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News release

Chicago

Cross-border Investors Poised for Return to Americas in 2010

Investment activity begins to slowly percolate as German and Asian investors increase interest


CHICAGO, Oct. 5, 2009 — The economic malaise and financing dearth have taken their toll on real estate investment trading volumes. While transactions in the Americas are down significantly, cash-rich cross-border investors are well positioned to make a return to investment in North and South America in 2010, as Jones Lang LaSalle’s International Capital Group experts described today at the EXPO REAL show in Munich, Germany.
 
For the first half of 2009, global investment transaction volumes netted just $76 billion. The United States experienced the largest decline—falling by 77 percent year-over-year.  Japan has now surpassed the United States and United Kingdom as the most active investor region with $15 billion worth of transactions in the first half of 2009. The United States is a close second at $14 billion, followed by the United Kingdom with $11 billion.
 
While there has been a noteworthy downward trend in cross-border investment in the Americas since the beginning of the economic crisis, new activity is springing optimism that foreign investors are increasing their interest and preparing now for a re-entry into the Americas next year.
 
United States
 
“In the last two months, we’ve seen German and Asian investors increase their interest in U.S. investment. Several stateside closings also are providing some early encouragement that foreign investors are slowing rising off the sidelines for the right opportunities in the best markets,” said Steve Collins, managing director of Jones Lang LaSalle’s International Capital Group. “Right now, the coastal markets such as New York, D.C. and San Francisco are drawing interest from a select few foreign investors bidding and winning on off-market investments today. It seems the German open- and close-end funds and the Asian development companies are getting ready for an investment push in first quarter 2010.”
 
In July and August, stateside investment activity increased. The most notable transaction included the largest U.S. transaction to date in the sale of Worldwide Plaza at 825 Eighth Avenue in Manhattan.  Local owner/operator George Comfort & Sons bought the former Macklowe property for $605 million in a joint venture with RCG Longview.  Macklowe paid $1.7 for the previously fully leased building in 2007.  The purchase reflects a net initial yield of 6.3 percent on what is now a 40 percent vacant building.  If and when the building becomes fully stabilized in three or four years, the yield will likely be closer to 12 percent. It is widely believed in the market that the purchaser has new tenants lined up already.
 
The other significant deal Manhattan is SL Green’s sale of its 49.5 percent interest in 485 Lexington to a joint venture between Gilmore USA and Optibase Ltd (an Israeli technology company).  The joint venture paid just under $21 million and assumed the $450 million of existing debt on the building.  This is Optibase’s first real estate purchase in North America as it attempts to diversify its portfolio by investing in commercial real estate.  Once the transaction closes, the JV reportedly plans to provide SL Green with a $20 million loan secured by an SL Green pledge to sell an additional 49.5 percent stake.
 
A little farther down the East Coast in Washington, D.C., the large public REIT Vornado sold 1999 K Street to Deka’s Open Ended Fund for $208 million in the largest D.C. property transaction this year.  The property, designed by Helmut Jahn, was completed just last month and is leased to the law firm Mayer Brown for 15 years.  The purchase price equates to $830 per square foot (psf). The last building to trade at such a high level was 2099 Pennsylvania Ave, a Jones Lang LaSalle brokered and closed in April of 2008 that set a high watermark for D.C. office transactions at $867 psf.  Another trophy D.C. market transaction was Credit Suisse’s purchase of 1099 New York Avenue from Tishman Speyer.  It reportedly traded at a 7.4 percent for $90.5 million ($517 psf).  The building is 61 percent leased with a major law firm as the anchor tenant.  Invesco was also active in D.C. and purchased the newly redeveloped headquarters for the Immigration and Customs Enforcement agency from Prudential Real Estate Investors for $153.6 million.  The nearly 500,000-square-foot deal was all cash; however its non-core location yielded only $310 psf.
 
North America
 
Canada’s investment activity has been limited. Deka Immobilien Investment made its Canadian debut with the purchase of the fully let Bentall V office building in Vancouver which they purchased off-market from SITQ for just under $300 million at roughly a 6 percent net initial yield.  The Germans also were active in Calgary as Commerz Real purchased Stampede Station for approximately $70 million.  The 161,000-square-foot building was completed at the beginning of the year and is fully let on long-term leases.
 
Latin America
 
Mexico is experiencing the sharpest economic contraction in the last quarter century and has fallen even deeper than the “Tequila Crisis” which in 1995 drove annual gross domestic product (GDP) to -6.2 percent. The outlook for the Mexican economy continues to be challenging. Economic data suggest the lowest point in the cycle will be the second quarter 2009, however recovery will be slow and pre-crisis production levels, particularly in manufacturing, will return slowly.  Full year GDP forecasts range from -6.0 to -8.0 percent. A modest recovery is expected in 2010 with GDP growing between 2.4 percent and 2.8 percent.
 
Hector Klerian, International Director of Jones Lang LaSalle’s Mexico operations indicated that, “As a result, Mexico transaction volumes remain down by roughly 50 percent since their peak, with yields ranging from approximately 11 to 12 percent in local currency.  U.S. dollar-denominated transactions in Mexico have been very scarce and may command rates of 100 to 200 basis points below the local currency rates. Recent transactions include the disposition of the Samba Vallarta by Pueblo Bonito Hotel in Puerto Vallarta, where Jones Lang LaSalle served as the seller’s advisor and the Sofitel in Salvador.  Jones Lang LaSalle also served as an advisor of Siemens which sold an industrial building of 298,000 square feet in Guadalajara where Continental Automotive Guadalajara is the tenant. This transaction closed last week.  The buyer was a local investment group of high net-worth individuals”.
 
In the first major office portfolio to come to market this year, Jones Lang LaSalle is now offering three prime office buildings in Mexico City's main business districts for sale for a leading developer in Mexico.  The properties comprise 55,547 square meters of fully occupied class A space in prime office locations in Lomas de Chapultepec and Polanco.  The package could be worth US$200 Million.  Jones Lang LaSalle has already identified strong interest from foreign funds, local funds and high net-worth local investors.
 
“While Mexico is facing economic challenges, there is a feeling that inflation is controlled and several well-heeled institutional investors are very active looking for opportunities. Foreign investors are coming back to Brazil as are high net-worth individuals,” said Pedro Azcué, Chief Executive Officer of Jones Lang LaSalle’s Latin America region.  Brazil is also getting a boost from investment-grade rating hikes from Standard and Poor’s, Fitch and Moody’s recent upgrade.”
 
According to a Bloomberg report, Brazil’s Finance Minister Guido Mantega told reporters in New York last week that an investment-grade rating from all three major ratings companies will help attract more pension fund money to the country’s debt.
 
Brazil seems to already be benefiting from its higher sovereign rating stats with recent uptick in hotel sales in São Paulo with the sale of the InterContinental Hotel. Additionally, the Portuguese hotel group Porto Bay acquired the 80-room boutique hotel L’Hotel. VALIA, one of the country’s largest pension funds, acquired part of the Continental Tower under development in São Paulo for R$208 million. BR Malls, a group formed by GP Investimentos and Equity International, acquired a shopping center for R$188 million. In July, Sao Carlos, a local real estate company listed in the Bovespa, sold two warehouses in Rio de Janeiro and one in Pernambuco for a total of R$107million.
 
Brazil is also poised for future gains given Rio de Janeiro was selected as the 2016 Olympic host site.
 
“With Rio de Janeiro hosting the Olympic Games in 2016 I foresee that the city will receive significant investment in infrastructure and hospitality,” said Fábio C. Maceira, CEO of Jones Lang LaSalle’s Brazil operations.
 
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 2008 global revenue of $2.7 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.4 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 more than $36 billion of assets under management. For further information, please visit our Web site, www.joneslanglasalle.com.
 
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