Asian Investors Betting Big on This U.S. City

Emerging-market real-estate investors from Asia are betting big on Miami, less than an hour’s drive from my office. And the potential jackpot can be huge for them, because they have an opportunity to build profitable businesses (and even industries) in a well-populated, but still surprisingly untapped, market.

The city is a proxy for Latin America and its 560 million people. And current pending development deals are clear signs that the world recognizes Miami as a major global gateway city — one that is key to economic growth for its southern and, now, even its eastern neighbors.

 

This Company Is Set
to Bet Big on Florida

In a surprise move, Malaysian gambling company Genting (0678 on the Hong Kong Exchange) unveiled a $3 billion master plan for a huge destination resort project right here in the United States.

Genting wants to build what could be the world’s largest casino on prime land along Miami’s waterfront. The plans are already in motion, as the company has already spent about $450 million on real estate, pledged to help rebuild part of an interstate highway and hired 23 lobbyists to press for legalizing casinos in Florida.

Genting’s cash-rich status gives it an advantage over many overburdened U.S. casino operators, who embarked on building sprees or leveraged buyouts just as the casino market in the U.S. began to sour. The company, which grew out of a single casino in Malaysia, has holdings in a range of industries and made a reported $3.4 billion profit last year on $15 billion in revenue.

In Genting’s case, the land is purchased, so plans are on track to keep moving forward — even if the casino gambling battle doesn’t go exactly according to plan. The company bought prime downtown real estate at a price that is attractive for a long-term investor in this gateway city; it may simply have to adjust its timetable for developing the property to its own specifications.

So, why Miami and not, say, destinations like Las Vegas or Atlantic City where gambling is already legal? Well for Genting, it also owns 50% of Norwegian Cruise Lines, which operates out of the Port of Miami. So, it already has a vested interest in the area and would benefit from increased tourism, particularly from emerging-market travelers with money to spend.

Miami Market Heats Up
for Another Emerging Company

In 2010, Greater Miami hosted a record 12.6 million overnight visitors. And as a link between Latin America and the northeastern U.S., Miami will draw 5 million more tourists a year — with windfalls for airport concessions, local attractions, venues and hotels, shops and tax coffers.

While this is not going to happen overnight, the key here is that investing in the U.S real estate market is very attractive for longer-term investors looking for solid returns.

But you don’t have to buy property in Miami to make returns on a potential real estate turnaround. All you have to do is look toward the companies that are buying up the land at a steep discount and watch what they’re doing with it.

Another player in the recovering Miami commercial real estate market is blue-chip conglomerate Swire Pacific Ltd. (0019 on the Hong Kong Exchange), a global real estate company based in Hong Kong. It unveiled plans for Brickell CitiCentre, a $700 million retail, office, hotel and condo tower project in the prestigious downtown area.

And this may not be the last international deal for Swire Pacific, which sold Festival Walk, a multi-level shopping, dining and leisure complex in Kowloon Tong, for HK$18.8 billion — the most-expensive single retail real-estate transaction ever in Hong Kong.

In other words, they know a little something about successfully building commercial real estate — and making their money back (and then some) on it!

This company is one to put on your watch list, as Swire Pacific has also applied to the Hong Kong stock exchange to list its real estate unit Swire Properties and would distribute 18% of Swire Properties shares to qualifying shareholders on January 18. The long-awaited spin-off is meant to boost the profile of its property and marine services business.

Forget ‘Location, Location, Location’ —
It’s All about ‘Cash, Cash and More Cash’

Since 2009, data from the Miami Association of Realtors has put Miami at the top of the destination list for international buyers.

In the past, it was the South American developers from Venezuela and Argentina who were normally involved in this market. Now the shift that is taking place is that Asian investors have stepped in, recycling U.S. dollars and introducing larger projects to the region.

In fact, a prolific local condo developer named Jorge Perez has been quoted as saying that South Americans “have effectively saved the real estate market.”

And in a recent statement to a Miami-based newspaper, Michael Pappas, president and CEO of real-estate company The Keyes Co., said, “You’re getting a lot of Venezuelans, Canadians, Brazilians because they feel like there’s a bargain.”

Well, it looks like South America is getting a run for its money from Asia — specifically, Hong Kong-based companies like Genting and Swire … and, undoubtedly, many more to come from all over the globe.

No matter where the companies are headquartered in the world, these foreign buyers and investors are responding to Miami’s multiple draws: Location, a weakened U.S. dollar, fears of political developments in their home countries, and real estate that’s cheap compared not only to 2005 prices, but also compared to many other major cities both in the United States and abroad.

Is There a Good Way to Invest
in These Real Estate Investments?

Before you pack up and head for Miami, even if it’s just in your portfolio, I encourage you to be careful about how you invest in this concept.

For example, if the ability to offer gambling comes through for Genting, the company expects its project to come to fruition in the next three to five years. But if not, it’s more likely that the resort (which is estimated to create 15,000 construction-related jobs, and another 30,000 additional jobs over time) will take about 15 years to build.

We mentioned that the company has a stake in Norwegian Cruise Lines, so we can look at other companies operating in the Port of Miami.

While there are some clear winners here, including the cruise line companies that dominate the Caribbean routes, Carnival Corporation (CCL) and Royal Caribbean Cruise (RCL), it’s too early to invest in these two stocks yet.

Revenues from Mediterranean cruises have been clobbered by the conflicts in the Middle East. And the disaster in Japan cut bookings there, too. Higher oil prices have cut into earnings and affluent investors are more skittish this season with higher market volatility, passing up extra cruises and buying extra dividend-paying stocks.

For now, it’s best to watch this developing trend, and to take note of how these emerging-market real estate deals can be a real game-changer for U.S.-based cities and, in turn, industries and individual stocks that we can ultimately invest in and profit from.

Best wishes,

Rudy

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