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

Abstract

Despite heady growth in cross-border investment into commercial real estate over recent decades, there are few studies that examine differences in investment preferences between domestic and cross-border investors at a micro level. We address the gap by examining the characteristics of assets acquired by cross border investors in six major US metro areas, comparing them with the purchases made by US investors in those same areas. Our study uses data on more than 67,500 transactions recorded by Real Capital Analytics (RCA) over the period from Q1 2003 to Q3 2016. As well as examining cross-border investors in aggregate, we isolate and examine purchases by investors from each of the four principal source nations for cross-border real estate investment in these cities. This is important since treating cross-border investors as a single group may obscure important differences between them. We employ multilevel logit techniques and we find across a number of specifications that cross-border investors prefer larger assets, newer assets and CBD locations regardless of nationality. However, temporal and sectoral patterns of investment, as well as evidence for return chasing behavior, vary with the nationality of investor being studied. Keywords Commercial real estate. Cross-border investment. Foreign investment. Investor preferences. Multilevel modelling. Return chasing behavior

Portfolio Diversification across U.S. Gateway and Non-Gateway Real Estate Markets

“…Historically, they have developed as ports of entry into a country. Conventional wisdom and prior research (Devaney et al, 2019;Feng et al, 2022;Ling et al, 2019) consider Boston, Chicago, New York, Los Angeles, San Francisco, and Washington, D.C. as gateway markets. We use this six-city definition as our initial set of gateway markets.…”

“…Many investors, in particular institutional investors, tilt their real estate holdings toward quality assets. This has been documented both for domestic (Ling et al, 2019;Malpezzi & Shilling, 2000) and international investors (Cvijanovi c et al, 2021;Devaney et al, 2019;McAllister & Nanda, 2015). This process involves selecting assets in gateway markets, purchasing larger and newer properties, and focusing on CBD locations.…”

Do cross-border investors benchmark commercial real estate markets?

“…Devaney et al (2017a) noted a negative relationship between office vacancy rates and turnover rates. With particular respect to property characteristics, Devaney et al (2018) demonstrated that crossborder investors in US gateway cities favor large and new buildings close to central business district locations.…”

“…Further useful research may be undertaken by differentiating between the geographic origin and type of investor. Considering the return chase behavior, Devaney et al (2018) noted that different nationalities may matter. Moreover, focusing on other property types JERER 13,1 would reveal whether the relative attractiveness is generally applicable to other markets and not a phenomenon unique to the commercial-and office sector.…”

Political Economy Analysis of The Rising of South Korean Property Industry:

“…In order to deepening the analysis, this paper will also use the understanding of crossborder investor preferences in commercial real estates by Devaney et al (2019). Devaney et al explained in their paper that expected returns and diversification benefits from the host market are counted as pull factors, then economic policies and limited opportunities in the home market are counted as push factors.…”