Global Capital Flows Down, But Weakened Dollar Could Help

As of early 2025, the U.S. dollar was estimated to be ~22% overvalued against G10 currencies on a purchasing power parity basis¹, and it has since embarked on what we view as an inevitable devaluation cycle – driven by persistent fiscal imbalances, sticky inflation, and a waning global belief in U.S. economic exceptionalism.

The so-called “miracle” productivity and GDP surge of the COVID era, once held up as evidence of America’s structural superiority, is increasingly seen as an example of historically unprecedented fiscal stimulus. To put this in perspective: Mississippi, the poorest U.S. state, now boasts per capita income that exceeds that of the U.K., France, Italy, and Japan, and trails Germany by only a narrow margin. This is a data point that, in our view, offers a clear warning signal that the dollar’s valuation is being artificially propped up by fiscal largesse rather than fundamental competitiveness.

As the greenback weakens, the foreign exchange (FX) case for cross-border investment into U.S. real estate modestly improves, particularly in the gateway markets—New York, Los Angeles, Miami—where offshore capital has historically concentrated. During the post-GFC cycle, dollar softness was a critical catalyst, pushing foreign investment to ~12% of U.S. commercial real estate transaction volume² and playing a pivotal role in reviving liquidity across major gateway cities. By 2024, on the cusp of Trump’s second term, the foreign share had already been cut in half, with new heights of Anti-US rhetoric by Europe and Canada, it’s safe to assume it could be halved again.³  

Critically, while the FX backdrop may become more supportive, the availability of foreign capital is fundamentally constrained relative to prior cycles. After the GFC, U.S. real estate saw an unprecedented wave of cross-border inflows, with Russian, Chinese, Japanese, Canadian, and European investors drawn by relative value, yield differentials, and the perceived safety of dollar-denominated assets; notably, China alone deployed ~$350 billion into U.S. real estate between 2010 and 2015, both directly and through EB-5 visa channels.⁴  

Today, however, that global bid has thinned dramatically. Russian and Chinese flows are effectively frozen; Japan is preoccupied with domestic challenges; and Canada, under Prime Minister Mark Carney and alongside many left-leaning European governments, has explicitly signaled political disengagement, with sovereign wealth funds and public pensions actively reducing U.S. exposure⁵, almost like the next-generation form of ESG investing, or “ESG-AT” (Environmental, Social, Governance—and Anti-Trump).

That said, foreign capital is not entirely absent; non-U.S. investors still account for roughly 15–20% of total allocations of U.S. real estate, including within U.S. real estate funds.⁶ Should these investors choose to reduce exposure, they are likely to do so through the robust secondaries market, where they can liquidate at ~15% discounts to NAV in order to align with political mandates. While this capital rotation is unlikely to trigger systemic disruption, it will almost certainly thin the bid stack, modestly soften cap rates, and in the process, create tactical entry points for patient, opportunistic capital.

_{[1] - Financial Times, “Tariffs and the Dollar: A Fragile Balance”;Vanguard UK, “The U.S. Dollar is Unlikely to Continue Defying Gravity”}

_{[2] – Multiple corporations have increased U.S.-based manufacturing and re-shoring activity in response to tariff changes (CBS News; Cra-Z-Art; Apple, n.d.; Johnson & Johnson; Chobani; AMTonline.org; WhiteHouse.gov; Governor.NY.gov; Macquarie Group; Brimco.io).}

_{[3] – Jordan, B., & Lung, H.-G. (2024, June14). Foreign investment in US CRE at lowest pointsince 2011. CRE Daily.}

_{[4] – Sbeih, A. (2018, November 16). Foreign Investment in U.S. Real Estate – WhatAre The Target Markets? Socotra Capital.}

_{[5] - Benefits Canada, “How Canadian Institutional Investors Are Considering U.S.Allocations Amid Ongoing Trade War”; Financial News London, “Amundi, UBS, State Street Hit as Investors Pull Almost $5B fromU.S. Stock ETFs”; Benefits andPensions Monitor, “Canadian and Danish Pension Funds Rethink U.S. Private EquityDuring Trump Era”}

_{[6] 10 - LaSalle Investment Management, “PREA Quarterly: Outside Looking In – How Foreign Investors Seethe U.S. Real Estate Market Today”}