Five years ago the availability of low-interest, US financing, and relatively higher yields than in Europe attracted a plethora of cross-border capital into US commercial real estate markets. Now with higher interest rates in the United States and tighter lending criteria than in Europe, the opposite is true.
What’s driving transatlantic investor flight
“I think that's the biggest issue in the US is financing has been much more challenging since the recovery from Covid,” said Ramsey Mankarious, chief executive at Cedar Capital Partners, a London-based real estate investment firm focused on hospitality assets.
In fact, the biggest challenge in Europe now is finding opportunities, not capital. European markets, like Italy and Greece, which historically have been very challenging, are providing and plenty of capital with cheap financing available.
Currently, the US dollar’s Secured Overnight Financing Rate (SOFR) is currently over 4 percent, while the Euro’s Short-Term Rate (€STR) is about 1.93 per cent.
“The relative volatility and predictability of the two markets, Europe versus the U.S, is quite stark in the moment,” said James Liddy, managing director and head of Gaming, Lodging & Leisure Investment Banking for EMEA at Jefferies, noting that usually it’s inverted the other way with private equity institutions and corporates are deploying significant capital into EMEA markets. “While we expect to see a lot of activity return to the US market, for the moment the bigger deals are being done in Europe.”
Even so, Carolina Bernal, JLL senior director for Hotels & Hospitality, thinks there is a broad spectrum of capital coming into the United States from all over the world. “It’s mostly focused on strategic investments. Brands, for example, are taking advantage of the low per key as compared to replacement cost.”
Scott B. Ellman, managing director at Eastdil Secured, a global real estate investment bank, noted that transactions are very segmented or situational in terms of where investors are choosing to place their capital. “We're seeing a shift in the mindset on the sovereign wealth fund side to focus more on strategic investment alongside US-based general partners to manage the day-to-day,” he said.
Additionally, high-net-worth, international families are focused on marquee assets in primary markets. For instance, his firm sold the W Hotel in South Beach to British billionaires, David and Simon Reuben. He cited another recent cross-border deal brokered by Eastdil, the $355-million acquisition of the citizenM hotel portfolio, a Dutch lifestyle brand with 37 boutique hotels globally, by Marriott.
The long stretch of economic uncertainty is making deals difficult in United States and globally. “We have a hotel in Miami that we’re refinancing. It's a $220.5-million loan. When we went out to market in January, we had 18 term sheets, but after Liberation Day, the party we chose (to go with) became very, very challenging to get the loan over the line,” Mankarious explained, stressing that lots of people are concerned about what may happen if the uncertainty continues for an extended period.
Investors need to look at how to underwrite growth and achieve targeted returns based on underwriting. “For me, Europe has been very appealing because it's still so fragmented, and there's so much opportunity to green and build-up a small platform into a medium- or large- size platform relatively quickly,” Liddy said.
He cited, for example, New York-based Brookfield Asset Management’s recent acquisiton of Generator Hostels, which has 2,800 rooms throughout Europe, from London-based Queensgate Investmentsfor for $869 million or €776 million.
Challenges to investing in Europe
The biggest challenge for investing in Europe is finding opportunities. “The amount of deals in the US normally is so much greater, so the fact that everyone's coming over to Europe is just really not so much how the opportunities are in Europe, but the lack of opportunities in the US right now,” Mankarious said.
In Europe, aggressive investors are focusing on asset platforms. Liddy noted that a management team can do the work of deploying investors’ capital, rather than them having to research opportunities asset-by-asset. He cited the Brookfield-Generator deal is an example of an American investor stepping in on the European side, which is indicative of what's going on in the market in general.
Large platforms, like Motel One and B&B Hotels, have thin liquidity due to their size, making it difficult to pull deals together. Liddy pointed out that once platforms scale to a certain point, they need to find a nexus in the US to appeal to more US investors to exit and continue their growth.
According to Mankarious, US investors may find it difficult to do platform deals in Europe unless they have relationships with European institutions that can help them navigate the rules and laws of multiple jurisdictions where assets are located. His company, for example, recently acquired five hotels in five different jurisdictions in Italy and France. Fortunately, Cedars Capital has a longtime relationship with Ariel Bank, which has locations throughout Europe and was able to help his company navigate requirements in the various jurisdictions.
He believes that working with a bank that you know, that knows you, that knows hotels is the most important relationship for an investor, because there’s always up and down cycles.” “Finding a counterparty that is there at the beginning and still there at the end is unpredictable,” he stressed noting that bank relationships drive that marginal turn of leverage and can ensure you're getting an optimal rate.
Tracking Middle Eastern investment
While Middle Eastern Sovereign Wealth funds had been a primary investment group a few years ago, many of them have retreated from cross-border investment because their home markets are very strong.
However, Middle Eastern investors are still attracted to highly liquid, expensive US and European gateway markets, like New York City, Miami, and London, because they have visited them or are familiar with their popularity with tourists.
Bernal, who was this year part of a roadshow to the Middle East and held meetings with various investors there, said that 30 – 40 per cent of the groups her team spoke with are focused on investing in US assets. They talked mostly about Miami, which is a perfect parallel city to Dubai, because of a couple of things that's going on. Taxes are easy to understand in Miami; it's a very high-growth market; and there is a boom in branded residences, which is also happening in Dubai, she continued, noting that New York City and Los Angeles are also in their sights.
Middle Eastern investors remain attracted to trophy hotel assets, Bernal said, but there’s been an interesting transition to a preference for select-service and extended-stay assets by Middle Eastern investors from the standpoint of Shariah compliance, which prohibits investors from investing in anything that produces income from alcohol.
Mankarious said that Middle Eastern investors also are investing in Africa, noting that his company, for example, built 15 hotels in Africa countries for the Saudi prince. ”He was politically connected, which makes a huge difference,” Mankarious continued, pointing that like in Europe, every country is completely different, so relationships are important, whether it's South Africa or Nigeria, and require a local partner.
All quotes taken from the NYU IHIF 2025 panel: ‘Bridging the Atlantic: Hospitality investments between the US and EMEA markets' in June