Foreign investors are pumping their capital into US real estate in an effort to secure a first mover advantage, as opportunities start to diminish in cities such as London and Hong Kong.
Key US cities, such as New York, Boston, Washington DC, Los Angeles and San Francisco, were attracting fierce interest from some investors, particularly overseas investors, eager to buy core, trophy assets at discount, the annual winter conference of the Association of Foreign Investors in Real Estate (AFIRE) heard.
Kylie Rampa, senior managing director of Macquarie Capital
However, with so few properties coming to market and a growing volume of capital sourcing deals, cap rates for some properties are being pushed down to levels not seen since the peak of the market in 2006 and 2007. 
There’s a lot of capital looking at core strategic markets in the US, those markets have a great degree of interest from foreign investors.
In Boston, a mixed-use office and retail property, which garnered 27 qualified bids from a variety of capital sources including foreign investors as well as US pension funds look for direct deals, is expected to close at around a 6% cap rate. Sources told PERE the field has been narrowed down to roughly 10 bidders, with notable private equity real estate firms withdrawing from the race owing to the “richness” of the deal.
Kylie Rampa, senior managing director of Macquarie Capital, told the AFIRE conference the first mover advantage for foreign investors was disappearing in cities such as London and Hong Kong, with cap rates coming down around 100 basis points in the UK capital alone.
“The US offers that [first mover advantage] opportunity. It’s about timing, you don’t want to be late and maybe don’t want to be too early,” she said. “There’s a lot of capital looking at core strategic markets in the US, those markets have a great degree of interest from foreign investors.”
Barbara Knoflach, chief executive officer of SEB Asset Management, added that cap rates for some US deals were getting “crazy”, even hitting levels last seen in 2006 and 2007.
“The only explanation I have for that crazy pricing is that there are just not many alternatives to invest in,” she said.
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