The True Value Of A Dollar: How CRE Investors And Developers Can Navigate Exchange Rates During Inflation
For many U.S.-based commercial real estate investors and developers conducting business abroad, a period of high inflation can seem like a particularly smart time to invest overseas. As of September, NPR reported, the dollar is still high in value, especially compared to many other international currencies.
While U.S. investors may get the most return on investment when they make purchases abroad given the climate, constant currency fluctuations may mean that CRE assets and materials will be impacted.
Delaware-based WSFS Bank helps clients manage their overseas business, whether they are investing in a foreign asset or buying materials to bring back to the U.S., ensuring that financial transactions abroad go smoothly even in a period of market volatility, said JC Fernandez-Seoane, senior vice president and director of foreign exchange at WSFS Bank.
“On a daily basis, our job is to talk to commercial clients to identify foreign exchange risks and exposures in their international business,” Fernandez-Seoane said. “From there, we work with clients to find customized solutions to reduce the impact of market volatility and achieve certainty of cash flows in foreign currencies.”
One dilemma clients may often face comes when putting down money to buy an asset or deciding to sell an asset, he said, as the total cost or revenue generated by the transaction could change depending on currency rates.
Fernandez-Seoane said if a developer is buying a product from a business outside the U.S., they would either pay in that country’s currency or, if they pay in dollars, the local currency price would have to be converted to U.S. dollars.
In both cases, the price of the imported product will be impacted by volatility in the foreign exchange markets. CRE clients doing business overseas need to understand how their money is converted from one currency to another as well as how much money they will earn and owe in both currencies — and whether any currency mismatches exist.
“If you import from abroad and you sell in the U.S., you have foreign currency risk," Fernandez-Seoane said. "This mismatch between your sales and the cost of your imports leads to cash flow uncertainty.
"If you don’t have certainty of cash flows today, it’s going to be very difficult to forecast your revenue and your costs. Also, your margins will be impacted if you sell in a foreign currency that depreciates against the U.S. dollar. This is where foreign exchange risk resides.”
Even if the foreign asset is a good buying opportunity, the potential for currency and interest rates volatility means CRE companies still need to take steps toward being proactive in an unstable economic climate, he said.
WSFS Bank helps clients secure the best rate off the bat so that even if the U.S. and foreign currencies are misaligned, it will not impact the transaction.
“Locking in the foreign exchange rate today means that volatility will not impact investors because the bank will commit to exchanging U.S. dollars for any other currency at a previously set rate,” he said.
The bank can also help U.S.-based clients that own properties internationally, whether a client is selling their asset or needs help with wire transfers. WSFS Bank can process wires in over 100 currencies, Fernandez-Seoane said.
WSFS Bank provides all of the services that are typically offered at larger banks to help clients assess and mitigate their level of risk, and consults on how they can finance their imports and exports seamlessly.
“We hold foreign currency accounts in the major world currencies, and all of these capabilities increase efficiency and transparency,” he said. “We want to make sure that we reduce volatility for our clients, and take out that component from their business decisions by managing their market risk.”