The U.S. Dollar Is Down 10% So Far This Year. Here's What That Means For CRE

The value of the U.S. dollar fell more than 10% during the first half of this year, which could attract foreign commercial real estate investors who foresee their currency going further in the country that has long been considered a safe place to park capital.

It could also repel overseas megafunds that aren’t willing to spend more on hedging costs and shave profit off the back end. 

Either way, economists agree that the weakened dollar is more a result of foreign investors already having pulled back than it is a driver of future investment decisions.

“Primarily, it’s a confidence issue,” Trepp Chief Economist Rachel Szymanski said. “The macroeconomic environment in the U.S. is fairly unstable.”

That instability stems from uncertainty about the government’s fiscal sustainability, as well as its trade policies, Szymanski said. The former may be exacerbated by President Donald Trump’s One Big Beautiful Bill Act, which could increase the deficit by $3.3T over the next decade.

The Trump administration’s tariffs just got another implementation deadline extension, putting settled policy that would better enable future financial planning even further out of sight. 

The 10% drop in the value of the dollar when compared with a basket of currencies from the U.S.’ major trading partners is largely credited to global investors no longer expecting the U.S. economy to outperform the rest of the world, NBC News reported.

Direct foreign investment into the U.S. dropped from about $80B in the fourth quarter to $52.8B in the first quarter, the lowest quarterly volume since 2022. 

That reflects foreign investors seeing the U.S. market as risky, Szymanski said, adding that domestic investors see the same thing.

“It probably is a little bit more risky from the foreigners’ perspective, because you have exchange rate risk,” she said.

But the dollar’s value decline could help turn that investment drop around, said Joe Berko, founder and CEO of Astor Realty Capital, a New York-based private equity firm with $3B in real estate assets. Considering how much property values have dropped since the 2022 peak, foreign investors are seeing opportunities, Berko said.

“I would definitely say the United States right now is on sale,” he said.

Impex Capital Group, a Houston-based private investment firm that owns and manages $1.8B in properties, has seen stateside investors be more “purposeful” with their investment decisions this year, Chief Operating Officer David Flores said. Tariffs remain the primary factor driving uncertainty, he said. 

But Flores and Berko both expect foreign direct investment to start increasing again.

“The natural corollary to having the dollar drop is that foreign direct investment is going to increase because the dollar is cheaper,” Flores said. “That’s only going to help main gateway cities where a lot of those relationships and money flows already have a path.”

Those include Miami, Los Angeles and other cities along the East and West coasts. Impex continues to draw investors from all over the globe who are attracted to the ease of doing business in Houston, Flores said.

Astor Realty, which has large concentrations of Miami and Brooklyn multifamily in its portfolio, is seeing particular interest from investors in Europe.

That’s due to numerous factors besides the strength of the dollar, Berko said. The firm works heavily with Israeli investors that have been on hold due to geopolitical conflicts like the 12-day Israel-Iran war last month, he said.

“There’s been a reawakening, where our investors are ready to deploy again,” Berko said. 

But the dollar’s value dropping is often an overlooked element in many investment decisions, Trepp Senior Research Manager Tom Taylor said during Bisnow’s First Draft Live last month. 

“Sovereign wealth funds, other large asset allocators throughout the world have to increase their hedging costs by, on average, 2% to 3% for a move like that,” Taylor said. “Parking your capital in U.S. dollars has historically been a fantastic investment. That doesn't necessarily have to change, but it does become more expensive. Every couple of percentage points does take some returns off of the back end of the deal.” 

Investors may see those costs increase to hedge currency risk or interest rate risk, which are both subject to change, Szymanski said. 

“In today's environment, there is just a considerable degree of uncertainty,” she said. “So even though you can buy hedging instruments, when those become more expensive, it just becomes more difficult to invest in the U.S.”

That won’t necessarily push investors to invest in other countries, given their familiarity with the terms of engagement in the U.S., Szymanski said. But it may lead investors to change what types of properties or regions they invest in. 

Tanuja Adiani, managing director at investor services group IQ-EQ, said investors have begun asking hypothetical questions about investing in other countries. 

“Although the U.S still has the largest volume of commercial real estate by far, we're seeing these investors now come to us and other lawyers and other providers and just look for information on, ‘Well, we never had to consider not the U.S, but if we were to do it — not saying that we will — can you educate us about these regimes?’” Adiani said.

The U.S. economy’s volatility this year has opened Pandora’s box, she said.

“It’s been a pretty chaotic year for the American image, and that is what makes investors uncertain,” Adiani said.

The weakening dollar is linked to deteriorating confidence, which puts the American economy a step closer to shaky ground, Szymanski said. But that doesn’t mean the country's economy is tumbling. 

“We're not seeing large amounts of fixed exchange rate volatility. We're not seeing treasury yields fly upwards dramatically,” she said. “So I would say that we're still on stable ground, but it's just pushing us further towards the edge of the cliff.” 

Investors are concerned about the Trump administration and the way it is conducting its affairs, Berko said, adding the perception doesn’t always match the reality.

“A lot of those concerns are justified in the overall sense, yet not fully materialized,” he said.

The United States’ commercial real estate market still benefits from the long-term stability of the dollar and having the greatest share of global CRE value, Berko said. 

“Where else would you invest? Where else would you feel so safe?” he said. “The overall U.S. economy will only get better.”