Global Viewpoints

Foreign Buyers Take More Prominent Role in UK Property Market

By Melissa Securda

A report recently released by Jones Lang Lasalle Research indicates foreign investment will continue to heavily impact the UK’s investment market. Despite a nearly 60% drop in investment activity, mostly stemming from a lack of available financing, almost 40% of year-to-date transactions originated from foreign buyers.

Buyers from the Middle East have targeted trophy assets in London’s property market since the early 1990’s, but activity from Abu Dhabi, Kuwait, and Qatar, among others, has picked up in the past few years. St. Martin’s Property Group, a property company from Kuwait, was responsible for the UK’s largest investment transaction in 2008, the £390 million sale of the Willis Building by British Land Company.

Despite the uptick in Middle East-based investment activity, German investors accounted for the largest figures of foreign investment activity, totaling £1.6 billion year-to-date. US and Irish investors accounted for a large portion of foreign investment into the UK this year and still show interest in further acquisitions in Central London. According to the report, “German, Middle Eastern and American investors were dominant purchasers representing nearly 67% of total net overseas investment.”

The UK property market is experiencing a marked pricing correction, and coupled with the UK’s declining currency, acquiring assets in the UK is very attractive to foreign buyers. The report indicates that market conditions will remain suitable for more foreign investment in the coming months.

Creative Strategies for Identifying and Managing Risk in Your Portfolio

By Jennifer Brenner Andrade

Each night, it seems, the financial world including commercial real estate, goes to bed holding its collective breath, hoping for the great financial thaw. Each morning, this same group wakes to take in the dramatically changing landscape of this new economic battlefield.

It is in such a climate, that it becomes incumbent on property owners and asset managers to find strategies to better understand risk in their properties and portfolios and quickly estimate the impact of this changing environment to their bottom line.

Strategies:

• Identify Risk by Tenant Activity
  The International Council of Shopping Centers has forecasted unprecedented retail store closings due to the economic downturn. Office space as well is facing increasing vacancy rates. When faced with tenant vacancies due to bankruptcies, store or office closings, explains Michael Tuman, ARGUS Software’s vice president of product management for the ARGUS Asset Management solution, commercial real estate professionals will want to quickly assess the impact of these vacancies on their bottom line.
  
  “A traditional property management solution will only provide you with basic lease info,” says Tuman. “But a portfolio management tool like ARGUS Asset Management will immediately forecast the impact of tenant changes to your cashflow statement, portfolio rollup, projected rates of return and other key financial indicators.”
  
  
• Restructuring Loan Portfolios
  As companies steer through these uncertain times, continues Tuman, they will need to create a window into the future. Analyzing loan and partnership structures is an important step in understanding what options are available. Property owners and lenders may want to consider opportunities such as taking on new equity partners, or renegotiating the existing financing.
  
  
• Adjusting Assumptions and Projections to Rapidly Changing Market Conditions
  “To prevail in the current climate,” says Tuman, “property owners and asset managers will also need to sensitize variables or assumptions simultaneously across their portfolios.”
  
  Working with unwieldy spreadsheets can add hours or days to an analysis when in reality, there may exist only short windows to make decisions.
  
  “ARGUS Asset Management was built to model complex and changing variables very quickly,” he adds.
  
  These variables include changing inflation, lease downtime, market leasing rates, interest rates, renewal probabilities and rent incentives among others.

Concludes Tuman, “In uncertain times, people in our industry have consistently looked to our asset management application to assess their position in a rapidly changing market.”

To learn more about how ARGUS Asset Management can help you identify and manage the risk in your portfolio, please join us for an informative webinar on Thursday, November 13, 2008 at 1pm CST, click here to sign up!

AMB Property Inks 267,000-SF Industrial Deal in Shanghai

Source: AMB Property

 

AMB Property Corporation has pre-leased more than 267,000 square feet (approximately 24,800 square meters) at AMB Beilun Port Distribution Center, a development located in the Ningbo Economic & Technological Development Zone (NETDZ), one of China's premier business and port areas.

Globe Express Service Co., Ltd., a third-party logistics company with global operations, and Ningbo Ruiyuan Logistics Company, a container consolidation operator, have leased approximately 139,000 square feet (12,900 square meters) and 128,000 square feet (11,900 square meters), respectively. The facility will serve as a global distribution center for a European retail customer of Globe Express.

"Ningbo continues to be one of the strongest ports in the world with more than 17 percent cargo growth year-to-date," said Guy F. Jaquier, AMB's president, Europe & Asia. "Our success in this key global trade market is underscored by strong leasing activity at our AMB Beilun Port Distribution Center development prior to completion of construction.”

As of September 30, 2008, AMB's Asia presence totaled more than 14.6 million square feet (approximately 1.4 million square meters). AMB's China portfolio totals more than 2.6 million square feet (approximately 241,900 square meters) of operating and development properties.

Sustainability and Well Being Rank High in Australian Office Tenant Study

By Melissa Securda

Colliers International recently presented results from the Colliers International 2008 Office Tenant Survey, a study providing a closer look at trends among large office tenants located throughout Australia. The findings show that sustainability and workplace well being were among the most important factors to decision makers.

Nearly 50% of respondents reported having a process for evaluating environmental performance, such as measuring their carbon footprint. According to the study, as tenants become more environmentally aware it, “results in higher expectations in the efforts of building owners to improve environmental performance.”

In addition to a greater environemental sensitivity, the study found that more tenants are on the move today. Nearly 50% of respondents have recently relocated or plan to relocate in the next three years. The major drivers contributing to tenant relocation include expansion, consolidation, location and environmental performance.

The study indicates that workplace design has evolved to allow for team collaboration and knowledge sharing, but the important focus remains on staff wellbeing and sustainability. Colliers International Commercial Research Director Felice Spark said, “The changes show that tenants are noticing a big change in staff demand for environmental sustainability in their workplace. The push is coming from their people and so it has become a major issue in staff attraction and retention.”

“Tenants have noticed staff are not automatically accepting the traditional office set up. They want to work in new, modern workplaces and they are very environmentally aware,” she said.

Tameer’s Eye Park Pioneers Sustainable Development in Dubailand

Source: Tameer Holding

In a move that reflects the growing tide of environmental awareness around the world, regional developer, Tameer Holding, has announced the launch of its new, LEED-certified sustainable project in the heart of the Arjan district in Dubailand – Eye Park.

Comprising two symmetrical sets of three mixed-use towers facing each other over a central oasis, the elegant, functional and modern Eye Park is a sustainable development project that will have significantly less environmental impact than most buildings in Dubai. Together, the towers will comprise a total built-up area of close to two million square feet that offers 1,370 luxury units, a resort-like amenity floor, boutiques and restaurants, and ample parking.

The design of the towers is an eclectic combination of elegance and stylish modernism that will provide an Art Deco feel, reminiscent of 1920’s New York. Each of the Eye Park towers will sit atop a graceful podium, adjoining a central park plaza filled with oasis palms and water, while the curved façade of the base of the towers will echo the central ‘eye’ at the centre of the park. Dramatic lighting will transform the towers into columns of light visible for miles around.

Speaking of the project, Tameer CEO, Ghassan Sakhnini, stated that the Eye Park project directly represents Tameer’s commitment to continue to provide exactly what its clients and investors are looking for, and to remain ahead of the rest when it comes to globally important issues such as ‘green’ building and sustainable development.

Mr Sakhnini said, “At Tameer we believe that our clients and investors have an important role to play in our business, and so we listen to what they have to say. We have chosen to develop the state-of-the-art, sustainable Eye Park project as a result of the increased interest in sustainable development and the environment, and to demonstrate to our clients and investors that we see eye-to-eye with them on these important matters.”

Eye Park’s design and development team will adhere strictly to the guidelines of the Leadership in Energy and Environmental Design (LEED) Green Building Rating System, and has already been registered with the World Green Building Council for silver certification in the ‘New Construction’ and ‘Core and Shell’ categories. The fact that there are comparatively few LEED-certified projects in Dubai makes the Eye Park development exceptional in ways going beyond aesthetics and design, and providing yet another differentiating factor.

“The design team have taken the issue of the sustainability of Eye Park very seriously, and have implemented sustainable design features across all areas of the project, including landscaping and site, energy and atmosphere, and materials and resources, in order to decrease the environmental impact of the project as much as possible,” added Mr Sakhnini, “and we have also ensured that Eye Park adheres to the Arjan Sustainable Design Principals.”

Located in Dubailand, Arjan is an 11 million square foot mixed-use development inspired by the glamour of 1920’s New York architecture combined with modern building techniques, and forms Dubai’s top location for a self-sustaining community. Residents and visitors will be able to enjoy eco-friendly living among the district’s interlinking elliptical boulevards, pedestrian plazas, inspiring water features and themed entertainment and cultural centres. And by focusing on indigenous resources, climate and energy efficiencies, Arjan will minimise its contribution to global climate change, making it an even more compelling place to live.

Westfield Group Opens New Melbourne Shopping Centre

By Jennifer Brenner Andrade

The Westfield Group, a Sydney-based shopping centre group with 118 shopping centres across Australia, the US, the UK and New Zealand, has opened the Westfield Doncaster in the affluent eastern suburbs of Melbourne. Westfield owns the centre along with its joint venture partner LaSalle’s Asia Property Fund.

The $600 million redevelopment opened fully leased and ahead of the project’s financial forecasts, according to a statement released by Westfield. The project included doubling the size of the centre to 120,000 square metres with approximately 420 stores.

Westfield plans for the centre, which was officially opened by the Premier, The Hon. John Brumby, to become the Group’s flagship centre in Victoria. Other key premium centres in Westfield’s portfolio include the Bondi Junction in Sydney, Century City in Los Angeles, the San Francisco Centre and the Westfield London which will open in approximately two weeks. These centres represent landmark destinations  that Westfield is developing globally.

The Doncaster project has been delivered at a yield of 8.75%. This yield has exceeded the Group’s target yield range of 7.75-8.25% and has been achieved from increased rental income as well as construction cost savings.

The new Westfield Doncaster will serve its high-income trade area with a selection of leading local and international designer brands, a new David Jones, a refurbished Myer, Coles and Safeway supermarkets, Target and Big W discount department stores, a fresh food market, restaurants, food court and state-of-the-art Village Cinemas.

The centre also features a range of high quality ‘luxury’ retailers, as well as a number of new customer service initiatives together with parking for 5,000 cars.

ULI Report Says CRE to Hit Bottom in 2009

Source: Urban Land Institute

Real estate industry experts expect financial and real estate markets in the United States to bottom in 2009 and then flounder for much of 2010, with ongoing drops in property values, more foreclosures and delinquencies, and a limping economy that will continue to crimp property cash flows, according to the Emerging Trends in Real Estate® 2009 report, released yesterday by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP.

“Commercial real estate faces its worst year since the wrenching 1991-1992 industry depression,” conclude industry experts interviewed for the report, which projects losses of 15 percent to 20 percent in real estate values from the mid-2007 peak.

“Only when property financing gets restructured will pricing recorrect so we can find the floor; and this transition could wipe out companies and people,” says one respondent interviewed for the report.

Now in its 30th year, Emerging Trends is the oldest, most highly regarded annual industry outlook for the real estate and land use industry and includes interviews and survey responses from more than 600 leading real estate experts, including investors, developers, property company representatives, lenders, brokers and consultants.

In general, interviewees believe that financial institutions will continue to be pressured into moving bad loans off balance sheets, using auctions to speed up the process. Investors will be discouraged until the “bloodletting” is over, states the report. When that occurs, cash and low-leverage buyers will be “king;” surviving banks will impose strict lending guidelines; commercial mortgage-backed securities will revive, but in a more regulated form; and opportunity funds will need new investment models.

“The industry is facing multiple disconnects,” said ULI Senior Resident Fellow for Real Estate Finance Stephen Blank. “Many property owners are drowning in debt, lenders are not lending, and for many (industry professionals), property income flows are declining. There is an unprecedented avoidance of risk. Only when financing gets restructured will pricing reconcile, giving the industry a point from which to start digging out of this hole.”

“The cyclical real estate markets always comes back, and they will this time too, but not anytime soon,” said Tim Conlon, partner and U.S. real estate sector leader for PricewaterhouseCoopers. “Commercial real estate was the last to leave the party, will feel the pain in 2009, and may be the last to recover. In the meantime, smart investors are going to hunker down and manage through these tough times. We expect to see patient, disciplined, long-term investors rewarded, and return to a back to basics approach to property management, underwriting and deal structure.”

Distress in the housing market is benefiting the apartment market, which the report lists as the number-one “buy.” Moderate-income apartments in core urban markets near mass transit offer the best buy, a trend that carried over from the previous year.

The report acknowledges that commercial markets will recover more quickly than most housing markets, and homebuilders may have to sell land tracts for “cents on the dollar” or face foreclosure on their holdings, adding to the already high rate of mortgage defaults and foreclosures.

The main beneficiaries of the real estate downturn in the U.S. are cash-rich offshore buyers, whom the report predicted will continue to take advantage of the weak dollar, and will buy trophy properties in major 24-hour cities. But, Emerging Trends cautions, “The industry shouldn’t blindly count on a restored well-spring to jump-start transactions and development. The dynamics of capital markets have changed dramatically.”

Noted one respondent: “It’s hunkering down time where the initial winners will be companies that can out-lease and out-manage their competition.”

One silver lining: Interviewees agreed that eventually, savvy investors will be able to cash in on the inevitable recovery, which some see occurring as early as 2010. “Money will be made on riding markets back to recovery and releasing properties, not on…financing structures,” finds the report.

Before a rebound, Emerging Trends says the following needs to happen:

• Private real estate markets need to correct – lenders must force distressed owners to become motivated sellers.
• Debt capital needs to flow – lenders will need to learn to deal in a more stringent regulatory landscape. The commercial mortgage-backed securities (CMBS) market must “reformulate.”
• Regulators need to restore confidence in the securities market. The government will insert itself into overseeing mortgage securitization markets. Systemic overhaul promises more measured debt flow.
• The economy needs to improve. Falling demand for space won’t affect real estate markets severely until 2009.
• The housing condition is no better and shows no signs of recovering quickly. For lenders, the “subprime mess is the tip of the iceberg.” Stricter lending standards and the weak economy will continue to drain the homebuyer market. “Forget the quick fix!”

Best Advice for 2009:

• Investors should sit tight. Opportunities will surface at significant discounts.
• Buy discounted loans.
• Recap distressed borrowers – invest in maturity defaults, construction loans/bridge loans, or take mezzanine positions and equity stakes in properties.
• Invest in publicly-held real estate investment trusts (REITs) – they will lead the market’s recovery.
• Focus on global pathway markets – 24-hour coastal cities.
• Staff up asset managers, leasing pros and workout specialists. Separate good assets from bad.
• Retrench on development and reorient to mixed-use and infill. Higher-density residential with retail will gain favor in next round of building.
• Go green – cutting energy expenses is likely to be a priority.
• Buy or hold multi-family; hold office; hold hotels; buy residential building lots, but be prepared to hold.
• Purchase distressed condos in urban areas near transit.
• Focus on neighborhood retail centers with strong grocery anchors and chain drugstores .

Markets to Watch

In terms of investment, Seattle and San Francisco take the top two rankings, beating out New York City, which has traditionally been ranked at the top for investment prospects. For 2009, New York slips to fourth place, ranking after Washington D.C. Los Angeles “holds its own” in fifth place, but suburban areas outside that city, specifically the housing market in Riverside and Orange County will suffer. Las Vegas and Phoenix get “blown out,” while Florida markets are described as in “disarray.” Markets in the Midwest continue to lose more ground; however, Chicago manages a “fair” ranking in the region-wide decline. Meanwhile, the relative position of Texas markets has improved due to the oil industry.

DTZ Appoints New CEO

Paul Idzik will take the helm of DTZ Holdings plc as group chief executive officer.

Paul, who will join the company and the board on 3 November 2008, was chief operating officer of Barclays PLC from 2004 to 2008. Previously, he held the chief operating officer role for Barclays Capital Limited. Prior to the roles at Barclays, Paul was a partner at Booz, Allen & Hamilton, now Booz & Co.

The appointment follows DTZ's announcement in June 2008 that Mark Struckett, who has been DTZ's chief executive officer since 1994, had decided to step down from the board. He will remain with DTZ in an advisory capacity.

Tim Melville-Ross, DTZ's chairman, said: "Paul's proven track record of running a significant international business will be invaluable as we continue to grow and diversify DTZ. In particular, his experience of developing people and building teams to meet evolving client requirements across the global markets and his client-facing ethic is ideally suited to our business strategy. We will also undoubtedly benefit greatly from his insight into the financial markets during these challenging times.

"The board would like to take this opportunity to thank Mark for his substantial contribution to the group's development and, latterly, for his flexibility and commitment in ensuring a smooth transition to his successor. It is testament to Mark's leadership that under his stewardship, DTZ has expanded rapidly in geographic reach and depth of service, with a global team now comprising over 12,500 people in 150 cities operating in 45 countries. We wish him every success in his future career."

Paul Idzik commented: "It is a pleasure to accept the reins from Mark to help take DTZ to its next level of performance. DTZ's commitment to client focus and its evolution to date provides an attractive platform for future progress. I look forward to working with my new colleagues through these tough market conditions, positioning the company for strong future performance."

Mark Struckett, DTZ's group chief executive, said: "I have really enjoyed my 14 years as chief executive at DTZ and I am delighted we have found someone of Paul's stature to take over the role. I would like to thank all my colleagues for their help and support over the years and for driving the company's strong development during that period."

Hines Fund Buys Frankfurt Office Building

By Jennifer Brenner Andrade

The Hines Pan-European Core Fund (HECF) , a Euro-dominated fund managed by international real estate firm, Hines, has acquired Marienstrasse 15, a 6,400 square meter, six level office building in Frankfurt, Germany.

Located in the heart of Frankfurt’s CBD, the 16-year-old building is home to part of the German headquarters for Allianz Global Investors (AGI), the wholly owned asset management arm of the Allianz Insurance Group.

HECF acquired the asset from DEGI, the Deutsch Gesellschaft fur Immobilienfonds mbh. HECF's fund manager, Andreas Schreurs, said in a prepared statement that this acquisition marked the re-entry of the fund into the Frankfurt marketplace and called the building “a fundamentally sound asset with a solid tenancy.” Hines currently has 400,000 square meters of projects completed or in the pipeline in Germany.

Discount Retailers Thrive

By Melissa Securda

Trends in the retail real estate industry reflect today’s challenging economic times. Real estate investment brokerage firm Marcus & Millichap estimates 7,000 retail store closures nationwide by year’s end. Numerous retailers have announced plans to scale back or completely halt expansion plans.

However, stores popular with value-oriented shoppers are fairing much better. Family Dollar Stores saw sales increase 8.2% from fiscal-year 2007, and the chain expects to open 200 new stores over its next fiscal year with additional plans to renovate 200 existing locations. Membership warehouse retailers, such as Costco, will continue to see successful sales figures as consumers consolidate shopping trips to not only save money on basic consumer goods and groceries, but also on fuel costs.

The National Association of Real Estate Investment Trusts (NAREIT) shows Tanger Factory Outlet Centers Inc., a REIT with 31 discount shopping centers in 22 states, gained 22% in the third quarter. During an economic slowdown, consumers tend to purchase more groceries and eat out less. REITS invested in grocery or big box anchored shopping centers also posted gains, according to the NAREIT index.

Despite the sluggish economy, discount and value-oriented retailers should see steady sales during the approaching holiday season as shoppers look for reduced prices, but it is too soon to tell what the overall impact will be on the retail industry.