bought two AIG-owned buildings in New York for $150 million last August. Other investors included Goldbond Group and
Causeway Bay Group, both based in Hong Kong.
Foreign developers also have stuck a toe in the water. Skanska
AB, a Swedish construction firm, has expanded its commercial
property development business in the United States. It acquired
a 170,000 square-foot office development in Washington at a
prime location five blocks from the White House for $85 million
last year, with completion expected in 2011. “We have seen the
recession as a way to get into the market and to be a long-term
player on the commercial side as we are on the construction side,”
says Mats Johansson, president of Skanska AB’s U.S. commercial
development business.
Turning the Corner
While the bulk of foreign investors have taken a wait-and-see
approach, they appear to have become more optimistic about
U.S. real estate.
About 47 percent of foreign investors surveyed expected the
recovery to begin in earnest in the first or second quarter of 2010,
according to a 2009 survey conducted by the Association of
Foreign Investors in Real Estate (AFIRE), a Washington-based
trade group. More than 30 percent expected the recovery to pick
up first in the Washington area. Another 15 percent expected
New York to be first, while 15 percent selected San Francisco. As
for property types, about 45 percent said office real estate would
recover first, while 32 percent predicted it would be the multi-family sector. Less than 10 percent selected the industrial, hotel
or retail property sectors as the first to rebound.
JV Appeal
Foreign investors are also seeking out strong American partners
with which to invest. Cedar Shopping Centers last October sold
seven shopping centers for $270 million to a joint venture with
RioCan (TSX: REI-UN). The fund will purchase up to $500
million of supermarket-anchored shopping centers in the Northeast and Mid-Atlantic regions.
UDR Inc. (NYSE: UDR) last August announced a joint-
venture deal with Kuwait Finance House (KFH), an Islamic bank.
The deal allows KFH to invest up to $450 million in multifamily
properties in the joint venture, with a 70 percent stake and a
holding period of up to seven years.
“Our goal is to own and operate real estate on a long-term basis,”
says Warren Troupe, senior executive vice president at UDR. “So
we look for partners who are interested in a longer-term hold.”
To be sure, multifamily properties still face the hardship of
rising unemployment nationwide, making a focus on long-term
growth a necessary perquisite for investment, Troupe said. “In-
vestors are looking and saying, ‘Maybe now is the time to get in
when we’re at a low point of operating income.’”
In another joint venture, Weingarten Realty (NYSE: WRI)
has teamed up with Jamestown US Immobilien, a German-
based manager of real estate funds with about $8 billion invested
in the United States. Weingarten announced in October an
agreement to sell six shopping centers to the joint venture, of
which the REIT will retain a 20 percent stake. Like most REITs,
Weingarten has taken steps to shore up its balance sheet, in-
cluding selling off some assets. Jamestown was only interested
in properties tilted toward discretionary spending, with strong
grocery anchor tenants.
“From the get-go, Weingarten fit all of the criteria we are
looking for: a portfolio of shopping centers with a best-in-class
owner in cities we want to be in the top grocer in those markets,”
says Jeff Ackermann, managing director at Jamestown.
going indirect
Institutional and high-net-worth investors have also participated
in deal-making through indirect investment by purchasing REIT
shares. Last year, the Otto family, owners of German mall developer ECE Projekmanagement, purchased more than 20 percent
of Developers Diversified. The family bought 15 million shares
at $3.50 and another 15 million at $4. While the purchases were
done at premiums of 33 percent and 52 percent to DDR’s closing
price in February of 2009, the stock was trading at around $8 in
mid-November.
PGGM, a pension fund asset manager headquartered in Zeist,
Netherlands, has also been accumulating positions in many of the
largest U.S. REITs. The asset manager had sold off its holdings
in 2008, in light of shaky balance sheets and market turmoil. Last
year it jumped back in, though, scooping up shares of REITs that
were looking for investors to help shore up balance sheets in the
wave of capital raisings.
“Messy as it may have seemed, the recapitalizations among
REITs have been an opportunity for us to come back as a share-
holder in a major way,” says Hans Op’t Veld, head of listed real
estate at PGGM. “We have been buying quite substantially to
bring back the allocation levels we were comfortable with and to
take advantage of pricing.”
Established companies with a key strategy have the most ap-
peal, Op’t Veld adds. “We are looking at the companies that have
a platform and a franchise,” he says. While PGGM does not
