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The Top Countries Investing in U.S. Commercial Real Estate

September 24, 2018



The Top Countries Investing in U.S. Commercial Real Estate

Although some cross-border investors have taken a step back from U.S. real estate, there remains strong interest from buyers around the globe. Canadian investors have been the most active buyers of U.S. real estate in the last 12 months, securing $19.63 billion in assets, according to a recent report from Real Capital Analytics (RCA). It's a familiar spot for the Great White North, which was also the top source of capital into the U.S. in 2017 and number two in 2016. China, which topped the list in 2016, sits fourth in volume for the past 12 months, at $5.48 billion. Singapore ($9.05 billion) and France ($8.66 billion) edged out China for second and third on RCA's list. Germany, with $4.33 billion in capital invested in the U.S., rounded out the top five. Cross-border investment has continued at a strong clip despite an increase in protectionist measures, such as tariffs and tensions in trade agreement negotiations. According to RCA's report "These fears are genuine but sometimes also taken to extremes. This too shall pass.... Cross-border investors are, with some exceptions, focused on longer-term objectives and temporary roadblocks can be overlooked. Clearly these investors overlooked trade concerns in the first half of 2018." Overall, cross-border investment is off its peak year of investment in the U.S. in 2015 with nearly $100 billion in volume, which accounted for about 17 percent of overall commercial real estate investment. The current numbers (based on trailing four-quarter data) amount to just more than $60 billion and around 12 percent of overall volume. (National Real Estate Investor/David Bodamer)



VF Corp. Reveals its New Downtown Denver Home

Outdoor apparel giant VF Corp. has found its next camp. VF Corp. (NYSE: VFC) will move into 1551 Wewatta St. and occupy all ten floors, totaling about 285,000 square feet. The company announced in August that it would relocate its global headquarters from Greensboro, N.C. to the Denver metro in early 2019, creating around 800 jobs. VF Corp. received $27 million in incentives to move its company to Denver. Five brands it manufacturers — including The North Face, JanSport and Smartwool — as well as it its corporate offices will be consolidated under the roof of the former Gates headquarters. Gates moved its global headquarters to 1144 Fifteenth St. in July. VF Corp. signed a 12-year lease for the building. Renovations will begin in early 2019, and are expected to be completed in early 2020. The building has an estimated capacity of 1,200 people, giving the company room to expand beyond the 800 roles it expects to employ in Denver over the next eight years, according a press release. “We are excited that Denver’s vibrant Lower Downtown district will serve as the new home for VF and five of our Outdoor brands,” said Steve Rendle, chairman, president and CEO of VF Corp, in the release. “Our extensive search process led us to review multiple options across the Metro Denver area, and the combination of LoDo and the building at 1551 Wewatta came together to meet all of our criteria." He called it the "ideal setting" for the company to create a "dynamic, collaborative working environment." He also said that the company's focus is to create an office that is reflective of the active, outdoor lifestyles that their brands "enable consumers to enjoy." “We’re thrilled to extend a Mile High welcome to VF,” said Denver Mayor Michael B. Hancock in the press release. “This is clearly a signature recruitment that underscores Denver’s culture of innovation, our burgeoning outdoor recreation sector, and our highly educated workforce." According to DBJ reporting, company leaders expressed interest in Denver six months ago, citing the state's impressive talent pool and outdoor culture. Big block office space in downtown Denver is rare. At the beginning of the year, only nine blocks of space 75,000 feet and up were available – and that number will soon be down to five at the most by the end of the year, according to Newmark Knight Frank. After news of VF Corp's upcoming arrival, several local real estate experts spoke to the DBJ about what might happen if and when the last few large blocks of space were taken. VF employs nearly 70,000 people worldwide with operations across more than 170 countries. (Denver Business Journal)



Slack Signs Lease for 80,000 Square Feet in LoDo

Slack is opening up its channels in Denver. The San Francisco-based messaging startup said in a statement Tuesday that it has “officially signed a lease for space at 16 Chestnut.” While the company did not disclose specifics regarding the lease, a source told BusinessDen that Slack is taking 80,000 square feet consisting of floors six and seven at the 19-story building, which is still being developed behind Union Station. The deal was signed at the end of August, and the lease begins in April, the source said. Slack joins DaVita, which is the building’s anchor tenant. Invesco Real Estate bought 16 Chestnut in 2016, shortly after the development broke ground, from Starwood Capital Group and East West Partners; East West remained the project’s developer. BusinessDen reported at the beginning of 2018 that Slack was in the market for at least 50,000 square feet. Then in the spring, the Colorado Office of Economic Development and International Trade approved $10.5 million in incentives for the company in return for bringing about 550 jobs in the state. In addition to its San Francisco headquarters, Slack also has offices in New York, Vancouver, Dublin, London, Toronto, Melbourne and Tokyo. The company touts 8 million users and more than 70,000 paying customers on its website. Chris Wiley and Matthew Ball with Colliers International represented Slack in the lease negotiations. (BusinessDen)



What Institutional Investors Want in this Stage of the CRE Cycle

Whether it’s in a more favored sector like multifamily, a less attractive sector like retail or a somewhat in-between sector like office, the best paths for institutional investors to drive value these days are the ones less traveled. That’s the assessment of Jacques Gordon, global head of research and strategy at real estate investment management firm LaSalle Investment Management. And other experts in the sector echo those sentiments. Gordon says purchasing and then improving an undermanaged apartment complex or value-add office building stands to deliver a better payoff, in many cases, than snapping up a stabilized property. He also notes that pursuing retail assets that feature experiential components or that could be remerchandised also provide opportunities to seek value in a sector that’s been largely out of favor among institutional investors in recent years. Byron Carlock, leader of the U.S. real estate practice at professional services firm PricewaterhouseCoopers (PwC), says that while “a lot of dry powder” is sitting in the private markets, there’s still significant transaction volume. In the second quarter of this year, overall deal volume was relatively flat compared with the same period in 2017, according to a PwC report. Moving forward, Carlock expects value-add and redevelopment to be two of the most active acquisition categories. Furthermore, Carlock believes a new federal law promoting redevelopment in distressed “opportunity zones” around the U.S. could extend the current real estate cycle. A recent report from Gordon and his team at LaSalle Investment Management, a JLL subsidiary, peels back the layers on some real estate sectors and redevelopment strategies that could greatly benefit institutional investors. “The way the real estate investing game is being played by investment managers today is to first try to find a good idea, like repositioning apartment buildings, and then executing it as quickly and quietly until the idea gets fully priced in the capital markets,” Gordon says. In the multifamily sector, Gordon and his colleagues say in the report that they’re still attracted to suburban apartments “but are turning some attention back to urban locations.” The report notes that some urban markets initially affected by the latest rise in supply are now seeing supply levels decrease. Therefore, some urban markets might be investment targets in the next year. Meanwhile, levels of new supply in suburban markets remain mixed, the report adds. Gordon says revamping an apartment complex that’s, say, 20 years old so that it appeals to the core 25- to 35-year-old renter could yield “very good” results. Not every apartment renovation will succeed, he says, but it’s got a better chance of performing well if sufficient “value engineering” is done for apartments and common areas to ensure the reward is greater than the risk. “Real estate has got to be an actively managed asset class,” Gordon points out. “You no longer can just buy a building, kick back and collect the rent checks, and expect everything to go great.” Gordon says institutional investors also can find value in the battered retail sector, which has been buffeted by concerns over the impact of e-commerce. A “smart investor,” he says, isn’t dissuaded by the uncertainty rattling the retail business. In fact, despite all the gloom and doom that has beset the retail sector, a new report from Cushman & Wakefield predicts that overall vacancy rates for retail will barely budge during the next couple of years—from 6.6 percent in 2018 to 6.8 percent in 2020. “A smart investor can realize that if everyone’s fleeing a sector as big and broad in America as shopping centers that there may be better value there, and that is the case,” Gordon says. “There’s much less money chasing shopping centers today than there is multifamily or logistics.” Several hundred class-B or class-C malls in the U.S. are candidates for adding assets like apartments or hotels to empty pad sites and turning the existing property “inside out,” Carlock says. As result, he adds, a mall “becomes a relevant piece of real estate again when it may have fallen into irrelevance.” To be especially smart about buying a retail asset, an investor must carefully consider the trade area as well as the strategy for attracting more shoppers and boosting rental rates, Gordon says. For instance, he goes on to say, if the aim is to make a retail center more “experiential,” an investor must look at what that will entail. Does it go beyond stepped-up food and beverage offerings? Where will the experiential components go? “The brick-and-mortar store is not irrelevant. It just needs to be, in many cases, redeveloped to become more relevant,” Carlock says. As for the office sector, LaSalle’s Gordon once again turns to the notion of rejuvenating an existing property rather than buying a new one. In doing so, though, an investor must weigh the mix of:

•In-house and nearby amenities, such as restaurants and coffee shops.

•Services provided by both landlords and tenants, including health and wellness classes.

•Community-building aspects along the lines of those you’d find at coworking spaces.

Gordon says the office sector is undergoing a “real sea change” in terms of how tenants and landlords must collaborate to create “durable, lasting and attractive” work environments for occupants, from baby boomers to millennials and beyond. The LaSalle report notes that “cracks are beginning to show” in the pricing of office properties that don’t offer amenities either inside or outside a building. According to Carlock, about 80 percent of U.S. office stock was built before the 1990s, and some of it “needs to be redone to satisfy current demands.” However, he adds, “office space is not always out of date as we move to the office of the future.” Repurposing an existing office building to beef up amenities and other features could be a particularly attractive investment tactic now, given that the Cushman & Wakefield report highlights a “strong wave” of office development in 2018 that’ll put downward pressure on effective rents in some markets. (National Real Estate Investor/John Egan)