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Foreign Investment in South Florida Properties on the Rise
Spurred by tax savings and a strengthening in the euro, German property investors are renewing their push into U.S. markets. Much of that interest has been in the relatively new concept of condo hotels popular in Miami, Florida.
“German investors have long favored the U.S. because it offers lower capital gains tax rates than in Germany and higher real estate yields than Europe,” said Bob Zerbst of CB Richard Ellis Investors, whose clients include several German real estate funds. “The going-in yields on prime properties in Europe have been 5%-6%, whereas in the U.S., they’re 8%-9%, so there is quite a differential spread,” he explained.
Dale Anne Reiss, head of the real estate practice at Ernst and Young, believes currency swings are the main driver behind the latest string of deals. “German investment dropped off in the past few years because, with the euro weak against the dollar, it was too costly. Now that the euro has reached parity, we’re seeing more interest,” she said.
Condo hotel units present a real estate investment opportunity that does not yet exist in Germany or most of Europe. “Germans have a history of investing in South Florida real estate, at one point even owning some of the area’s major hotels like The Castaways, The Palms South Beach and The National all in Miami Beach,” said hotel expert, Sheldon Greene, president of Sheldon Greene & Associates, Inc., a real estate firm specializing in the sale of hotels. “They’re also a particularly dominant group in home ownership in Cape Coral, Florida.”
German tourists have always represented a fair percentage of Miami’s international tourism, according to Greene. Condo hotels now allow German visitors another type of vacation home to consider something beyond the condominium, timeshare or private home. Furthermore, they find appeal in owning U.S. property that generates some rental revenue and yet does not require hands-on management.
A change in German tax law in 2002 that made it more attractive to own foreign real estate has helped spark renewed interest in the U.S. What’s more, real estate specialists say the market for prime U.S. properties is nowhere near its peak. All of these factors have caused the appetite of German investors for American real estate to be heartier than ever. Given the depressed state of the German market, that money isn’t going to stay at home.
“Germany does not have near enough investment opportunities relative to the amount of savings Germans generate,” Greene said. “U.S. real estate is still relatively well priced, and it offers secure, predictable cash flow as well as significant appreciation potential.”
While the Iraqi war dampened some activity, most Germans remain bullish on the U.S. said Aby Rosen, New York management partner for the German property fund RFT Holdings LLC. “German investors are confident they won’t fall into the same trap as Japanese investors in the late 1980s: buying U.S. property at inflated prices just before the market crashed.” In his view, “the Germans are not overpaying, and they don’t expect the market to go up as much as the Japanese did when they bought.”
Furthermore, if a U.S. stock market recovery leads American investors to switch money out of real estate and into equities, and if lower European interest rates reduce the yields on property there, “you’re going to see a wave of German funds become very acquisitive in prime properties,” said Thomas Barrack, Jr., chairman and CEO of Colony Capital LLC, a Los Angeles-based investment firm focusing on real estate. “That will add to the bidding frenzy.”
