Skip Ribbon Commands
Skip to main content

News release

MUNICH, GERMANY

Foreign Investment in U.S. Commercial Real Estate:  Thinning the Peloton

Secondary markets, value-add and distressed properties reigniting interest among foreigners


MUNICH, Oct. 5, 2011 — The abundance of foreign investors focused on core assets in coastal United States markets has begun to diversify in the latter half of 2011, with secondary markets, value-add and distressed properties reigniting interest from European and Asian investors.  The year ahead should also show a marked change in the appetite for development as long-time players consider projects in high barrier-to-entry markets, according to Jones Lang LaSalle’s International Capital Group experts today at the EXPO REAL show in Munich, Germany.

“For the past 18 to 24 months or so, we’ve seen a large number of investors strategically competing for the preeminent assets in the top core markets—those in New York, Washington, D.C. and San Francisco, for the most part,” said Steve Collins, International Director of Jones Lang LaSalle’s International Capital Group.  “Now, we’re experiencing a notable thinning of the peloton as those same investors move slightly further out the risk continuum into solid, well-located properties in secondary markets, or staying within core markets, but broadening their search to include value-add or even distressed assets within those markets.”

Some notable examples of investors seeking risk-adjusted returns in former “flyover” markets (which describes those secondary markets that investors literally fly over when they’re reaching another major city) include: 
  • In August, Allianz, along with joint venture partner, CCP Investment Board out of Canada, purchased two multifamily properties in Boston—the Archstone North Point for approximately $186 million and the Archstone Woodland Park for approximately $84 million.  
  • The North American Development Group out of Ontario, Canada, purchased the Edgewood Retail District in Atlanta for $81.7 million in September and a joint venture between Chinese and Korean investors purchased Three First National Plaza in Chicago in August for approximately $348 million. 
For the majority, joint ventures remain the foreign investment vehicle of choice for U.S.-based office investments, particularly those from Germany and France, while Middle Eastern and Asian investors have their eyes on multifamily.   Speaking of Germany, institutional investors there are shying away from open-ended funds and increasingly amassing a war chest of capital in Spezialfonds, as real estate remains a target asset class.  German open-ended funds are also re-analyzing their U.S. real estate volumes and may consider targeted domestic selloffs to feed cash redemptions.

Development also appears poised to make a tentative comeback as long-time international players begin investigating opportunities for office project developments in those same barrier-to-entry markets of New York and Washington, D.C.  “Little to no development over the past two years has resulted in falling vacancy rates, and higher rental rates in the office sector of these core markets,” said Collins.  “Some foreign investors have gone through three to five cycles throughout the years and are now beginning to feel more comfortable with future development plans.
 
Aggressive foreign investors with higher risk appetites could be the first to break ground to benefit from the recovery.”
Foreign lenders have also become more aggressive in 2011, with overseas banks and funds quoting interest rates around 3.25 percent with interest-only components for as long as five years, though underwriting remains extremely tight.  “We’re seeing a number of U.S. borrowers choosing foreign lenders due to their ability to take down a larger loan, with longer terms and shorter execution. While large-scale transaction activity is muted, foreign investors could be in a position to breakaway from the pack in 2012,” concluded Collins.

Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2010 alone, Jones Lang LaSalle Capital Markets completed $43 billion in investment sale and debt and equity transactions globally. The firm’s dealmakers completed $33 billion in global investment sales and buy-side transactions, equating to nearly $140 million of investment trades completed every working day around the globe. In the United States, Jones Lang LaSalle grew its office broker volumes by 257 percent in 2010 and is quickly gaining market share across all property types. The firm’s Capital Markets team comprises approximately 800 specialists, operating in 185 major markets worldwide.

About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2010 global revenue of more than $2.9 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide, including 200 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with $45.3 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com.