Foreign Investment:

Concerns in the U.S. Real Estate Sector During the 1980s

NSIAD-91-140: Published: Jun 4, 1991. Publicly Released: Jul 3, 1991.

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Pursuant to a congressional request, GAO: (1) examined the trends in foreign direct investment in U.S. commercial real estate; and (2) evaluated concerns regarding the effects of such investment.

GAO found that: (1) although the level of foreign investment in U.S. real estate increased sharply between 1981 and 1989, real estate investment maintained a relatively constant share of the total foreign investment in all sectors during that time; (2) Japan, the United Kingdom, Canada, the Netherlands, and the Netherlands Antilles had the largest amounts of foreign direct investment in commercial real estate in 1989, accounting for 83.9 percent of the total; (3) Japan had the highest rate of increase, surging from a modest share in 1981 to $14.1 billion, or 40 percent of total investments, in 1989; (4) most foreign investment in U.S. real estate was concentrated in the large metropolitan areas most familiar to investors and in high-value, high-profile, investment-grade properties; (5) Hawaii, California, and New York had the highest amounts of foreign investment in the commercial real estate sector; (6) foreign investment slowed in late 1989 when the U.S. commercial real estate market experienced a serious downturn; (7) industry officials expressed concerns that high concentrations of foreign investments within a narrow high-value market segment for premier properties would increase demand beyond available supply and raise the prices of similar properties; (8) industry officials also expressed concerns that foreign competition for commercial real estate development and construction was increasing, and that certain foreign investors had financial advantages; (9) public concerns regarding foreign investment in real estate existed in states with high concentrations of such investments; and (10) analysts stated that foreign investment was beneficial and that the U.S. real estate market was too large to be overwhelmed by outside control.

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