Middle East appetite for US real estate on the increase
With interest in US real estate increasing, Andres Szita, co-founder and chairman of Ethika Investments, advises a rethinking of traditional areas of investments away from the usual favourites New York and Washington DC.
March 26, 2013 1:48 by Eva Fernandes
“Let’s rock and roll” were the words a prominent banker from the GCC used to let US-based Andres Szita, co-founder and chairman of Ethika Investments, know he was interested in investing in US real estate.
Although London has always been the darling of real estate investors in the GCC looking to invest in the Western hemisphere, the US is beginning to regain some of its pre-recession appeal. Last year, Bahrain’s Investcorp invested more than $265 million in US property, with IP Global stating that up to 15 to 20 per cent of all home sales in Manhattan are from GCC investors.
“Two and half years ago Middle Eastern investors were afraid and very much in the see-and-wait mode. In the past six to eight months, we have been getting many calls from people we have met in our various trips to the Middle East in the past – who are telling us that they want to invest. You can see a change of mood, there is no question about it” says Szita.
Szita represents one of the many firms experiencing a significant shift in interest from GCC real estate investors at both an institutional and individual level. While traditional areas of investment like New York and Washington DC remain popular, Chief Investment Officer at Ethika Austin Khan says investors should consider the potential of lesser known areas like the Midwest and Minneapolis, which he says has “an unbelievable amount of depth and potential” with many Fortune 500 companies and strong regional companies headquartered there.
Understanding the depth of US markets and opening up to shorter lease terms or more value-added opportunities will allow an investor to capitalise properly and achieve better returns, says Szita. While firmly advocating diversification, he says the standard request for an office building with a 20-year lease agreement to the US government needs a rethinking.
Even if you aren’t looking for a risky investment with very high returns, it is important to understand requesting a long-term lease with an accredited tenant is likely to be traded at very low caps with very low returns: “Where should I invest? The first thing everyone tells you is New York. Although we love New York from an investment and returns point of view, it is not always the best market,because it needs a big correction and it is a little over priced in our humble opinion.”