Emerging Real Estate Markets

Investing in emerging real estate markets has always been a major part of the business model of big national and global real estate funds. Analysts at these firms would study market data to understand exactly which part of the business cycle different markets are in and where the opportunities lie. After targeting these markets these funds then would go and analyze the specific investments, be it cash flow properties like apartment, office and retail or more speculative land deals.

Small investors however have been influenced ( and many would argue incorrectly influenced) by what they think is a path of least resistance and possibly the Carleton Sheet late night infomercials that teach you must invest within 10 miles of where you live. Although I admit good opportunities can be found locally, but what if your local market is in in the tank and recovery is still a long way off? Do you still only invest locally?

When major corporate investors such as REITs (real estate investment trusts) invest their money, they don’t just buy real estate in one city. The directors and managers of the REIT will look around the country and around the globe ( more on that later) for the very best opportunities. When they find the best markets they spread their money across multiple markets. 

We are starting to see a trend though where individual investors are learning a couple of things from the REITs 1) Small investors are being open minded ( and proactive) about NOT limiting themselves to investing only locally. This one is partially by necessity because their local market may be in a downward slide with way to much inventory. 2) Individual investors are also seeing what the REIT’s have always known and that is diversity of investment in multiple markets. Placing your bet across multiple markets can be a very good thing ( assuming you are in the right markets) and helps shield you against down turns. In other words you don’t want your all your real estate investment eggs in one (local) real estate basket. 

Their are many factors that go into analyzing and finding emerging real estate markets and micro markets and in future posts we will go into more detail on those criteria and leading indicators. In the U.S. based on the news one might think that these markets don’t exist but they are out there and we hope to continue to identify both the broader markets as well as the emerging micro markets. One such market for small investors that has pockets of very strong fundamentals is the Gulf Coast where there are still shortages of certain housing types, but even in a known emerging market you need to be careful and have a good team around you.

Another trend that we are seeing due to the current U.S. subprime mortgage crisis, coupled with the ongoing liquidity and credit crisis has resulted in U.S. investors looking to gain exposure to other emerging real estatemarkets not just at home but around the world. 

Cross-border property investment by U.S.-based buyers totaled over $70 billion in 2007 in over 50 countries. Much of the investment is by multinational corporations, real estate funds and REIT’s but we are also seeing more and more individual investors buying in their favorite international vacation spots where costs of living and their retirement dollar gets stretched further than at home. We will be examining some of these international emerging markets in future posts and newsletters. 

Robert Stec