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“Opportunities have no boundaries,” says Donald Trump. And the billionaire property mogul should know: with new office and residential projects underway in countries as diverse as India, Brazil and Georgia, it is an exciting time to diversify, he told the Financial Times. “We’ve been expanding internationally for some time now . . . There are a lot of opportunities and many good reasons to do so.”
But while Trump is known for having made both his first and his second fortunes in real estate, he is increasingly joined by an emerging class of private investors, many of whom struck it rich elsewhere. Amancio Ortega Gaona, the world’s fourth-richest man and founder of the high street Zara chain, has built up a property portfolio that could be worth more than $6.1bn, according to Bloomberg. Ortega’s holding company, Ponte Gadea (also known as Pontegadea Inversiones), recently snapped up Devonshire House in London for £400m, as well as a property in New York’s Meatpacking District for a total of $94m.
The super-rich have always invested their wealth in real estate, but with new high-profile investors like Ortega, global property is coming to the fore as a prime asset class. Though the estimated values of Trump’s and Ortega’s portfolios are comparable, Trump dismisses any suggestion of competition with these words: “I tend to be ahead of it.”
Ultra-high-net-worth individuals (those with more than $30m) typically hold about a quarter of their wealth in property, according to the 2014 Knight Frank “Wealth Report”. The percentage of their total net worth invested in property rose from in the past year, the survey adds. Memories of the economic crisis – partly sparked by the collapse in the value of investments in commoditised bundles of low-end mortgages – are fading; the top end of the property market has increased exponentially and the commercial sector is booming. Overall, investors – private or otherwise – spent $1.2tn on high-end commercial properties in 2013, an increase of almost 80 per cent on 2010, according to Real Capital Analytics, a firm focused on the investment market for commercial real estate.
With $51bn flowing into prime commercial properties (those worth more than $10m) this year alone, New York and London remain the favoured destinations for investors looking for opportunities. They each offer history, location and long-established wealth, according to consultants at Knight Frank Real Estate. And both cities are seen as safe havens for investors fleeing domestic, political or economic uncertainty.
“Whenever there’s a lot of trouble going on in the world, or seems like there is, it is especially attractive for investors in troubled areas to invest their money elsewhere,” says Ben Carlos Thypin, market analyst at Real Capital Analytics.
“Commercial property offers bond-like steady income from rents, but with an equity-like potential upside once rental growth comes through,” writes Peter MacColl, global head of capital markets at Knight Frank, in the 2014 Wealth Report.Sovereign wealth and national pension funds, traditionally big bond buyers, have therefore emerged as huge players, says MacColl, swiftly followed by individual investors: the super-rich.
A Knight Frank survey of more than 23,000 ultra-high-net-worth individuals revealed that more than 40 per cent had increased their property allocation last year, while another 47 per cent had plans to increase it in 2014. “Commercial real estate has had an unprecedented amount of equity flow,” says Spencer Levy, Americas head of research at CBRE, “particularly from foreign investors.”
Commercial high-net-worth investors are more likely to invest in the same markets they might purchase a home in, such as Miami, Los Angeles or San Francisco – but Asia is also growing in importance. Nearly half of all recorded high-end commercial investments both stemmed from and were directed towards Asian markets, according to Real Capital Analytics.
Looser regulations, particularly in China and Taiwan, have helped stimulate the global market, according to CBRE, allowing for direct overseas investments, higher real estate allocations and a simplified approval process. Research suggests that private investors increasingly prefer purchases that allow for direct ownership, in contrast to investing through intermediaries, commingled funds and multi-family offices, where both the profits and risks are shared with others. The number of ultra-high-net-worth individuals rose 3 per cent worldwide last year and is slated to rise another 38 per cent over the next decade, according to Knight Frank.
The boom in the residential market is fuelling interest in the commercial sector. In New York, before the residential sales office even opened for the new 90-storey One57 skyscraper, the developer sold four units, each worth roughly $150m, to foreign buyers, says Howard Lorber, chairman of brokerage Douglas Elliman. While property usually proves to be cyclical, Lorber says demand from the super-rich will continue, particularly in New York and London where there is greater transparency and stability, economically and politically.
Some 15 per cent of the world’s super-rich are estimated to be considering a permanent change in their primary country of residence, according to Knight Frank, with the UK and US at the top of their wish lists. “Real estate is a diversification of a portfolio, just like buying art,” Lorber says. “People buy art, hang it in their homes, look at it and love it. I’m not one of those people but I am for real estate . . . It’s something you can enjoy while it appreciates.”
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