Foreign buyers will raise the bar for Boston condo prices in the next few years, while overseas investors will bankroll development of thousands more million-dollar condos, real estate experts predicted at an industry event Tuesday.
"We’re seeing the major buildings are going to be $1,500 to $2,500 a square foot, which are going to be junior New York [prices]," said Sue Hawkes, CEO of Boston-based Collaborative Cos.
Hawkes spoke at commercial real estate group NAIOP Massachusetts’ forum at the Seaport Boston Hotel. Banker & Tradesman was a sponsor of the event.
Luxury condo development in Boston hit a lull during the recession before returning with such signature projects as the Millennium Tower at Downtown Crossing, Sepia at Ink Block in South End and Twenty Two Liberty on the Fan Pier.
Recent luxury condo buyers have included foreign investors buying primarily in the under-$1 million range, but the next wave of buyers will set a new standard, Hawkes said. And foreign investment, including projects built using the EB-5 program that awards visa to immigrants who invest in U.S. ventures, will account for many of the larger development projects, she said.
Foreign investment in Greater Boston real estate topped $4.6 billion in 2014, a reflection of the region’s reputation for elite higher education and technology innovation, said Riaz Cassum, a senior managing director at HFF in Boston, and moderator of the event.
Over the last five years, foreign institutional investors have shown growing interest in development projects despite higher risks, said Young Park, president of Berkeley Investments. The Boston-based company has developed office and multifamily properties in Boston, Somerville and Waltham in recent years.
"We have two German pension funds that are willing to invest in ground-up development. That’s a real paradigm shift in the way people look at real estate and risk in a market like Boston," Park said.
Many Middle Eastern investors who backed projects in the $20 million to $50 million range backed off on U.S. investments because of post-911 travel restrictions, but the slack was taken up by German sources until the recession, Park said. Most recently, the demand is coming from institutional investors such as foundations and pension funds that are seeking higher returns than they can get in government bonds in the current low-interest rate climate.
On the office sales side, investment from foreign sources is playing a role in many of the largest recent deals such as the Blackstone Equity Office portfolio, snapped up last year by groups including Toronto-based Oxford Properties Group and Mitsubishi Estate of Toyko.
Expect more deals such as the joint venture between Mitsubishi Estate New York and Rockefeller Group to acquire 28 State St. in Boston last year for $345 million, said John Rivard, managing director at the Rockefeller Group. After a two-decade hiatus from U.S. investments, Japanese institutions are looking for higher returns.
"Japan has a tremendous amount of capital and needs to diversify out of Japan. After many years on the sidelines, they realize they need to diversify into hard assets," Rivard said. "We think this is another wave coming and it’s going to continue for a while."
European and Asian investors have distinctly different approaches to U.S. acquisitions, HFF’s Cassum said. European investors tend to form advisory relationships with local partners, whereas Asian sources’ goal is to become independent developers.
"They want to learn from the local partners and they want to be doing it themselves in the second or third transaction," Cassum said. "They know how to develop, they just don’t know how to develop in the U.S."
