By ANDY FIXMER
Tom Bohlinger is finding that low as the dollar might be these days, it’s not generating increased interest among foreign buyers of U.S. real estate.
In fact, many investors are sitting on the sidelines and may actually reduce their holdings this year.
The concern is that as the dollar has fallen, real estate prices have risen. “Even though the dollar has gotten weaker, the returns have reduced drastically,” said Bohlinger, a senior vice president at CB Richard Ellis Group Inc. who has represented several foreign buyers.
Instead of using the increased buying power of their currencies to make acquisitions, European, Asian and Australian investors have become concerned with the falling value of the dollar.
Buyers from those countries aren’t likely to jump back into the market in U.S. cities until the dollar begins to stabilize, according to the Association of Foreign Investors in Real Estate.
“If they think the dollar is only going to fall more, they won’t want to buy because the value of their investment would decrease,” said Jim Fetgatter, the association’s chief executive. “They are going to wait until they believe the value of the dollar is going to get stronger.”
Some of the resistance is surprisingly basic.
There is, for instance, the nine-hour time difference with Europe that even in an Internet age serves as a hindrance in cutting deals.
“You can’t do business during the day,” said Fetgatter.
Recently, some firms have begun to open offices in California and Arizona, to make it easier for acquisitions.
Deutsche Bank based its RREEF Funds LLC,an active investor in the Orange County and Southland market,in San Francisco for that reason.
Last year the RREEF America REIT II fund paid $107.5 million to buy four buildings at the Summit Office Campus in Aliso Viejo, among other deals.
While spending on real estate globally and in the U.S. is slated to increase, investors told the association in a recent survey that they would reduce their U.S. acquisitions to 55% of their available funds this year, compared with 71% in 2004.
Nearly 60% of the survey respondents said it has become “very difficult” to find attractive real estate opportunities, compared with 38% falling into that category in 2004.
The results are in line with what Bohlinger said he is hearing from overseas investors.
“Some foreign funds think there are better returns in other countries,” he said. “Even though real estate may look cheap with the dollar’s decline, the returns are still pretty low.”
While German investment groups have been the most active foreign buyers, there also has been renewed interest from Japan.
Last week, Fetgatter said he was meeting with a Japanese firm on a fact-finding tour of the U.S.
Many Japanese companies paid high prices for trophy U.S. properties in New York and Los Angeles before values plunged in the early 1990s.
Some of the firms were forced to sell, sometimes at 50% of their purchase price.
Los Angeles attracts the third highest amount of foreign capital, behind Washington and New York.
“There’s anecdotal evidence the Japanese are interested in the U.S. again, though there’s no concrete activity yet,” Fetgatter said. “But they are thinking of investing in real estate and they are thinking about the U.S. This time around, I think they are trying to be very cautious.”
Fixmer is a staff reporter with the Los Angeles Business Journal.
