3 Ways to Guide Foreign Investors in the NYC Market

3 Ways to Guide Foreign Investors in the NYC Market

3/14/17

Foreign capital has always influenced the New York City market. In fact, a recent study by the Association of Foreign Investors in Real Estate (AFIRE) shows that 95% of foreign investors plan to maintain or increase their investments in the US. Additionally, NYC is the number one city for the seventh year running among foreign investors and is the top global city.

Once, while walking a foreign investor through the Upper East Side, we passed two identical buildings. The first was 100% occupied, and the other was vacant with boarded up windows. The investor looked at the vacant building and said, “Maybe I should buy that one.” The point was that he assumed he would get a discounted price.

This is one of the nuances of the NYC multifamily market: vacant buildings are often more valuable than occupied because they are not encumbered by leases. As one client put it, “In the Midwest, I am trying to keep my tenants, but in NYC, I am trying to get rid of them.”  This reminds me of HSBC’s airport ad campaign, where sometimes the same picture or scene can have the opposite meaning depending on it’s location.

Let’s discuss three choices international investors need to make before they purchase in NYC.

1. Finished Product vs. Value-Add?

The first choice an investor needs to make is if they would like to purchase a “finished product” (core) or a “value-add” opportunity.   Many subsequent decisions will flow from this initial selection.

In general, the finished product or core assets will require less work during the holding period. The initial return will be higher when compared to other opportunities, but the long-term appreciation may be less.

Conversely, value-added investments will require additional capital and expertise during the holding period. As a result, they may offer greater appreciation.  It’s more difficult and risky for an out-of-town investor to execute a “value-added” strategy without a local partner, which brings us to our next question.

 
2. Direct Investment or Joint Venture?

Some investors are very specific about having or not having partners. I’ve heard the saying, “If partners were so good, God would have one!” Plus, we all know families who have been torn apart because business got in the way.

Your level of trust and comfort with a local partner will help determine the type of investment you should pursue. To sum up,

  • Investors without partnerships should stick to core opportunities.
  • Investors in partnerships should seek value-add opportunities.

But…where should you buy?

 
3. Market Nuances

As discussed, NYC requires local knowledge. New investors will need a strategy to save them time, become educated about the market, and create opportunities.

Furthermore, the varying neighborhoods and multifamily building types each call for different business plans.  An active, established, reputable broker can offer guidance in this area.

When I am hired exclusively by foreign investors, they essentially “rent my brain” for the several months while we work together, which is a huge time saver for them. Of course, they can also read my book book first.

Finally, part of the investment strategy includes assembling a team of lawyers, banking contacts, expediters, construction/maintenance teams, and rental brokers.

In the past 24 months, we have represented investors from Asia, Canada, Europe, Middle East, and South America.  With New York City continuing to rank among the top global markets to invest, I expect the trend of foreign investment to continue.

 

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