If you have money and live outside the U.S. where do you put your cash?

For a growing number of foreign investors, the answer is to place your money into U.S. commercial real estate, even though our country's economy is on the shakiest ground since the early 1990s.

Foreign investors continue to rank New York and Washington, D.C., among the top five cities in the world for their real estate dollars, according to a recent survey by the Association of Foreign Investors in Real Estate (AFIRE). New York ranks second on the globe only to London, and is followed by Paris, Washington, D.C., and Tokyo.

What's more, AFIRE members say that they plan to increase their level of property acquisition in U.S. real estate next year, while scaling back dramatically in other countries. AFIRE members have more than $272 billion invested in cross-border real estate.

"The strong preference for U.S. real estate reflects the country's political stability, its economic leadership, its size, and its diversity," said David Sherwood, chief executive officer for Alecta Investment Management and chairman of the board for AFIRE. "This is perhaps why many foreign investors in U.S. real estate require lower returns than U.S. investors require from foreign real estate.

"Even though the U.S. markets are heading for a period of lower returns than those enjoyed in recent years, the outlook still compares favorably with many parts of Europe, which have also passed their peak," Sherwood added. "It is also important to remember that the U.S. is not alone in facing the effects of the September attack and in times of uncertainty, the U.S. rarely has a problem attracting foreign capital."

Forty-five percent of survey respondents said their primary reason for investing in U.S. real estate was a favorable risk-adjusted return. Other reasons included market fundamentals (36.5 percent), stability (23.5 percent), and diversification (20 percent).

"Among foreign investors, U.S. real estate remains an opportunity for all the right reasons," said James Fetgatter, chief executive of AFIRE. "Although a handful of respondents expressed a cautious, wait-and-see attitude over the short term, the majority of comments were essentially bullish on U.S. real estate as a long-term opportunity.

"One of the verbatim comments best captures the sentiment," Fetgatter added. "'Real estate in the U.S. benefits from political and economic stability, population and job growth, and a transparency of information and data. U.S. real estate has low risk and a strong legal system to protect investment. It is still the most stable market in the world.'"

Some of the survey's most stunning findings concern New York and stand in marked contrast to the current market situation, which has a significant portion of World Trade Center-area tenants abandoning the Big Apple for suburban areas.

About 55 percent of respondents said that their perception of New York City as a desirable location for real estate investment has not been altered by the terrorist attacks, while 27 percent said their perception had become somewhat worse and 1 percent said it had become much worse. Conversely, 12 percent felt their perception had improved somewhat, while 4 percent said their perception was much improved.

Of survey respondents, 61 percent said the attacks have not affected their real estate investment allocation assumptions or future plans. Of the 39 percent who said their decisions were affected, 35 percent said they were more risk averse while 32 percent said they were adopting a wait-and-see attitude. Twenty-nine percent said they perceived future opportunities as a result of the attack.

And even though Americans may envision the U.S. economy as facing tough economic times, our foreign counterparts still believe it is by far the strongest in the world. In the survey, 58 percent said the U.S. provided the most secure and stable real estate investments. The closest competitor was the United Kingdom, with 18 percent. What's more, 67 percent said the United States has the best risk-adjusted potential return from real estate investments. The United Kingdom, in second place, garnered only 8 percent of the vote.

For more articles by Lesley Hensell, please press here.

Published: December 26, 2001

Use of this article without permission is a violation of federal copyright laws.

Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net