Development

Four Trends in Foreign Investment in U.S. Industrial Real Estate

File Type: Free Content, Article
Release Date: July 2015
I.CON 2015

In their search for asset preservation and yield, foreign investors have an almost insatiable appetite for U.S. industrial real estate. In a sea change from just a few years ago, foreign investors are:

  • Pouring new capital into U.S. real estate markets;
  • Moving to secondary markets out of traditional CBDs;
  • Investing for long term—up to 30 years—rather than just four or five years; and
  • Making the deals themselves, rather than going through intermediaries.

These were key takeaways from a session at I.CON, The Industrial Conference, June 10-11, 2015 in Long Beach, California, titled “Industrial Investment Outlook.”

More Money Chasing Deals

The amount of capital that is now pouring into industrial real estate investments is a big change from just a few years ago, noted Christopher Chang, vice president, Goldman, Sachs & Co. He said that one investment group with $800 billion under management wants to move five percent of its assets into real estate. “That five percent is about $4 billion to deploy in this sector,” he remarked, “ and that is just one entity. As you go across the globe, in Europe, in Asia, in Canada, you see increasing allocations to real estate across the board.”

Secondary Markets

The other shift that Chang is seeing from just a few years ago is a focus away from the CBD areas and “the shiny office buildings that they could show off to colleagues.” Most of these investors, in his estimate, are searching for yield and finding it in industrial real estate investments, often in secondary markets.

Investing for Long Term

Foreign investors are also looking for long-term investments, perhaps 30-year commitments. In the past, they wanted to invest for around five years, explained Stanley Alterman, executive managing director, USAA Real Estate Company. “I think a lot of these foreign investors are looking for capital preservation. Tax issues drive many of the structures.”

Making Deals

Chang said that the move into industrial real estate by many foreign investors is being driven by where they see opportunities. “The decision-making process is becoming much more sophisticated. In the past, they looked to co-invest with certain parties,” said Chang. “Today, they have opened up their own U.S. offices and they have built out their own investment platforms in the U.S. and they underwrite these deals on their own.”

What Inning Are We In?

At the I.CON 2015, moderator James Carpenter, executive director, Cushman & Wakefield, Inc., asked panelists at the “Industrial Investment Outlook” session, if commercial real estate were a ball game, what inning would we be in relative to current capital markets and leasing activities? Below are their responses.

Panelist

Capital Markets Inning

Leasing Markets Inning

Nicholas Anthony, EVP & CIO, Duke Realty

6th inning

6th inning

Thomas Wang, partner, Exeter Property Group

5th inning

7th inning

Stanley Alterman, executive managing director, USAA Real Estate Company

5th inning

7th inning

Christopher Chang, vice president, Goldman, Sachs & Co.

“In between games of a double header
in an extended recovery.”