It's Different This Time

Is history repeating itself? Will today’s new foreign investors in the United States—from China, the Middle East, and elsewhere—fade much as nontraditional investors from Japan did two decades ago?

Jim Ulland brings perspective to the question. In the late 1980s, when he headed the downtown Minneapolis corporate lending office for Japan’s Tokai Bank, Ulland had an insider’s view of Japanese investors’ historic splurge in the United States. By 1990, they were snapping up America’s most treasured assets: trophy properties like Rockefeller Center and the famed Pebble Beach Golf Links in California.

It turned out that they massively overpaid for those properties. Japan’s real estate bubble popped. Ulland departed as the Tokai Bank retreated to Chicago. The Japanese economy languished for years. And for the most part, foreign capital heading for Minnesota continued to come from the traditional foreign sources: Western Europe and Canada.

Taking a Different Tack

Now, once again, nontraditional investors from abroad are buying iconic U.S. assets. Late last year, the Abu Dhabi Investment Authority bought 4.9 percent of troubled Citigroup. In July, investors from Abu Dhabi acquired a 75 percent stake in Manhattan’s Chrysler Building.

But this time it’s different, says Ulland of Ulland Investment Advisors in Minneapolis. Investors from more countries are spreading their money around the world. Technology makes it much easier for them to transfer money and data across borders. The sagging dollar and falling market prices for U.S. assets offer a double discount. Perhaps most important, the huge amounts of capital that Americans have sent overseas to buy oil and consumer goods need to be recycled.

“If you send all this money outside the United States, what do you expect people there to do with their dollars?” Ulland asks. The money has to go somewhere. And the more of it that comes to Minnesota, he reasons, the more the state can benefit from the wealth and jobs that come with it.

New York–based research firm Real Capital Analytics estimates that $8.2 billion came into the U.S. commercial real estate market last year from the oil-rich Middle East. That’s 21 times the amount in 2000 and a sixth of all 2007 foreign investment in the United States. This year, overall investment from abroad is running far below the 2007 total through May 31—financing from the commercial mortgage-backed securities market has screeched to a halt. Yet the Middle East’s share of foreign investment in the U.S. could double this year.