Non-U.S. investors tap into Dallas real estate
01/10/2003
URL:http://www.dallasnews.com/sharedcontent/dallas/business/stor...
By STEVE BROWN / The Dallas Morning News
Shoppers at the Centre at Preston Ridge in Frisco probably don't even know that the property has changed hands.
The 735,000-square-foot open-air shopping center is one of the largest such projects in the state – big enough to have attracted the attention of a German investor who partnered with an American realty trust to buy the development at the end of last year.
Deals such as this one are luring buyers to North Texas from as far away as Frankfurt, Tokyo and Toronto.
Unlike in previous recessions, foreign investors are making big moves on the Dallas real estate market – paying top dollar for office buildings and shopping centers.
"This kind of purchase is an old news story in New York and Chicago, but I'm a little surprised to hear it's happening in Dallas," said Jacques N. Gordon, international director of Chicago-based LaSalle Investment Management. "This is a big difference from that last real estate down cycle.
"There is plenty of capital for real estate this time, and some of it is coming from foreign sources," he said.
When the commercial real estate market tanked 10 years ago, offshore buyers were among the first to bail, and they stayed on the sidelines until conditions improved.
This time around, while real estate conditions have soured, investor attitudes have sweetened toward trophy property investments such as office towers and shopping centers.
PricewaterhouseCoopers estimates that foreign acquisitions of U.S. real estate almost doubled in 2002. More than three-fourths of the investment by offshore buyers was in office buildings, where they bought buildings priced at double the national average.
Dallas had one of its biggest recent years for investment sales in 2002, with more than $1 billion in properties changing hands.
One of the largest deals was the 1.9-million-square-foot Galleria mall in North Dallas, which sold to a real estate affiliate of UBS AG, the huge Swiss banking and financial conglomerate. UBS Realty bought the shopping mall on behalf of one of its U.S. investors.
But several foreign buyers also made bids on the property, said marketing agent Barry Brown of Holliday Fenoglio Fowler LP.
"We are seeing an influx of more foreign capital these days," Mr. Brown said. "They are well-educated on our markets, and most of them are working through U.S. offices or partners."
Economic incentives
That was the case in Frisco, where an unnamed German investor bought the Preston Ridge shopping center adjoining Stonebriar mall.
With tenants including Best Buy, DSW Shoe Warehouse, Marshall's, Old Navy, Stein Mart and Pier 1 Imports, the shopping center is the size of some enclosed malls and is almost fully leased.
The buyer was a new partnership between New Plan Excel Realty Trust and the German investment group.
Germans have a particular incentive to invest in U.S. property, given recent tax law changes at home and ills in their economy, Mr. Gordon said. "The German investment funds are awash in capital, and there is a massive move from securities to real estate," he said.
Christiane Hepfer of Dallas' International Capital Inc. has been pairing local properties with German investors since the 1980s.
"They are very much interested in the U.S.," she said. "It has to do with the economic situation in Germany and the changes in regulations of pensions."
And foreign buyers have confidence in the long-term value of property here, she said. "The trust in the American economy is still there," Ms. Hepfer said. "They believe that out of all the world's troubles, America will pull through."
And it's not just the Germans.
In November, a U.S. subsidiary of Japanese investor Kajima Corp. paid an estimated $70 million for the 2100 McKinney office tower in Uptown.
Canadian purchase
Two weeks later, a Canadian buyer, TGS North American REIT, bought the 22-story 600 Las Colinas tower in Irving. The Las Colinas purchase was part of a $250 million investment that included buildings in Houston and Denver.
While recent declines in the dollar against some world currencies may have been a windfall for some of these foreign investors, most of the deals were in the works before the value of the dollar dipped, Mr. Gordon said.
"These are long-term investments," he said. "The dollar goes up and down all the time."
Peter Korpacz, a global real estate strategy researcher for PricewaterhouseCoopers, said in a just-released forecast that "institutional and foreign investors and real estate investment trusts continued to buy select commercial real estate in the fourth quarter of 2002, which raised prices sharply."
But building owners courting foreign capital are concerned about the recovery of the U.S. economy and recent declines in commercial building rents.
Unless real estate fundamentals improve soon, current pricing levels will not be sustained, industry analysts point out.
"Even the most optimistic investors worry that the longer the downturn persists, the greater likelihood of widespread income losses," Mr. Korpacz said. |
