Sky-high U.S. property prices send real estate investors overseas.
throughout the world continue to expand, the flood of real estate investment
capital headed overseas has swelled to record levels. This unprecedented growth
is expected to continue throughout the year and well into 2006.
Despite a weak dollar, investing in commercial real
estate overseas remains sound. It now is accepted as a legitimate asset class
throughout the world with many countries becoming competitive with or even
exceeding U.S. returns. Real estate’s liquidity, as well as the transparency
and availability of financial information, has significantly improved around
the world. Differing economic cycles provide portfolio diversification and the
passage of real estate investment trust-like legislation in many countries
inevitably will provide additional real estate investment opportunities.
Another primary reason REITs, opportunity funds, and
pension funds are stepping up foreign investments is the soaring price of
domestic product. Recent surveys indicate that large tax-exempt institutions
are boosting funds allocated to overseas commercial real estate from 3 percent
of total real estate investments in 2004 to more than 8 percent this year.
Currently, approximately 60 percent of capital raised by
U.S. opportunity funds is headed overseas, according to Ernst & Young. For
example, U.S. investors were the most active buyers in the United Kingdom in
2004, acquiring some $13.5 billion of U.K. properties.
REIT Markets Emerge
Some 20 countries including Australia, Belgium, Brazil,
Canada, China (Hong Kong), France, Greece, Italy, Japan, Mexico, the
Netherlands, Singapore, Spain, and Turkey recently passed legislation to create
REIT-like structures. Australia and the Netherlands currently have the most
established REIT markets. Germany recently announced plans for its own REIT
market by 2006, and similar legislation also is pending in the United Kingdom.
REIT legislation in these countries will provide new
opportunities for property owners to obtain liquidity. In addition, U.S. REITs
are likely to increase overseas merger and acquisition activity. REIT
legislation also will open up global real estate markets to individual
high-net-worth investors seeking alternatives to the U.S. real estate market.
Global Demand Grows
Recent notable examples of large U.S. REIT transactions
include ProLogis, which plans to develop 1.1 million square feet at China’s
Beijing Airport, and General Growth Properties, which has committed more than
$100 million to joint ventures in Brazil and Costa Rica.
Two additional sizable U.S. REIT investments include
Simon Property Group’s interest in 49 shopping centers in France, Italy,
Poland, and Portugal and four outlet centers in Japan. In addition, the Mills
Corp. recently partnered with Spanish investors on Xanadu, a mixed-use
entertainment development in Madrid, Spain.
Due to the current trend toward European companies
monetizing their real estate holdings, U.S. institutional investors are seeking
opportunities to acquire real estate through sale-leaseback transactions in the
European market. For example, W.P. Carey & Co. LLC recently formed an
international fund that purchases and leases back single-tenant corporate and
industrial facilities in Europe.
On the pension fund side, the California Public Employees
Retirement System teamed up with Hines and Prudential Real Estate to invest
approximately $250 million in Mexico and, along with Secured Capital Corp., has
spent close to $100 million to buy Japanese properties.