USA: Investing in the largest real estate market in the world
The U.S. real estate market offers European investors lucrative opportunities. What makes the market so attractive and in which segments the best opportunities lie, three experts explained at the "777 Capital Talk – Must have America?".
There is a lot to be said for investing in the U.S. at the moment. The real estate market there is not only the largest and most transparent in the world, it also offers more attractive opportunities than Europe's and is far from a bubble. This is, in a nutshell, the assessment of three connoisseurs of the US real estate market:
- Ralph Winter, founder and principal of W5 Group and 777 Capital Partners,
- Burkhard Varnholt, Chief Investment Officer of Credit Suisse (Switzerland) AG, and
- Matthew Scholl, Head of Investment Management America at Union Investment.
They were participants in the virtual panel discussion "777 Capital Talk – Must have America?" at 16. September 2021, moderated by Leipzig-based real estate communications and networking event agency IMMOCOM.
U.S. real estate market: a very different order of magnitude
"The real estate market in the U.S. is just as booming as that in Europe, but on a completely different scale," said Ralph Winter, who invests in U.S. residential real estate through his family office W5 Group. The scale involved is illustrated by real estate market data from CBRE: according to this, a total of 79 billion euros was invested in Germany in 2020. In contrast, according to consistent reports from various portals, the transaction volume in the U.S. was $383 billion. In addition, according to Ralph Winter, the USA is the most innovative capital market in the world. "It's the home of venture capital, private equity, cryptos – all the innovations are coming from there, all the big capital hubs are there."
According to Burkhard Varnholt, this innovative strength is also reflected in the way the Americans are dealing with the zero interest rate policy: "There is no other economy that so opportunistically and actively turns the dilemma of zero interest rates into an opportunity as the U.S. economy." And this opportunity lies in the capital-intensive sectors, they say. This also includes "the whole bricks and mortar business". This represents "an opportunity probably underestimated by many investors" in the coming decade, is the assessment of the Credit Suisse CIO, who assumes "that we will continue to have to do without savings interest in the 20s."
Shift from owning to renting
Matthew Scholl of Union Investment also sees the US real estate market as "very positive". It is the "largest and most transparent real estate market in the world". Add to this the diversity of microeconomies and development drivers in the USA. The economy in New York is quite different from that in L.A. "We see it as an opportunity," said Matthew Scholl, who is currently "extremely focused on multifamily" in addition to offices. The reason for this is "the shift from owning a home to renting". Young people come from university burdened with debt, marry later and want to be able to change cities flexibly for their jobs. For them, renting is more advantageous than buying a house, they said.
Which rental apartments are particularly in demand and therefore interesting for investors, W5 Group founder Ralph Winter analyzed. Based on the question of what tenants of the future will demand from innovative housing, he defined six criteria that now form the basis of his investments: Technology, Community, Value, Densification, Flexibility and Design. For Millennials in particular, he said, living spaces that support mobile applications and genuine social contacts that are created in the home community are very important. "I'm not currently investing in logistics or hotels, but in innovative living. Because millennials, who still have years to pay off their student loans, can't afford to buy their own homes. They have to go into the rental market," said Ralph Winter.
Focus on the residential market
Burkhard Varnholt of Credit Suisse pointed out another aspect: millennials are poor not only because of debt, but also because they were unable to build up savings in times without compound interest. If interest rates and capital market returns remain this low, he said, it will be a growth driver for the Innovative Living market.
This is why Matthew Scholl also relies on the housing market. Previously, Union Investment had focused on offices in gateway markets, but after the financial crisis of 2008/2009, secondary cities with other asset classes such as retail, hotels and logistics were added. These continue to be important markets, according to Matthew Scholl. However, due to demographic changes in the U.S., there is great growth in all asset classes, especially in the Sunbelt markets of the southern states. Therefore Multifamily counts now also to the Portfolio. According to Matthew Scholl, tenants have a lot of expectations. They wanted a lot of space, for example for a home office, a swimming pool and a gym. And they are willing to spend up to 30 percent of their income on it, he said.
Cautionary words came meanwhile from Ralph Winter. It can not always continue so successfully, the market is distorted. "It's not normal for us to have negative interest rates," he stressed, predicting, "Technically, we're going to go into recession in a year's time." That is why he advises every real estate investor: "Hedge your bets, diversify!" According to Burkhardt Varnholt, the U.S. real estate market itself is only in the middle of the cycle or a bit behind it. Matthew Scholl also does not yet see any danger of a bubble, although he advises a differentiated view. There are markets that are more at the beginning and others that are more at the end of their development. But it is precisely this diversity of markets as well as regions that is an advantage for all those who want to invest in the US real estate market.