Foreign real estate flows brighten dollar outlook

NEW YORK (Reuters) - The chance for solid returns in the red-hot U.S. commercial real estate market has enhanced its appeal to foreign investors, lending support to the U.S. currency as capital flows into dollar-denominated assets. Unlike the slumping U.S. residential property market, prices and rents in the business and industrial property sectors continue to grow. By some measures, these are among the best performers in U.S. asset markets. Cash-flush foreign institutional investors are wise to the trend, investing some $20 billion in U.S. commercial real estate last year alone. The sector should get even more of that money again in 2007, property fund managers say. "It's going to be helpful for the dollar, although you have to place it in the context of other flows that are appearing," said Alan Ruskin, chief international strategist at RBS Greenwich Capital. Commercial property investments accounted for more than 10 percent of roughly $180 billion in foreign direct investment in U.S. assets in 2006. Those inflows are key to financing the U.S. trade deficit and are thus supportive for the dollar. There is no sign that the dollar is struggling at the moment. After falling to a 20-month low against the euro and other currencies in late 2006, the greenback has rebounded some in 2007, helped by rising U.S. Treasury yields and stronger-than-expected economic data.