Editor’s note: This guest commentary was written by Kristina Kopf Thomas, an attorney at Eversheds Sutherland in Atlanta.
The day after Thanksgiving, while many Americans were sleeping off their turkey, I was on an all-day aerial odyssey from Atlanta to Hong Kong.
My first flight to Asia took me first to Toronto, then due north over the Arctic before I landed in a dazzlingly vertical city that served as an appropriate host for the 2017 MIPIM Asia Property Leaders’ Summit.
The two-day conference gathers nearly 1,000 real estate professionals from across the global real estate market to exchange ideas about the real estate industry and investments.
This year, at least, very few of them were American, perhaps because of the timing — or maybe because of the long flight.
Either way, I was more focused on the Asian investors, as my role was to talk about what’s happening in the U.S. real-estate market and to learn how Asian investors are participating.
The answer from an Atlanta perspective, I found out, was, “Not much.” While Asian investors control a vast share of the world’s capital, relatively little of it finds its way to Georgia.
Other parts of the world, meanwhile, were front of mind. Perhaps because I was attending with colleagues from the U.K. and Hong Kong offices of Eversheds Sutherland, I especially heard a lot about Brexit and London.
In 2017 thus far, Hong Kong investors have acquired both the “cheese grater” and “walkie-talkie” buildings in central London, with total Asian inbound investment into London figuring more than $8 billion in 2017, the vast majority of it from Hong Kong. The U.K.’s historical connections to Hong Kong aside, these impressive figures led me to think that perhaps we in the U.S. should immediately commence brainstorming evocative nicknames for our office buildings. (Maybe the “King and Queen” buildings at the Perimeter would attract some interest?)
The U.K. figures from Hong Kong might be astonishing, but they’re dwarfed in comparison to the tide of inbound investment to the U.S. from Asia, which totaled $55 billion last year, the bulk of it coming from mainland China, Singapore, and Japan, and a bit more than $800 million from Hong Kong. Hong Kong direct investment into the U.S. in the first half of 2017 grew 35 percent on a year-over-year basis.
The Hong Kong investors with whom I spoke universally expressed polite enthusiasm for the U.S. market. They generally had started with investments in London, then turned to the U.S. and either had already made an investment or considered the prospect interesting.
But when I asked about Atlanta, by and large I was met with blank stares and crickets. They were laser-locked on New York, stressing the size of the market and volume of transactions, resulting in relative liquidity.
In conversation over lunch with one executive, I mentioned that metro Atlanta’s population is approaching 6 million, not too much smaller than that of Hong Kong: 7 million. He expressed surprise and said that he had believed Atlanta to be much smaller.
The difference, from a real estate perspective, is density. Hong Kong’s population is compressed into just 250 developed square miles, strung out in an average 1.3-mile depth between the mountains and the harbor. Its 1,223 skyscrapers make it the most vertical city on earth. Standing in the street, or looking across the city, the sense of height and scale is striking. In contrast, metro Atlanta as defined by the U.S. Census Bureau is 8,376 square miles, a land area roughly comparable to Massachusetts. “OTP” as a concept just doesn’t entirely translate.
No matter, because as the abundant cranes on the Atlanta skyline indicate, there’s no shortage of interest in Atlanta at the moment, even if that interest isn’t coming specifically from Hong Kong investors. (They just don’t know what they’re missing.)
As pricing pressures increase in the U.S. gateway markets, in part because of the intense foreign interest in cities like New York and San Francisco, U.S. domestic capital is shifting focus to top secondary markets and tertiary markets, including Atlanta.
There are some indications that as prices rise, foreign capital is following suit, but in any case, the ultimate result of more capital flowing into the U.S. is increased capital chasing real estate in many markets – not just New York. As my lunch companion observed to me while sitting in a city where the saying is entirely fitting: a rising tide lifts all boats.
Kristina Kopf Thomas, a partner in the Atlanta office of Eversheds Sutherland (US) LLP, is a commercial real estate and fund formation attorney with more than 13 years of experience working with real estate industry clients on a broad spectrum of transactions. Kristina has a strong background in the structuring and formation of private equity real estate investment funds and joint ventures for the acquisition, operation and development of real estate assets. She also has extensive experience advising real estate clients in acquiring, financing, developing and selling all types of real estate assets.