Abstract
Despite heady growth in cross-border investment into commercial real estate over recent decades, there are few studies that examine differences in investment preferences between domestic and cross-border investors at a micro level. We address the gap by examining the characteristics of assets acquired by cross border investors in six major US metro areas, comparing them with the purchases made by US investors in those same areas. Our study uses data on more than 67,500 transactions recorded by Real Capital Analytics (RCA) over the period from Q1 2003 to Q3 2016. As well as examining cross-border investors in aggregate, we isolate and examine purchases by investors from each of the four principal source nations for cross-border real estate investment in these cities. This is important since treating cross-border investors as a single group may obscure important differences between them. We employ multilevel logit techniques and we find across a number of specifications that cross-border investors prefer larger assets, newer assets and CBD locations regardless of nationality. However, temporal and sectoral patterns of investment, as well as evidence for return chasing behavior, vary with the nationality of investor being studied.
Highlights
Financial reforms across many developed economies in the 1970s and 1980s ushered in an era of liberalized capital markets that facilitated large scale cross-border investment in both financial and real assets
Decisions to invest in certain metros might precede detailed stock selection, so various multilevel models are presented in columns (2) to (7) that account for clustering in the probability of selection across observations and so allow preferences for particular attributes to be examined conditional on an initial selection step having occurred
The intra-class correlation coefficients (ICC) for the random intercept models are low, which suggests that only a small proportion of the variance in selection decisions is captured by the random intercept variables in each case
Summary
Financial reforms across many developed economies in the 1970s and 1980s ushered in an era of liberalized capital markets that facilitated large scale cross-border investment in both financial and real assets. Cross border investment in real estate may be motivated by push factors such as economic policies in the home nation and comparatively fewer opportunities for investment in the home market, and pull factors such as expectations of returns from the host market and potential diversification benefits Such activity is typically selective when it comes to the countries, cities and assets that are chosen for investment. Geurts and Jaffe (1996) and Holsapple et al (2006) draw attention to institutional factors, risks and costs that influence the destination of cross-border real estate investment, something that has been studied empirically at a country level, but which applies to choices of locations and assets within target countries It is the latter aspect that this paper seeks to explore further
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