The Malaysian Insider - Edward Mermelstein on US real estate, is the window closing?

US real estate window closing fast

By Lee Wei Lian

August 17, 2011

Mermelstein said the continued interest in US real estate is probably because the US market is “consistently cited for its political and economic stability.” — Picture by Jack Ooi

KUALA LUMPUR, Aug 17 — A top international real estate lawyer says the window for Malaysian investors to get into the US real estate market is closing fast.

Edward Mermelstein, managing partner and co-founder of New York law firm Rheem Bell & Mermelstein told The Malaysian Insider that a window had opened one-and-a-half years ago for investors to buy real estate in key US cities such as New York, Washington DC and San Francisco and expect up to 20 per cent annual returns per year over a three-year investment horizon.

“Returns are starting to contract,” he said. “You don’t want to be the last one in. As the adage goes, you want to be the first one in and the first one out.”

The adage of being the first one in and the first one out holds true in the US real estate market currently, added Mermelstein. — Picture by Jack Ooi

Malaysian investors have typically overlooked the US market and preferred to invest in UK and Australian property. Notable exceptions have been the Genting group which invested in a New York racetrack last year and a 13.9-acre piece of land in Miami last month for US$236 million (RM703 million).

About half of Rheem Bell & Mermelstein’s business now comes from high net worth individuals and institutions overseas with increasing numbers from China, South Korea and Australia. This continued interest in US real estate is probably because the US market is “consistently cited for its political and economic stability.”

Mermelstein, who was in Kuala Lumpur recently to meet clients, has arranged an estimated 300 real estate deals for international buyers in the last two years.

But there are some things potential investors should take note of. He said it is difficult for foreigners to get a mortgage in the US and that they should be prepared to pay cash as well as seek advice on how to structure their investment to minimise tax expenses.

“The biggest mistake people make is not having proper representation, not just legal but also management teams and real estate brokers,” said Mermelstein.

The typical size of investment by the firm’s clients falsl in the US$3-5 million (RM9-15 million) range but is getting smaller as the number of investors from the middle-income range is growing.

Mermelstein said that properties which are favoured by investors currently are apartment complexes, offices and hotels.