a premium of about 9-18% more than their domestic counterparts for newer and larger properties in Manhattan (compared to other parts of the metropolitan area).…”

Only the Best? Exploring Cross-Border Investor Preferences in US Gateway Cities

“…The literature to date provides evidence that cross-border investors exhibit particular preferences for both the nations and areas in which they invest. However, to our knowledge, only Mauck and Price (2017) and Devaney and Scofield (2017) formally examine their preferences for asset level attributes such as size and age, with the latter study confined to one property type in one location. Furthermore, most of the literature has considered foreign investors as a single group and has not examined the preferences of different investor nations individually.…”