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Direct Investment in United States Real Estate

In today’s global marketplace, real estate is coming of age as an asset class, alongside stocks and bonds. It also corresponds to a period in which real estate returns generally exceeded those of stocks and bonds, with real estate offering stable returns in a period of stock market weakness and volatility. Investors have been asking themselves, “Why International?”. They normally look at various factors and have allocated their investment funds based on returns or diversification of their portfolios. Investors (from both the United States and Asia Pacific) have a wealth of opportunities available in their domestic markets and thus investing in foreign assets has been largely discretionary.

The continuous search for diversification and returns, coupled with changes in the global real estate markets in the past couple of years, suggest that the opportunity cost associated with not investing internationally have increased. As a result, investors from Asia Pacific are increasingly keen to diversify their real estate holdings into expanding overseas prospects, the first ports of call being the United States and the rest of Asia, though these two regions have very different investment profiles.

Cross-Border Market Dynamics

Our research (coupled with our brokerage track record) has shown that the major difference between more mature real estate markets such as the United States and United Kingdom, and the emerging markets in Asia Pacific, Western Europe, Japan, China and India are owner-occupied ratios. The US and UK markets have owner-occupied ratios of around 40% compared with 65-90% in the emerging markets. This indicates that more investment capital is being spent on real estate investments in the United States and the United Kingdom than investments made by individuals in emerging markets.

While several Asian markets are experiencing a recovery (most notably Japan and Thailand), it is similarly true that Asian investors are keen to diversify away from another economic downturn. This is of particular importance when considering the correlation of Asian economies – rental growth rates in the US and Asian markets have a negative relationship – further enhancing the argument for diversification. It is therefore reasonable to argue for a combination of investments in emerging/immature markets with more established/mature ones.

More telling is how cross-border investments into Asia Pacific (a predominantly immature to maturing market) have flowed consistently from the United States (a mature market). Even investors from Singapore and Australia are allocating into Asian real estate, due partly to their own mature real estate industries.

Real Estate – Suitability and Selection

Our experience as a real estate brokerage has shown that the key considerations for real estate investors have been economic growth potential, status in terms of wealth, regulation, market stability, liquidity and transparency. In addition, investors’ appetite for real estate is augmented when based on solid advice from knowledgeable, trustworthy local advisors, where explosive growth serves as an indication of what returns can be realised, with buying decisions made based on solid research. Local knowledge can help foreigners navigate local markets profitably, efficiently and safely. This is true irrespective of industry development.

The considerations are also very different depending on each investor’s risk profile and the existing exposure of his/her portfolio. Real estate offers a wide range of options in terms of market maturity, as well as a combination of investment styles (listed, unlisted, REITs, private equity, and so on), and an assortment of growth prospects across the many markets. Therefore, it is necessary to analyse each investor’s profile to maximise the benefits, in particular when it comes to this asset class.

Property investment is by far the largest store of wealth available, and economics suggests that property rights are the bedrock of economic development. The United States is widely recognised as having exemplary underlying legal and regulatory systems, which provide investors with a level of comfort not always found in other markets. Nonetheless, this is not to say that the investment’s performance is compromised or diminished because of this, a great example being Las Vegas.

Las Vegas – Market Opportunity, Market Misconception

Advising investors on the various investment opportunities available has required that they manage the risks and adjust expectations when conducting real estate transactions. A case in point is the fastest-growing region of the US marketplace, the city of Las Vegas in the state of Nevada. The concentration of profitable buying opportunities is second to none in what has been, and continues to be, the fastest-growing city in the United States. The market fundamentals remain strong but the key element in this specific market is the development of new profit centres, which has taken the focus away from the gaming industry, and which is accelerating at a pace never seen before.

As gaming companies diversify their own revenue streams and venture into retail, conventions and residential multi-family developments, the market is poised for another expansion, and further investment opportunities, which will exceed that seen in the early 1990s. Over the next five years, the Las Vegas market will be host to over US$40 billion in new developments, which will include hotel/casino resorts, retail, office, multi-family residential and additional convention space to accommodate the 45 million visitors (including 25 million conventioneers) who visit Las Vegas each year.

The expansion and growth of the early 1990 has led to the lowest unemployment rate (4%) in the United States, which has driven the real estate market to new highs. The return on residential real estate investments in Las Vegas has gone unmatched anywhere in the country, with returns over the past five years totalling 106.1% and that for year-to-date at 17.1%. When comparing these returns to the rest of the United States at 57.28% over five years and 12.54% year-to-date, it shows that the Las Vegas market is continuing on its path to prosperity. The market fundamentals remain strong, with around 8,000 people per month moving into Las Vegas to take advantage of the ever-expanding job market.

Future Market Developments

Due to this tremendous growth, there are a variety of factors that will play a role in the sustainable growth and appreciation of Las Vegas’ real estate market, which will in turn provide investors with new opportunities. The explosive growth during the 1990s has made land become an expensive commodity, relative to other major markets, in both the suburbs and the Las Vegas Strip area. Where residential land could be acquired for US$100,000 per acre just ten years ago, the same plot is now selling for US$1 million per acre.

Moreover, the expansion of the gaming industry has driven land prices on the Las Vegas Strip to US$30 million an acre. The increases in the cost basis and the shortage of land, resulting from the tremendous growth, are now driving development of multi-family projects into the city’s urban core. Contrary to what most people think, land in Las Vegas has become a scarce commodity as the city has been left with development land for only the next six years. The US government owns all of the land surrounding Las Vegas and will only auction off about 2,500 acres every two years. The latest sale of 2,600 acres was purchased for over US$500 million.

Current developments in Las Vegas mirror those of the early 1990s, with the exception that the market has shifted from a gaming focus to mixed-use resorts where retail, spas, dining and entertainment will cater to a wide spectrum of visitors and high-net-worth individuals who enjoy the finer things in life. As a result, residential and retail markets should thrive in an environment of renewed expansion and growth. Over the next five years, new resorts will create over 80,000 new jobs in the gaming industry alone. The result for the city would be an estimated 160,000 new jobs created outside gaming to service the needs of visitors, residents and workers.

Las Vegas has become more than just the stereotypical flashing neon lights and casinos. It has established itself as fabulous place to work and live in, with low cost of living, abundant job opportunities and the best economic growth in the United States. It is no surprise that Nevada leads the nation in population growth and received recognition for its strong economy. The pro-business environment in Las Vegas will ensure than more and more companies will relocate here. In 2004 alone, more than 71 new non-gaming companies relocated to the city. The bulk of these companies are in the high tech/manufacturing fields, providing a quality spillover-effect to other service industries.

Looking to the East – a New Perspective

With healthy asset flows, a vibrant investor community and a wide array of investment channels – Asian investors are faced with a gargantuan task of discerning the most appropriate options available for them. While US investors have found great opportunities in Asia, the potential for ‘looking East’ by Asian investors has arguably been underutilised. Considering the diversification benefits from equities and other real estate investments, there is solid evidence to explore this option even further.


Ike Prinsloo is the President of The Prinsloo Group, a full service real estate brokerage representing premier developers of luxury high-rise condominiums and condo-hotels. Established in 2001, The Prinsloo Group has earned a reputation for creating value for their clients and currently has in excess of US$2 billion in developer listings and is widely perceived as the authority in high-rise real estate in Las Vegas.  For more information on current projects, please visit