Capturing International Investments: Why the Mid-Market Might be the Answer to Falling Foreign CRE Purchase Activity

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A recent study from the National Association of Realtors® reported that foreign buyers purchased over $19.4 billion dollars of U.S. commercial real estate over the past three years. U.S. real estate – especially commercial real estate – has always been attractive to international investors who view commercial properties as good for building long-term asset appreciation while minimizing the downside risk that often comes with investments in the global financial markets. 

As foreign markets experience more and more volatility, there would usually be a “flight to safety,” where capital would pour into the U.S. real estate market. A recent Washington Post story suggests that as many as nine different countries might be on the verge of a recession, and that doesn’t include China, which reported its worst manufacturing numbers in 17 years, as the trade wars with the United States appear to be taking their toll. But surprisingly, none of this economic upheaval has resulted in a boom of CRE sales to international buyers.  

In fact, according to the NAR report, foreign buyers accounted for only $4.8 billion of U.S.  commercial property sales in 2018, down from $6.7 billion in 2017 and $7.9 billion in 2016. Part of this can be explained by the economic problems mentioned previously. The countries whose investors most frequently purchase U.S. CRE properties are some of the companies having the most severe economic issues: Germany; the United Kingdom; Italy; Venezuela; and Mexico. Most notably, the largest amount of buying activity over the past three years has come from Chinese investors, who face the dual problems of a shrinking domestic economy and a bevy of new restrictions from the Chinese government, making it harder for individuals to get large sums of money out of the country for international investments.

But those aren’t the only reasons international purchasing has been trending down. Rising prices and lack of inventory in major metropolitan areas have made it increasingly difficult for foreign investors to find the types of assets they’re most interested in, and can afford to purchase. But the market opportunity could be significantly bigger. According to the NAR report, 29% of the investors claimed that they decided not to buy a property because of the high cost; and almost a third of the investors who were interested in US properties but didn’t buy one said they simply couldn’t find a property to purchase. 

Because of this, there’s been growing interest from investors in finding more – and more affordable – properties, which often takes them to second and third-tier cities. This, in turn, creates some problems for the CRE brokerage community, which has historically focused on listing the most expensive assets, in the largest of markets. While the biggest of the brokerage shops can continue to mine their global networks to find the elusive buyers for their trophy properties, there hasn’t been a cost-effective way for mid-market brokers to reach global buyers with the properties they represent in smaller markets – properties that offer the prices, cap rates, and ROI potential that today’s more cost-conscious international buyer appears to be looking for. 

There’s almost no excuse, in the age of the Internet, for the fact that the overwhelming majority of US Commercial Real Estate brokers historically have had no easy, reliable way to reach foreign buyers, limiting their marketing opportunities, and potentially limiting the returns they can deliver to their clients. While the Internet, by definition, can be looked at as a global platform, marketing to a global audience isn’t as easy as simply posting a property on a broker website and hoping it shows up in a random Google search. And to-date, most of the marketing options available required a broker to assign the sale of a property to an online auction company or to pay an exorbitant amount of money to have the property included in a listing site. 

Until now, there really hasn’t been an online marketplace that catered to the needs of the mid-market broker, and in today’s market, those brokers have the right inventory at the right price points to help stimulate business from foreign investors. 

That’s where companies like Biproxi come in. We’ve created a platform to specifically address the needs of the mid-market broker and to open up the global market to those brokers and their clients. We make it possible to more broadly market properties to both domestic and international buyers, and easier for foreign buyers to find, analyze, and purchase more U.S. CRE properties.

Brokers can also use platforms like biproxi.com for a variety of different marketing services, including online sales and online auctions, leveling the playing field, and helping mid-market brokers cost-effectively compete with the large brokerage shops on a global level.

There are investors with billions of dollars looking for just the right U.S. CRE investment opportunity. Today, finally, there’s a platform that lets mid-market brokers leverage the power of the Internet to connect and transact with those investors.  

yan khamish

yan khamish

Yan joined biproxi after building and managing a successful Broker Channel at Ten-X, where he expanded engagement with the top commercial brokerage firms, industry associations and technology partners.

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