U.S. Office Market to Benefit from Surge of Foreign Capital, Says Office Roundtable
MIAMI — Volatility in world markets affected capital flows to the U.S., contributing to a slowdown in office deals in the first quarter of 2016, but foreign funds are expected to surge in the second half of the year, according to an office roundtable held at Accesso Partners’ second annual Capital Markets Conference in Miami. Commercial brokerages attending the conference included CBRE, Eastdil Secured, JLL, HFF, NAI Global and NGKF.
The majority of brokers in attendance said the opportunities today are in Class A suburban office properties with walkable amenities.
“In almost every market, there are trophy suburban assets that offer a stronger risk-adjusted return than comparable properties in the central business district,” said Jim Postweiler, managing director of JLL’s Chicago office. “In strong submarkets, a suburban property can command yields that are difficult to obtain in CBDs today.”
Other brokers and office acquisition specialists said office towers and mid-rise buildings in CBDs are experiencing rising demand from institutional investors eager to invest in “repositioned” assets.
“There is still good leasing activity in these markets and more importantly, a good rent growth story,” said Will Yowell, vice chairman of CBRE’s Atlanta office. “We think the markets have another 18 to 24 months of solid growth.”
Foreign Capital Flows Rising
Global capital flows were a major focus of the conference. Foreign capital flows into Class A and B office properties are gaining momentum worldwide. Aside from foreign capital moving into primary markets such as New York and Washington D.C., Tim McDonald, director of Eastdil Secured’s Washington, D.C., office cited equity from Japan, South Korea, Israel, Germany, Norway and Latin America now entering the U.S. and targeting high-growth secondary markets such as Nashville, Charlotte, Austin, Miami and Atlanta.
Brokers in Minneapolis say the city is attracting “cross-border capital” from Canada as well as global capital.
“We’re seeing interest from banks and other institutional players in Germany, the Middle East, South Korea,” said Steve Buss, executive vice president of CBRE Minneapolis. “They aren’t making deals yet but they continue to look hard at the CBD office market. Regarding Canada, we recently traded an asset called Canadian Pacific Plaza in Minneapolis for a Canadian REIT. REITs are a significant acquirer of assets.”
In addition to institutional investment coming from overseas, interest from high-net-worth individual investors is increasing, according to Claudio Dombey, Accesso Partners’ managing partner of investor relations.
“In 2015, we acquired four large Class A office properties in Atlanta, Austin and Chicago encompassing 3.2 million square feet, and the funds came largely from foreign institutions and Latin American private investors. Their interest in the secondary market is growing steadily as they search for yield from high-quality, high-performing assets,” said Dombey.
The first half of 2016 saw a flood of sellers redeploying capital. Michael McDonald, managing director of Eastdil Secured’s Atlanta office, said the volume of properties coming to market was the highest he’d ever seen.
“There is an unbelievable surge of assets coming to market, more than ever before,” said McDonald. “But we’re also seeing more conservative, more cautious buyers. A high percentage of contracted transactions from the second half of 2015 did not trade. But that caution may disappear in the second quarter.”
Savvy Investors Eye Houston
Houston’s office market is still a big question mark today due to the dip in oil prices, several brokers pointed out at the conference. Although there is apprehension among some investors for office assets in Houston, the broker roundtable concluded there is still opportunity in the market.
“Houston is quiet, but it is still the fourth largest MSA in the U.S. and there is still so much offshore capital that understands and accepts cycles that continues to look at the market,” said Eastdil Secured’s McDonald. “Even though companies are building their own office campuses, we really haven’t felt the pain yet on the real estate side.”
Marty Hogan, director of HFF’s Houston office, also finds the city “very quiet.”
“There is a lot of apprehension from owners to put product on the market. There have been so many layoffs and companies are building office campuses,” said Hogan. “There are opportunities for investors who believe in Houston long-term to make strategic acquisitions.”
Brokers Bullish Long-Term
Overall, brokers were upbeat about the long-term outlook for office assets.
“If there is a coming-down cycle, it will probably be very, very shallow,” said CBRE’s Yowell. “Looking out from Atlanta, we’re seeing a very strong economy.”
The conference was wrapped up by Ariel Bentata, managing partner of investments for Hallandale Beach, Fla.-based Accesso Partners, who spelled out the firm’s 2016 acquisition scenario and strategy as an active buyer of Class A office buildings.
“We have a great appetite this year to add office assets in our existing markets and explore new markets. In 2015, we did $600 million in acquisitions and this year we can double that,” said Bentata.
Accesso Partners LLC is a full-service commercial real estate investment manager, owner and operator. The company’s focus is on acquiring commercial office properties in Class A locations in the largest, fastest growing metropolitan cities and premier suburban submarkets throughout the U.S. Accesso’s property portfolio include 41 office properties spanning 13 million square feet. Accesso Partners LLC is headquartered in Hallandale Beach, Fla., and has offices in Atlanta, Chicago, Dallas, Houston and Minneapolis.
— Staff reports