What defines a “safe haven“? The case of German real estate fund investment into US commercial real estate

Traditional economic theory applied to the field of real estate asumes a real estate cycle with regular patterns, especially up and down cycles. A certain minimum of economic stability is enabling factor for the business model of most real estate enterprises. Disruptive events hovever may challenge the paradigm of cycles that can be anticipated. This may imply a halt to economic activity. The current depression in transaction activity in Europe underlines reaction to uncertainty when investors are unsure about the „new normal“, hesitant to pursue transactions. Recent example of disruptive events is the war in Europe. Uncertainties and disruptive events in real estate markets trigger the desire of investors to allocate funds to other markets that offer the stability that is missed in domestic markets. For many decades US real estate markets have been considered a hedge against risks in domestic markets for various investor groups. Examples include outflows from countries in Middle and South America, for instance channelled into Florida real estate. Recent years also saw capital inflows from Asia into major US metropolitan markets. The current situation has reinforced the attention of German fund managers to look for geopolitical risks and other uncertainties when finetuning global asset allocations. The paper looks at the motives and decision-making process for German real estate funds in deciding on US investment allocations. Key questions are: Which factors drive decision-making when allocating capital to US real estate markets? Which factors are expected to impact the future volume of cross-border transactions of German real estate funds into US markets?