Saudi Arabia, the largest country on the Arabian Peninsula, is quickly rising to become a major foreign player in U.S. commercial real estate. It’s an indisputable fact that much of Saudi wealth, along with the country’s economy as a whole, is inextricably linked with its vast oil reserves. Of late, however, many Saudi investors have been looking to diversify their holdings, with much of their attention focused on American assets.
During the four quarters ending in second-quarter 2021, funding sources that included Saudi investors placed $2.82 billion into U.S. real estate assets, according to data from Real Capital Analytics (RCA). That’s good for fourth among all foreign sources of capital into the U.S. during this time frame, leapfrogging nations with strong overseas investment records such as Germany (fifth place), the United Kingdom (sixth) and Switzerland (seventh). Even more notably, this level of investment activity represented an astounding 320% year-over-year increase in dollar volume. Much of this movement happened during the first half of 2021, putting Saudi Arabia on pace to continue its improvement among countries for inbound investment from 19th in 2019 to 11th in 2020, according to RCA.
Recent Saudi investments have been spearheaded by the Olayan Group, a decades-old conglomerate that has been placing money into key global markets such as New York and London since the 1950s. In February 2021, Olayan America, the company’s U.S. branch, joined Pennsylvania-based Morgan Properties in acquiring a portfolio of 48 apartment complexes from Star Real Estate Ventures for $1.75 billion. Known as the North Star Portfolio, the purchase encompassed some 14,400 units across 11 states. It was one of the largest multifamily transactions of the year and added five states to Olayan’s already broad footprint in rental housing, including lucrative footholds in Texas and Florida.
According to CBRE, the transaction helped to push Saudi Arabia into second place among cross-border sources of U.S. multifamily investments during first-half 2021. Saudi Arabia, with 29.3% of the international volume from January through June of last year, trailed only Canada’s share of 33.3% during these six months. And it wasn’t Olayan’s only big move in the past 18 months as it teamed with Morgan Properties in October 2020 to acquire an 18-property, 3,256-unit apartment portfolio in the Carolinas for $323 million.
These two deals made Olayan Group the top cross-border buyer within the multifamily asset class from Q3 2020 through Q2 2021, RCA reported, but apartments weren’t the only properties that Saudi investors were interested in. Riyad Capital, the investment arm of one of Saudi Arabia’s largest financial institutions, placed more than $302 million into suburban office assets during the same period, per RCA.
Riyad Capital has been assertive in scooping up real estate in the U.S. and Europe, buying up nearly $2.4 billion in assets in these two regions since 2018. The company may now be poised to start taking financial advantage of its broad American portfolio — this past October, for example, it sold a 370,000-square-foot office complex in Virginia for $200 million, its first sale of U.S. real estate since 2018.
So, what’s next for Saudi investors? Given their bustling track record and upward investment trajectory of late, it wouldn’t be a stretch to assume that they’re set to keep funds flowing into U.S. assets in the near future. Moreover, further stateside asset diversification appears to be on tap. In November 2020, Jeddah-based Sidra Capital announced the launch of a $155 million fund aimed at acquiring U.S. industrial properties. The relative stability and high-income potential of U.S. real estate offers enticing opportunities, so it’s possible that a further bump in Saudi-based cross-border activity will occur in the months ahead. ●