Cash is king. Banks want more equity. Lenders want to deleverage. These are the truisms of the current commercial real estate market. And while there are some indications that lending is beginning to loosen, the challenge for Dallas-Fort Worth real estate players continues to be chasing new sources of equity. With U.S. banks caught in a stalemate, many real estate professionals are beginning to look more aggressively at equity sources outside the United States.

Hunting abroad for investment funds may seem counter-intuitive, especially in light of Europe’s ongoing economic turmoil. But there are a number of huge investment funds with plenty of equity to invest and, despite its recent travails, the United States maintains a reputation as a stable environment for the distribution of investment equity, says Joshua Brown, senior managing director at the Dallas branch of Eastdil Secured, a real estate investment banking company based in New York.

“We spend a lot of our time matching capital with those who need it,” Brown says. In today’s economic environment, capital is coming increasingly from a handful of significant funds that dwarf even the largest U.S. pension funds, he says. Whatever the situation of the real estate markets, these funds are cash rich and need to deploy their equity.

“You can group buyers into three categories: you’ve got the European investors, you’ve got the Middle East investors, and you’ve got the Far East investors,” Brown says. “Five or 10 years ago, we wouldn’t have even been talking about these people, but the fact is they are incredibly active today because they sense opportunity. Particularly in 2011 you are going to see more buying opportunities, and you are beginning to see all of these investors stir.”

Despite exterior market factors, the funds that Brown and his company are working with have deep pockets. “They are very, very, very wealthy,” he says. “And they will continue to get richer for a number of reasons—particularly that a lot of this is all natural-resource wealth.”

The funds primarily include nationalized investment funds, such as the Abu Dhabi Investment Authority and the Abu Dhabi Investment Council, as well as national funds in China, Qatar, Kuwait, Singapore, and Australia. In Australia, for example, the government runs a “future fund” that invests about nine percent of the income from each citizen as a kind of state-run pension fund. In Europe, Brown points to the large German insurer Allianz and Norway’s Norges Bank, which is backed by oil and gas money.

“Norges has about $430 billion and they are programmed to invest $20 billion in real estate, both in the United States and internationally,” Brown says. “And they haven’t spent a dime yet.”

Confidence in U.S. Growing

These kinds of high-dollar values earmarked towards real estate investment are not unique. The China Investment Corp., for instance, is a giant state-run fund that is expected to take advantage of devalued American real estate.

“No one really knows how big they are,” Brown says. “But they are making huge noises about investing. It is fair to say that in the next several years, if they weren’t investing $10 billion to $20 billion in real estate platforms in the United States, then we’d all be surprised.”

The truth is, the United States is still seen as the most reliable real estate buy in the world, despite economic troubles, Brown says. According to a survey by the Association of Foreign Investors in Real Estate, confidence in U.S. real estate markets continues to grow, with a 33 percent increase in optimism in the fourth quarter of 2009 over the second quarter of last year. According to that survey, more than half the world’s investors continue to see the United States as the country offering the best opportunity for capital appreciation. To put that number in perspective, despite all the fuss about China’s emergence, only around 10 percent of survey respondents identified that country as a sure location for appreciating capital.

Although these funds also make headlines when they purchase major assets in North American cities—one of the Abu Dhabi funds’ recent buys includes the iconic Chrysler Building in New York—they are also looking to invest in real estate companies and forge local partnerships in order to take advantage of out-of-sight opportunities.

“They are very selective in what they are looking at,” Brown says. “And they are more interested in investing in a company than an individual asset.”

North Texas real estate players will want to position themselves to capture foreign equity. Speaking at a recent luncheon sponsored by The Real Estate Council regarding international investment, James Oberwetter—former U.S. ambassador to Saudi Arabia and current president of the Dallas Regional Chamber—told attendees that the cultural learning curve is as important as the economic one when dealing with major foreign players, especially those from the Middle East.

“You need to have help, because you are going to need to divine very quickly where you are going to spend your time and your efforts,” Oberwetter said. “It’s not a day trip.”

Because foreign investors are looking for local partners as well, the time it takes to build relationships with key foreign investors will pay off when those investors look for locals to help direct their U.S. investments.

Todd Platt, CEO of Hillwood Investments, has experience working investments in the other direction. His company has partnered with a number of local real estate professionals in China and the Middle East in order to invest in those emerging markets.

His company always forms local partnerships in foreign countries, Platt explains, and DFW real estate players could benefit by partnering with foreign players entering the North Texas real estate environment. “They say that all business is local,” he says. “When you are in another market, you are in their market. No amount of preparation will get you ready for doing business in another market.”

Joshua Brown admits he spends most of his time working with investors in the Far East, despite the great amount of Middle Eastern wealth available for investment. “The Far East investors are the ones I have spent most of my time with, and [when] I ask myself why, it is because it is a lot easier for us to communicate with them,” he says. “There aren’t as many cultural differences.”

Particularly with Middle Eastern countries that are relatively new to the international investment scene, such as Qatar and Kuwait, Brown says, forging relationships is necessary, but also sometimes a disincentive. “It is very apparent that these are long, long-term relationships that you have to build up over time, and spend a large amount of time socializing. They are all very smart, western-educated investment professionals who understand—they just haven’t figured out [the] when and [the] how.”

Roadblocks to international investment aren’t confined to cultural differences, though. The elephant in the room, Brown says, is the U.S. tax code. But if the national real estate investment scene continues to stagnate, he says, perhaps current tax policy, which “disincentives” foreign investment, will get another look.

Simek is the arts editor for D Magazine; his arts work can be found at frontrow.dmagazine.com. His last column for D CEO was about the timing of commercial real estate investments.