Why Foreigners are Not Investing in U.S. Apartment Sector
- Apr 13, 2009
By Anuradha Kher, Online News EditorWashington, D.C.–Foreign investors too often overlook the U.S. apartment industry and the investment returns it has provided, even during recessionary periods, mainly because of misunderstandings about how the U.S apartment market functions, according to a new report titled “A Case for Investing in U.S. Apartments,” commissioned by the National Multi Housing Council (NMHC) and produced by Torto Wheaton Research. “Apartments have a long track record of having the highest risk-adjusted investment returns compared to other property types,” says Doug Bibby, NMHC President. “Yet our sector remains largely overlooked by foreign capital.” “For the most part, this is because many foreign investors are unfamiliar with how the U.S. apartment market operates,” according to Bibby. “Many of these investors come from countries where apartment returns are inferior because the sector is highly regulated and where a greater share of the inventory is subsidized and lower-income. They also lack the professional apartment management firms common in the U.S. They may mistakenly assume the same conditions exist in the U.S.” The NMHC report is designed to help foreign investors better understand the benefits of investing in U.S. apartments. NMHC is making the new report available to the entire industry and will be working with the Association of Foreign Investors in Real Estate (AFIRE) and leading foreign capital sources to increase their awareness of the benefits of investing in U.S. apartments. The report outlines some factors that make U.S. apartments a good investment opportunity:Of all the major property types, U.S. apartments have provided the highest risk-adjusted long-term returns as well as the smallest amount of variation over the last 10-, 15-, 20-, 25- and 30-year periods. U.S. apartments have displayed higher returns during times when other property sectors have underperformed, thus bringing diversification benefits to real estate portfolios. In general, U.S. apartments have less volatile demand than other property types, as well as shorter leasing cycles, with a one-year average lease. U.S. apartments have the most efficient cash distribution, translating 83 percent of net operating income into cash flow compared to 64 to 74 percent for other property types. U.S. apartments have a lower cost of capital and wider availability of debt capital than other property types because of the lending activities of Fannie Mae and Freddie Mac.U.S. apartments operate in a favorable, transparent and market-driven regulatory and taxation environment.