The Greek debt crisis has had little impact on the appeal of European property to US-Based investors who acquired over $28b of commercial property there in just the first half of 2015. It is not just US investors, buyers from around the globe have doubled property acquisitions in Europe over the past two years. However, US investors are the most active and represent about a third of all cross-border activity there.
While most US markets have fully recovered and property prices have returned or surpassed prior highs, the recovery in Europe has trailed and is providing ripe opportunities for many investors, particularly private equity funds seeking outsized returns. Not included in the investment volumes are tens of billions of non-performing loan portfolios sold by European banks that have been acquired, primarily by these equity funds. If combined, direct acquisitions and loan portfolios acquired by US investors over the past year well exceeds the $57.4b of investment from US buyers recorded in 2007.
A ranking of the most active US buyers in Europe is essentially a list of the largest private equity funds: Blackstone, Colony, Starwood, Lone Star, Apollo, Cerberus, TPG and others. Due to the opportunistic nature of these funds, Dublin, Madrid, Lisbon and Milan have all become top targets. Prior to the GFC, over 80% of US property investment in Europe was either in the UK, France or Germany, but in recent years, that share has dropped to 64% as US buyers have spread out across Europe.
For core investors, London, Paris and the German A cities remain attractive to US buyers although yields for prime properties are similar to those in top tier US cities. Amsterdam has recently experienced resurgence in activity as relative yields there became attractive compared to those in either Germany or France. Core investors have also shifted greater focus to the retail and industrial sectors and many of the largest US acquisitions recently have involved major retail centres or large industrial portfolios.
US debt investors are also finding the European markets attractive. The strong revival of the CMBS markets in the US is increasingly making the environment competitive and eroding margins for lenders. However, debt capital is not nearly as available or cheap in Europe, hence the attraction to US lenders. Some such as Wells Fargo and Prudential have expanded their European operations considerably, while many other institutional investors are investing in mortgage funds dedicated to Europe.
Whether opportunistic or core, debt or equity, US investors appear undeterred by the Greek debt crisis. In fact, the Euro has weakened compared to the US dollar, making the investment proposition in Europe even more attractive to US investors and capital flows from across the Atlantic should continue to rise.
Source: Property Magazine