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Increased Investment by Foreigners Forecast : Commercial Real Estate's Attractiveness Seen Enhanced by Lower Interest, Weaker Dollar

January 13, 1985

Increased foreign investment in U.S. commercial real estate is forecast this year with the decline of interest rates and expected weakening of the dollar.

"Investors are already showing signs of greater interest in real estate in anticipation of a drop in the dollar's value," Stan Ross, co-managing partner of Kenneth Leventhal & Co., a national CPA firm specializing in real estate, said.

Foreign investors expect greater future appreciation in U.S. real estate in contrast with real estate in other markets, he explained, "and this, combined with the stability of the U.S. government, makes real estate investments here highly attractive."

This interest will primarily benefit commercial development, he predicted, "because these are the projects in which foreign investors have shown the greatest interest."

He expects well-located commercial and industrial projects to do well in the long term. "Financial institutions have the funds to lend, but they are being selective in terms of project and developer quality," he said.

Ross looks at the coming year as a strong one for the real estate industry but called the uncertainty caused by the Treasury Department's proposed tax plan "the main threat." He said, "reaction to the proposed rules has been much more extreme than is warranted since this is only a tentative document.

"Nevertheless, real estate now has to compete on a yield-equivalent basis rather than on any projected tax benefits because the proposed plan eliminates many tax advantages for investors."

He predicted that housing starts will reach 1.7 million in 1985--substantially higher than earlier forecasts--"primarily because of interest rates stabilizing at lower levels," he said. "Mortgage interest rates are likely to hover at current levels or drop slightly in the coming year, and buyers will be able to reap the benefits of reduced inflation in two ways: New homes being offered have been built in a low inflationary environment, so that people who buy in 1985 may enjoy much greater appreciation on the purchase, while at the same time, the total cost of buying the home will be less because of lower interest rates."

Consumers know that home mortgages will receive full tax benefits under the proposed tax act, he said, "and it's still better to buy than to rent."

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