Singaporeans, South Koreans, Israelis
and Norwegians are accelerating purchases of U.S. real estate as
a growing economy and rebounding prices lure yield-hungry buyers
from overseas.
International investors made $7.97 billion in U.S.
commercial-property purchases this year through April, a 25
percent jump from the same time in 2012, according to Real
Capital Analytics Inc. Their $27.5 billion in deals in all of
last year was almost six times the $4.7 billion low in 2009, the
research firm said.
With deals including the tallest buildings in Los Angeles
and Minneapolis, cross-border buyers are contributing to a U.S.
real estate recovery that has seen prices by some measures reach
new peaks. Sellers are taking advantage of the rising values and
demand. Blackstone Group LP, the second-biggest U.S. office
landlord, has said it expects strong interest from sovereign-wealth funds for properties it plans to sell starting this year.
“This is the tip of the iceberg,” said Sonny Kalsi, a co-founder of New York-based GreenOak Real Estate LP, which has
advised Asian investors on deals. “You’re going to see a lot
more capital coming in. They like where the U.S. is in the real
estate cycle.”
Foreigners made 8.8 percent of U.S. commercial real estate
transactions in the first four months of 2013, up from an
average of 8.1 percent for the previous 10 years, according to
New York-based Real Capital. The data measure direct purchases
of physical buildings, not investments in funds or securities.
GM Building
The figures don’t include the largest recent purchase by
foreign buyers. The families of Chinese real estate developer
Zhang Xin and Brazilian banking billionaire Moise Safra last
week bought a 40 percent stake in New York’s General Motors
Building. The transaction values the 50-story tower near Central
Park at about $3.4 billion, according to CBRE Group Inc., the
broker on the deal. The building sold for $2.8 billion in 2008.
In a deal announced yesterday, Ivanhoe Cambridge, the real
estate arm of Caisse de Depot et Placement du Quebec, Canada’s
largest pension-fund manager, bought the 47-story Wells Fargo
Center office tower in Seattle for $390 million.
The makeup of foreign buyers is changing as wealth funds
expand their real estate holdings outside their own countries.
International investors in search of yield are also fueling
deals in markets such as the U.K., France and Russia, according
to brokerage Jones Lang LaSalle Inc.
Global commercial real estate investments topped $100
billion for the first time in five years in the first quarter,
Jones Lang said in a report in April. New York, Washington,
Atlanta, Houston and Los Angeles ranked among the world’s top 10
cities for cross-border deals, the Chicago-based company said.
Steadily Increasing
“We’ve seen steadily increasing demand from non-U.S.
investors,” said Max Swango, director of client portfolio
management for Dallas-based Invesco Real Estate, which managed
$52 billion of assets as of March 31. “The interest comes from
all parts of Asia, Europe and the Middle East. You’ve got some
relatively young, very large sovereign-wealth funds that are
just starting to actively invest.”
Buyers are attracted to high-quality assets that offer
better returns than government bonds, Kalsi said. For all
commercial-property types, the average capitalization rate, a
measure of investment yield, was 6.78 percent in the first
quarter, according to Real Capital. The yield on the 10-year
Treasury is hovering around 2 percent.
Rebounding Prices
Demand for top-quality buildings helped commercial real
estate prices rise in April above an August 2007 record,
according to Green Street Advisors Inc., a Newport Beach,
California-based research firm that measures values based on
property appraisals. Another gauge, the Moody’s/Real Capital
Analytics Commercial Property Price Index, regained 51 percent
of its peak-to-trough losses as of March, the latest available
data. That measure is based on repeat-sales transactions.
International investors are typically most attracted to
high-quality buildings located in prime U.S. cities, such as the
GM Building. Another midtown Manhattan tower, 650 Madison Ave.,
had a bid from a foreign buyer, according to a person with
knowledge of the sale process who asked not to be named because
the details are private. That building is under contract to be
sold for $1.3 billion to New York-based Crown Acquisitions Inc.
and Highgate Holdings Inc. of Irving, Texas.
“It is the large trophy deals that really move the foreign
volume,” said Dan Fasulo, managing director at Real Capital.
Harel Insurance Investments and Financial Services Ltd.,
Israel’s second-largest insurer, was part of a group of
investors that in April acquired the 57-story IDS Center, the
tallest tower in Minneapolis, for $253 million.
‘Iconic’ Property
“This was an iconic property and they just don’t come up
too often,” said Terry Kennon, managing director of asset
management at Hallandale Beach, Florida-based Beacon Investment
Properties LLC, which bought the IDS Center with partners Harel
and Menora Mivtahim Insurance Ltd., which manages Israel’s
largest pension fund. “Minneapolis is a very vibrant town with
a lot of Fortune 500 companies.”
In March, Overseas Union Enterprises Ltd., a Singapore-based commercial landlord and developer, agreed to buy the U.S.
Bank Tower in Los Angeles, the West Coast’s tallest office
building, for $367.5 million. Overseas Union didn’t respond to
requests for comment on the purchase.
Canada has ranked as the biggest foreign acquirer of U.S.
commercial real estate since 2010. Singapore moved up to No. 2
this year, from No. 7 in 2012, according to Real Capital.
Purchases by Singaporean investors, at more than $1.9 billion
through April, are already twice the $957 million recorded for
all of last year.
GIC Deals
Government of Singapore Investment Corp. last year invested
in 101 California St., an office tower in San Francisco’s
financial district, and in March acquired the Grand Wailea in
Maui and four other resorts from a group including Paulson Co.
for $1.5 billion.
GIC, as the sovereign-wealth fund is known, had 10 percent
of its assets in real estate globally in the 2012 fiscal year,
and about one-third of total assets in U.S. investments of
various types. The fund, which is prohibited from investing in
its home country, doesn’t disclose total assets and declined to
comment on its purchases.
South Korea is the third-biggest international buyer this
year, up from No. 6 in 2012. Deals through April totaled $1.59
billion, exceeding the $1 billion for all of last year, Real
Capital data show.
Mirae Asset Global Investments, a Seoul-based manager of
$58 billion, last month bought a 31-story office building in
Chicago’s West Loop district for $218 million, according to a
May 17 statement. It was the South Korean company’s first
purchase in the city.
Biggest Market
The U.S. is an investment target partly because it has
about one-quarter of the world’s institutional-quality
commercial real estate, according to Montreal-based Ivanhoe
Cambridge.
“The New York market alone has more office inventory than
the entire country of Canada,” said Adam Adamakakis, executive
vice president for U.S. investments at Ivanhoe Cambridge. “The
U.S. market, which is still in recovery, gives us access to
opportunistic transactions. We are looking to further accelerate
our U.S. expansion over the next several years.”
Ivanhoe Cambridge in November paid more than $360 million
for a 49.9 percent stake in 1411 Broadway, a 40-story office
tower in Manhattan, and in March bought 73 office buildings in
California’s Silicon Valley. It’s investing $300 million to
develop an office tower in downtown Chicago that would be the
city’s biggest new project in five years, Adamakakis said.
Canadian deals through the first four months of this year
totaled $4.2 billion, almost half of the country’s 2012 tally of
$9.1 billion, according to Real Capital.
Buying Buildings
After the financial crisis, many foreign investors prefer
buying buildings over real estate securities, said Philip
McAndrews, head of global real estate transactions and joint
ventures for TIAA-CREF. The New York-based asset manager has
joint ventures with Norway’s sovereign-wealth fund to acquire
U.S. office buildings and with the Dutch pension manager APG to
buy shopping malls.
“What’s really attracting them is the level of control,”
McAndrews said. With stocks, “you are a passive investor. If
you’re a sovereign-wealth fund and you’re going to own 25 to 30
buildings in the U.S., you probably would like to handpick
them.”
The venture with TIAA-CREF is Norges Bank Investment
Management’s first foray into U.S. real estate. The sovereign-wealth manager said in February that it wants to have about 5
percent of its roughly $700 billion fund in real estate, and
one-third of that in the U.S.
Tax Act
The influx of international capital would be much higher if
not for a tax on foreigners who sell U.S. real estate if they’re
the majority owner, according to GreenOak’s Kalsi. For this
reason, many deals are structured so the foreign entity buys
less than 50 percent of a property. Norges Bank, for example,
owns 49.9 percent of its venture with TIAA-CREF.
The Foreign Investment in Real Property Tax Act, or FIRPTA,
was passed in 1980 in response to international investors buying
U.S. farmland, said Tony Edwards, general counsel of the
National Association of Real Estate Investment Trusts, a
Washington-based trade group. Aside from the 10 percent of gross
proceeds from the sale of U.S. real estate withheld under the
law, foreign majority sellers must pay additional U.S. federal,
state and local levies that may increase the total tax burden to
as much as 60 percent, he said.
Steady Income
As foreign demand helps drive up prices, many investors are
paying a premium for fully leased buildings, which offer
predictable income streams in lieu of big potential price
appreciation, said Alex Berman, chief executive officer of
Skokie, Illinois-based EPN Group. Elbit Imaging Ltd., based in
Tel Aviv, was a founding investor in the company.
EPN Group last year sold 46 U.S. shopping centers to
Blackstone and DDR Corp. for $1.43 billion. DDR agreed in May to
buy Blackstone’s stake in 30 of those properties for $1.46
billion.
EPN was more focused on purchases in 2009 and 2010, when
prices were lower, Berman said.
“There are some people who like stability and they were
not so excited about the U.S. market three years ago,” he said.
“Now they’re coming in.”
To contact the reporters on this story:
Hui-yong Yu in Seattle at
hyu@bloomberg.net;
Kathleen Chu in Tokyo at
kchu2@bloomberg.net
To contact the editor responsible for this story:
Kara Wetzel at
kwetzel@bloomberg.net
World Chasing U.S. Yield With 25% Increase in Deals
Andrew Harrer/Bloomberg
The families of Chinese real estate developer Zhang Xin and Brazilian banking billionaire Moise Safra bought a 40 percent stake in New York’s General Motors Building for about $1.4 billion, including debt, a person with knowledge of the deal said. That transaction, completed last week, values the 50-story tower near Central Park at about $3.4 billion.
The families of Chinese real estate developer Zhang Xin and Brazilian banking billionaire Moise Safra bought a 40 percent stake in New York’s General Motors Building for about $1.4 billion, including debt, a person with knowledge of the deal said. That transaction, completed last week, values the 50-story tower near Central Park at about $3.4 billion. Photographer: Andrew Harrer/Bloomberg
May 17 (Bloomberg) — Bruce Ratner, executive chairman of Forest City Ratner Cos., talks about the New York City real estate market.
Speaking with Tom Keene, Sara Eisen and Scarlet Fu on Bloomberg Television’s “Surveillance,” Ratner also talks about his bid to rehabilitate Nassau Veterans Memorial Coliseum in Uniondale, New York. (Source: Bloomberg)
May 30 (Bloomberg) — Nicholas Smith, a Japan strategist at CLSA Asia-Pacific Markets Ltd., talks about the outlook for Japan stocks, the yen, and his investment strategy.
He speaks from Tokyo with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)
World Chasing US Yield With 25% Deal Jump: Real Estate
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