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Where The Money Is Coming From In 2016

The DC area saw unprecedented levels of capital investments in real estate in 2015, both from foreign buyers snatching up downtown offices and domestic buyers targeting value-add plays in the suburbs. But 2016 will be different.

Angelo Gordon director Christina Lyndon Winstead told the 350 audience members who trudged through 15-foot-high snow banks to make it downtown yesterday for Bisnow’s Real Estate Finance event she's already starting to see fewer people at auctions. Christina said 2015 was a challenging year to find opportunities, because there was just so much capital out there. That's CohnReznick's David Kessler sitting next to her. 

For one, Chinese money is going to be trickier moving forward. Madison Marquette CIO David Brainerd said at one point, The Wharf was raising $1M a day in Chinese EB-5 investments. But an unsteady Chinese economy foretells of deals fewer and farther between, Bisnow NY reported today.

Instead, David said we should look to the west of China, toward the Middle East. He said investors there want diversification out of a slowing local environment. “They’re moving from London to the US. The returns in the Middle East had been spectacular, but that’s changing.”

Bill Collins (right with MetLife Real Estate Investors director Anthony Balestrieri), once the DC head of capital markets for DTZ and now vice chairman at Cushman & Wakefield, said money is now flowing from every part of the world.

Except, unsurprisingly, from Russia. Putin’s cronies won’t be announcing they’ve bought a building steps from the White House anytime soon, he joked. But about two-thirds of downtown DC investment activity is coming from overseas, Bill says.

And while the US economy continues to look more and more appealing compared to the rest of the world, getting foreign money isn’t as easy as it sounds.

“The lightning in a bottle foreign investor who’s just going to overpay like crazy is a fallacy,” Anthony said.

Lantian Development CEO Brian McLaughlin, who’s developing and investing $100M on behalf of a group of private Chinese investors, said part of the problem is explaining how deals in the States work.

“You’ve got a whole education to write,” he said. “It’s easy to find investors, but difficult to find one ready to post a deposit.”

And while the DC office market looks strong today and most models predict more good times ahead in 2016 and 2017, the lending side of commercial real estate is getting skittish.

Ullico real estate SVP Herbert Kolben (right, next to Federal Capital Partners VP Erik Weinberg) said he’s taking a break from investing for six months. It’s not that he’s afraid of investing or running out of money—quite the contrary—but he says there’s too much volatility.

“For 2016, I see opportunity, but I also see danger,” he said. “Banks are going to have some issues, and rates are so low that I don’t want to play in the land appreciation or CMBS markets right now.”

While Ullico is taking a break from investing entirely, Christina says Angelo Gordon plans to be a net seller this year, making sure to stay liquid in case the national market turns. She said her firm’s strategy can be frustrating at times to antsy investors.

“There’s a big emphasis in our industry to raise money and put it to work right away, because that’s how you make money,” she says. “But in 2006 and 2007, we were very patient because we saw the writing on the wall.”