Canada to Attract More Foreign Buyers
The new free trade relationship between Canada and the United States is “somewhat one-sided” in favor of our northern neighbor, whose big cities are expected to benefit considerably.
Who said that? Not an American business or political leader but the president of a major commercial real estate company in Toronto.
Yes, Thomas G. McCarthy of J.J. Barnicke Ltd. recently told a large group of Washington real estate professionals that all foreign investors are increasing their portfolios of U.S. commercial buildings and will also make purchases in Canada.
McCarthy noted that serious estimates indicate that more than $50 billion have been invested in U.S. real estate by foreigners since 1983. Somewhat surprisingly, 57% of that total investment originated in Canada, 28% in Europe, 7% in the Pacific Rim, 6% in South America and the balance from the Middle East, North Africa or wherever.
The Canadian development specialist added that, while the European investment share in the U.S. market has remained steady, more than 20% of the foreign total, the Japanese are expected to step into the “forefront of North American investment in the next 10 years.”
McCarthy warned: “Doing business with the Japanese requires a substantial and patient investment of time and energies in getting to know the players.” And he added that it is a myth that all foreign buyers will pay higher prices and accept lower returns “for anything that local investors leave on the table as scraps.”
The Canadian realty expert said his experience indicates that foreign investors are usually more cautious and more seasoned than local buyers--always using the finest analytical and professional talent available. “Their interest in acquiring real estate, long or short term, is to make a buck.”
What are offshore investors seeking? Ideally, they want downtown office buildings less than 10 years old, with good public transit and a good tenant mix and in a top location. Also, the price must be “reasonable”--plus a 90-day inspection period for board approval.
In reality, however, McCarthy said that foreign investors now have too many dollars chasing too few deals in high-demand cities in North America. Thus, they must consider alternatives--suburban locations, partnerships, leasing and even rehabilitating older properties.
McCarthy opined that the international real estate market has “changed dramatically” in terms of expectations, and now is no place for amateurs or those trying to get by on limited or shoddy information. He used a bromide to make his point: “If you can’t run with the big dogs, you better stay on the porch.”
Finally, McCarthy left his Smithy Braedon annual forecast audience with awareness that the United States and Canada boast the world’s largest bilateral trading relations--more than $150 billion annually and that U.S. trade with Ontario makes that one Canadian province the largest trading partner of the United States. Also, the American development community is somewhat belatedly turning attention to Canadian opportunities “as evidenced by recent visits to Toronto by the likes of Gerald Hines, Trammell Crow and Lincoln Properties.”
