GAO Debunks |The Selling Of America'
Now that overseas investors are shunning U.S. real estate, a government watchdog agency has some soothing if tardy news: "The selling of America" was nothing to get worked up about.
Overseas owners held only about 2% of the total value of U.S. commercial real estate in 1988, the last year for which comparative data were available, according to the General Accounting Office.
And there is no danger of these investors seizing control of the market, the congressional research agency said. It pointed out that each year, more new properties are added through construction than are sold to foreigners.
Still, foreign holdings of U.S. real estate quadrupled during the 1980s, with Japanese investors leading the way. They snapped up landmarks like Rockefeller Center in New York. By 1989, $35.9 billion of U.S. commercial property was in foreign hands.
The buying binge tapered off when the real estate market softened in late 1989.
Experts, Officials Surveyed
For the analysis of trends in foreign direct investment in U.S. commercial real estate, GAO investigators spent from July 1988 to December 1990 interviewing academic and industry experts and federal, state, and local officials about the extent and effects of the international ownership.
The GAO's conclusion: "Foreign direct investment in the real estate sector should not be a matter of serious national concern."
The agency conducted the study at the request of Rep. John Dingell, D-Mich. An outspoken foe of foreign entry into U.S. markets. Rep. Dingell is the chairman of the House Energy and Commerce Committee, a powerful panel with wide jurisdiction that is expected to play a role in shaping the current banking reform proposal.
Investments Called Beneficial
There seems to be little in the real estate report to support Rep. Dingell's isolationist leanings. Experts told the GAO that foreign investments generally are a beneficial, stable source of long-term capital.
They discounted complaints that Japanese investors, in particular, enjoyed easier access to capital - and less costly capital, at that. Although close ties between Japanese commercial firms and banks gave Japanese investors some financial advantages, U.S. developers welcome the chance to tap a new source of capital.
In any case, the GAO noted, interest rates in Japan and the United States had converged by February 1991, erasing Japanese investors' onetime competitive edge.
Five countries - Japan, Britain, Canada, the Netherlands, and the Netherlands Antilles - owned most foreign holdings of U.S. commercial real estate - a combined 83.9 of the total $35.9 billion held.
Japan alone had 39.9%, having leapfrogged past all rivals in the course of a decade. In 1981, Japanese investors owned a scant 3.4% of the $9 billion of commercial real estate then held by foreigners.
Britain followed, with a 14.6% share of the foreign-owned real estate market in 1989. Canada had 10.9%, the Netherlands 9.5%, and the Netherlands Antilles 9%.
The GAO investigators found serious misgivings about foreign ownership in only one market: Hawaii. Overseas investors, primarily Japanese, owned the majority of the state's hotels and golf courses. The effects of foreign commercial investment spilled over to the residential market, driving up property taxes and straining the infrastructure.