Foreign Capital Continues Mounting in US; More Money Moving into Secondary Markets and Product Types
LaSalle Investment Management Among Most Successful Fundraisers; Awarded $1 Billion to Invest in U.S. Real Estate by European Institutional Investor
September 3, 2014
An abundance of foreign private equity capital continues to stream into U.S. commercial real estate, both in top tier and secondary markets, with new funds and new purchases continuing to show up weekly.
Late last monthj, LaSalle Investment Management, a leading global real estate investment manager, was awarded $1 billion of equity to invest in U.S. real estate by an unnamed large European institutional investor.
The new mandate will seek direct real estate investment opportunities across all property types in primary -- and top secondary markets in the U.S.
"We continue to see strong interest from sophisticated investors from around the globe in more customized strategies like this one targeting the U.S. commercial real estate market," said Jason Kern, LaSalle Americas CEO.
Kern said he expects continued economic growth and improving real estate fundamentals over the next few years will support ongoing changes in demographics, technology and urbanization to provide investors with attractive risk-adjusted investment returns across most major property types in the U.S.
Earlier in the month, Beijing-based Wanda Group, sped up its move into global real estate and entertainment. The Chinese conglomerate won the bidding for a plot of land at 9900 Wilshire Blvd. in Beverly Hills, where Wanda Group plans to invest $1.2 billion to build a mixed-use development.
Wanda beat out more than 10 bidders from Asia and North America to acquire the Los Angeles development site, widely, located in a prime luxury residential area walking distance from Rodeo Drive.
In terms of capital investment, a reported 29% of private real estate investors are intending to put more capital to work in the next 12 months than they did in the previous year, according to Preqin, an alternative investment data and research firm.
Overall nvestor activity in private real estate funds including U.S. investors has increased in the last 12 months, showing that 52% of institutions it surveyed this month had committed to funds in the past year, representing an upward trend from the low of 2011, when just 34% of investors were active in the year.
Increasing institutional appetite for real estate investment is reflected in increasing amounts of capital raised. In the first half of 2014, a total of $43 billion was raised by 80 funds reaching a final close, compared to $33 billion raised by 112 funds in the first half of 2013.
Internationally, many investors continue to favor investing in the U.S., with Asia-based investors seeking the most geographic diversity, Preqin noted in its just released Investor Outlook: Alternative Assets H2 2014.
According to Preqin's outlook, Europe-based investors are marginally more likely to invest in the next 12 months than investors based in North America and Asia, with 38% planning to make new commitments, compared to 32% and 37% respectively, Preqin noted. A larger proportion of Europe-based investors are also considering making new commitments than institutions based in other regions.
Private real estate investor appetite for core investments has seen a surge in the last six months, increasing from 43% of institutions targeting the strategy in December 2013 to 60% in August 2014, according to Preqin.
One of the notable such deals is Melia Hotels International, one of the world's largest resort hotel chains, which announced its first property in the U.S.
Under the ownership of the private-equity, alternative investment manager CGI Merchant Group, Melia Hotels will take over the current location of Casa Moderna Hotel at 1100 Biscayne Blvd. in downtown Miami. The same area will host London architect Zaha Hadid's first skyscraper designed for the Western Hemisphere, the 706-foot Museum condo tower at 1000 Biscayne Blvd.
"The opening of ME Miami represents a significant undertaking for CGI, one that spanned two years and comprised a substantial financial commitment, a tremendous amount of resources, as well as exhaustive due diligence to find a partner befitting of such a significant project for downtown Miami," said Raoul Thomas, CEO of CGI Merchant Group.
According to Preqin, appetite for value added funds has also increased over the first half of the year, from 49% to 60% respectively, demonstrating that investors are targeting a wide range of strategies across the risk spectrum.
In this category, Nassau, The Bahamas-based Sterling Financial Group launched its New Providence Opportunity Fund, a closed-end equity investment fund consisting of high net worth and institutional investors, which targets diverse real estate investment and development opportunities in the United States, Canada and the Caribbean.