Middle-East Investors Eye Real-Estate

If you want to know why I'm optimistic that home builders will eventually find sources of capital to replace bank financing for site acquisition and development of future projects, check this out:

The Middle East's wealthiest private investors may seek to take advantage of collapsing real-estate markets in the West by increasing their investments in the U.S. and U.K., according to research done recently by Capgemini and Merrill Lynch. Such investors now control about $1.7 trillion in assets, a figure the researchers say will rise to $3.4 trillion by 2012. “Our clients are asking us about U.S. distressed real-estate, and we've had a lot of interest in the U.K. commercial property market, particularly in London, where prices have declined very, very quickly,” Philip Watson, head of Citi Private Bank investment analysis, told London's Financial Times. “People can sense there are opportunities.”

Citigroup hopes to capitalize on the surge of interest with its newly set up U.K. commercial property fund that aims to raise $150 million from high-net-worth individuals to invest over the next 18 months, said Watson.

The Financial Times didn't report how many billions of Middle Eastern money are heading for the U.S., but you know it's happening. Savvy investors everywhere — including doctors and lawyers on Main Street — are going to jump at the opportunity to invest in U.S. home building once the first signs of a housing recovery begin to appear.

It's going to be tougher this time for the U.S. housing industry to perform its traditional role of leading the economy out of a recession because of the collapse of the country's housing finance apparatus. But eventually, we'll solve that problem, and the pent-up demand from four years of underproduction will attract investors from all over the world to builders who are able to get this show on the road again.

The time will come when even the banks decide they can't afford to be left out. But for the next three to five years, equity investors will be our primary source of capital.