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Foreign investors find trophy properties in unlikely US cities

Toronto

US properties in places like Denver, Phoenix, Philadelphia and the suburbs of Atlanta have all drawn foreign investment this year as buyers look for growth outside the biggest US metro areas.

Canadian investors topped the list of foreign buyers of US real estate this year, as they have for a decade.

Among those was Toronto-based Starlight Investments, which purchased apartment complexes in the suburbs of Atlanta and Phoenix through its US fund.

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"There were really only a handful of people when we first started looking at the suburbs, and that handful is now a larger number of people that are looking at those deals," said Raj Mehta, global head of private capital and partnerships at Starlight.

"We were increasingly seeing that jobs were moving from traditional Northeast and Northwest corridors into the sunbelt states."

In the major markets of New York, San Francisco, Washington, Los Angeles, Chicago and Boston, commercial rents are already reaching record heights, and there's less room to grow, so some foreign real estate investors are putting money into the next-best markets where they see yields rising.

Canada, China and Germany were the top foreign investors in US commercial real estate this year and are making more deals outside the biggest metro areas, according to data from CBRE.

The most popular second-tier markets for foreign capital this year include Dallas, California's Inland Empire and Philadelphia.

"Yield is king and yield is now being found in less-usual suspects," Spencer Levy, Americas head of research at CBRE, said in a phone interview. "Some of the usual suspect central business district markets are later in the cycle, and so some of the capital is now flowing to other smaller markets to get this yield."

The biggest growth was in Philadelphia, jumping 516 per cent in the first three quarters from the same period a year ago, CBRE said. Also posting big year-on-year gains were the Inland Empire, Phoenix, New York City's boroughs, San Diego, California, Raleigh/Durham in North Carolina, and Columbus, Ohio. They were helped by stronger economic growth and local universities to supply the talent needed by investors.

Starlight bought a majority stake in a 250-unit, 13.6-hectare apartment complex in the suburbs of Atlanta for US$33 million this year. The property, just minutes from an interstate highway that runs from Alabama to Virginia, includes access to a car wash, swimming pool and a dog park.

The company also acquired a 335-unit luxury apartment complex in a wealthy suburb of Phoenix. The newly completed property is fitted with a two-level fitness centre, poolside cabanas and a coffee bar.

"We still believe in the fundamentals of US multi-family on a risk-adjusted basis: The returns are healthy and we've increased our number of investment vehicles," Starlight's Mr Mehta said.

GWL Realty Advisors, the real estate unit of Canadian insurer Great-West Lifeco, made its first foray into the US with its acquisition of Denver-based EverWest Real Estate Partners and a deal to buy Guggenheim Real Estate.

Denver ranked eighth among US real estate markets to watch in a survey conducted by PwC and the Urban Land Institute, thanks to population growth that's projected to be well above the nationwide average and a large share of residents between ages 25 and 44.

Population growth in Salt Lake City is also projected to be well above the national rate, the study found. BLOOMBERG