25pc rise in US commercial property purchases by international investors
Singaporeans, South Koreans, Israelis and Norwegians are accelerating purchases of US real estate, as a growing economy and rebounding prices lure yield-hungry buyers from overseas.
International investors made US$7.97 billion in US commercial-property purchases this year to April, a 25 per cent jump from the same time last year, said Real Capital Analytics. The US$27.5 billion in deals last year was almost six times the US$4.7 billion low in 2009, the firm said.
With deals including the tallest buildings in Los Angeles and Minneapolis, cross-border buyers are contributing to a US real estate recovery that has seen prices by reach new peaks. Sellers are taking advantage of the rising values and demand. Blackstone Group, the second-biggest US office landlord, said it expected strong interest from sovereign- wealth funds.
"This is the tip of the iceberg," said Sonny Kalsi, a co- founder of New York-based GreenOak Real Estate, which has advised Asian investors on deals. "You're going to see a lot more capital coming in. They like where the US is in the real estate cycle."
Foreigners made 8.8 per cent of US commercial real estate transactions in the first four months of this year, up from an average of 8.1 per cent for the previous 10 years, said New York-based Real Capital. The data measure direct purchases of physical buildings, not investments in funds or securities.
The figures do not include the largest recent purchase. The families of Chinese real estate developer Zhang Xin and Brazilian banking billionaire Moise Safra last week bought a 40 per cent stake in New York's General Motors Building. The transaction valued the 50-storey tower near Central Park at about US$3.4 billion, said CBRE Group, the broker on the deal. The building sold for US$2.8 billion in 2008.
In a deal announced on June 3, Ivanhoe Cambridge, the real estate arm of Caisse de Depot et Placement du Quebec, Canada's largest pension-fund manager, bought the 47-storey Wells Fargo Centre office tower in Seattle for US$390 million.
The profile of foreign buyers is changing as wealth funds expand real estate holdings outside their own countries. International investors in search of yield are also fuelling deals in markets such as Britain, France and Russia, said brokerage Jones Lang LaSalle.
Global commercial real estate investments topped US$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, it said.
"We've seen steadily increasing demand from non-US investors," said Max Swango, director of client portfolio management for Dallas-based Invesco Real Estate. "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 were attracted to high-quality assets that offer better returns than government bonds, Kalsi said. For all commercial-property types, the average capitalisation rate, a measure of investment yield, was 6.78 per cent in the first quarter, according to Real Capital. The yield on the 10-year Treasury is hovering at around 2 per cent.
Demand for top-quality buildings helped commercial real estate prices rise in April above an August 2007 record, said Green Street Advisers, a 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 per cent 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 US cities, such as the GM Building. Another midtown Manhattan tower, 650 Madison Avenue, had a bid from a foreign buyer, said a person with knowledge of the sale process. That building is under contract to be sold for US$1.3 billion to New York-based Crown Acquisitions and Highgate Holdings, 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, Israel's second-largest insurer, was part of a group of investors that in April acquired the 57-store IDS Centre, the tallest tower in Minneapolis, for US$253 million.
"This was an iconic property and they just don't come up too often," said Terry Kennon, managing director of asset management at Florida-based Beacon Investment Properties. Beacon bought the IDS Centre with partners Harel and Menora Mivtahim Insurance, 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, a Singapore- based commercial landlord and developer, agreed to buy the US Bank Tower in Los Angeles, the West Coast's tallest office building, for US$367.5 million. Overseas Union did not respond to requests for comment.
Canada is ranked as the biggest foreign acquirer of US commercial real estate since 2010. Singapore moved up to No2 this year, from No7 in 2012, according to Real Capital. Purchases by Singaporean investors, at more than US$1.9 billion to April, are twice the US$957 million recorded for all of last year.