Foreign investment in U.S. real estate declined in 2020, but South Koreans didn’t get the memo.
Capital flows from South Korea rose 88 percent year-over-year to $5.2 billion, making it the second-largest source of cross-border commercial real estate investment after Canada.
Investment volume from Canadian investors declined by 10 percent to $12.4 billion in 2020, and investment from all other foreign countries fell by 38 percent, according to a report from Real Capital Analytics.
“The initial fear early in the pandemic was that the restrictions on global travel and political uncertainties in the U.S. would cause cross-border activity to plummet,” the report notes. “Instead, the deal activity of domestic and cross-border investors fell at roughly similar rates for the year.”
In fact, for the last quarter of 2020, foreign investment was down by only 1 percent compared to the same quarter a year ago, outperforming domestic real estate investment, which dropped 15 percent year-over-year.
Germany, the No. 2 source of foreign investment in 2019, slid one spot in the ranking as its deal volume shrunk by about a third to $4 billion, while Singapore and the UK rose to fourth and fifth place, respectively. Switzerland, Japan, Israel, France and Bahrain rounded out the top 10.
South Korean institutions’ appetite for U.S. real estate has grown significantly since late 2019 as hedging costs have fallen alongside interest rates, encouraging them to shift some investment away from European markets. Korean investors have helped fill part of the gap left when Chinese conglomerates disappeared from the market in the wake of strict capital controls a few years ago.
Market uncertainty has had an impact on the types of assets these investors are considering. While office properties accounted for about three-quarters of Korean acquisition volume from 2011 to 2018, in 2020 more than half of all Korean investment in U.S. real estate went towards industrial properties.
Among all foreign buyers, industrial assets’ share of total deal volume rose to an all-time high of 31 percent in 2020, equal to office properties’ share.
The top foreign company by U.S. acquisition volume was Canada-based Brookfield Asset Management, which was involved in about $3.6 billion worth of deals for 48 properties, according to RCA data.
The second biggest was South Korea’s National Pension Service, whose investments totalled about $2.4 billion. This included a 14.3 million-square-foot industrial portfolio the pension fund acquired with Stockbridge Capital Group and a stake in SL Green’s $2.3 billion One Madison office development in Manhattan.
The British Columbia Investment Management Corporation, through its real estate investment arm QuadReal Property Group, was third with $1.6 billion worth of multifamily acquisitions.
Munich-based Deutsche Finance, which has been on a buying spree in partnership with broker-turned-developer Michael Shvo, came in at No. 4 with such high-profile acquisitions as San Francisco’s Transamerica Pyramid and Chicago’s Big Red building.
Another Korean firm, Hana Financial Group, was the fifth most active foreign investor with the acquisition of a $669 million stake in a Seattle office tower and a $390 million Amazon-leased logistics portfolio.