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Record-Breaking Foreign Investment in Chicago Sets the Stage for 2016

by James Bellandi

Chicago continues foreign investment boom through 2015

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More foreign money has been spent on real estate in 2015 in Chicago than any year prior, according to a Crain’s Chicago Business report.

In total, $3.27 billion dollars have been spent on real estate in Chicago as of Dec. 11, 2o15, well above the previous 2013 record of $2.18 billion, according to analysis by Real Capital Analytics.

Nationally, Manhattan has the highest amount of money spent this year at $26.81 billion, nearly seven times that of the next highest, which was Los Angeles at $4.03 billion; with its $3.27 billion, Chicago came in at No. 4, up from a No. 8 ranking a year ago.

The volume of foreign investments in 2015 has also broken record on a national level, with $86.92 billion spent this year, nearly double the previous high of $47.77 billion in 2007.

Why Foreign Homebuyers Love Chicago

Foreign real estate investment has surged thanks to low interest rates, previous investment successes and uncertainty in other markets. Investors are turning toward Chicago seeking a higher rate of return than they could get in coastal cities like New York or San Francisco. First-year rate of return in Chicago has been 6 percent through 2015, versus Manhattan’s 4.4 percent rate, or San Francisco’s 4.7 percent.

Chinese buyers have been a growing presence in Chicago residential real estate, with 4 percent of all Chinese buyers seeking U.S. property investing in Illinois and Chinese companies investing in high-profile residential construction projects downtown, but investors from other nations have taken an interest in Chicago as well.

Thanks to a $5.9 billion buyout of New York-based KTR Capital Partners, Norway has invested more money in Chicago real estate in 2015 than any other nation. The acquisition included 63 Chicagoland industrial properties valued at a combined $986.7 million. Canada ranked second with $515.7 million, followed by Singapore, South Korea and the United Kingdom.

The Future of Foreign Investment

As positive as 2015’s market was with foreign investment, there are no guarantees that 2016 will improve upon that performance.

For one, there is the effect of rising interest rates, which could slow home price growth and render U.S. real estate a less-attractive investment for foreign consumers.

The much bigger challenge, though, will be changes to the world economy. The Chinese economy, for instance, has slowed considerably in the last year, and Chinese consumers may have less purchasing power as a result (especially if exchange-rate trends continue and the dollar strengthens to the Chinese yuan); similarly, plunging oil prices have taken a significant bite out of many Middle Eastern and South American investor portfolios, so transactions could lessen from those consumers, as well.

“Next year, the challenge folks have been worried about is the source of the wealth,” said Jim Costello, a senior vice president at Real Capital Analytics.

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