This Finance & Commerce article discusses the growing interest of foreign investors on US real estate.
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| Investors are showing increased interest in U.S. real estate, especially in areas like New York’s trendy Meatpacking District (pictured). According to Brookfield Financial Corp., three buildings in the district sold recently to a U.S. investor for $105 million. (Bloomberg News file photo) | Image Source: finance-commerce.com |
Brookfield Financial Corp. received 179 expressions of interest for a property sale it advised on in New York’s trendy Meatpacking District this year. More than half were from abroad, said President Brydon Cruise.
Interest in the three-building storefront and apartment complex is just one sign of the insatiable foreign demand for U.S. office and retail property as the country rebounds from the financial crisis, according to Cruise, head of the Toronto-based investment-banking unit of Brookfield Asset Management Inc. “In the U.S., people were terrified for years — that’s changed,” Cruise, 49, said in an interview at Bloomberg’s Toronto office last week. “Now there’s a massive amount of foreign interest in the U.S. and we’re trying to grab it. The recovery’s real.” Brookfield Financial, which advises buyers and sellers of so-called real assets including energy grids, commercial and residential towers, and highways, is aiming to double its revenue for 2014 over last year to C$100 million ($92 million). The firm, which counts Royal Bank of Canada and Eastdil Secured LLC, a Wells Fargo & Co. subsidiary, among its competitors, plans to capture foreign investors piling into large U.S. cities as the currency and investor comfort strengthens.
Cruise relocated to New York from Toronto last month and announced the appointment of Dan McNulty, former president of Rockwood Real Estate Advisors LLC, as partner in the city last week. Brookfield Financial also opened an office in Houston last month and is considering opening offices in South Korea and Dubai. With 160 employees, the company is expanding and looking to open more offices in the U.S. and the other seven countries it operates in — Canada, Brazil, Australia, India, Germany, and Hong Kong.
Rents rising
New investment in offices in major U.S. cities last year rose to $52.2 billion, 29 percent more than the prior year, and the most since 2007 when commercial properties netted $107.8 billion, according to data compiled by New York-based industry researcher Real Capital Analytics Inc. New investment in commercial real estate, including apartment buildings, office properties and strip malls, has more than quadrupled in value since 2009, the data show. The figures are based on reports of properties and portfolios valued at $2.5 million and above. The buildings in the Meatpacking District, where Google Inc. has its largest global sales office, sold to a U.S. investor for $105 million, Cruise said. He declined to name the company that won the bid, citing confidentiality.
Mobile capital
Driving the recovery is a global search for returns as bond yields slide anew, said Cruise. About $15 trillion in institutional money globally will move from bonds and equities into real assets, including office buildings and infrastructure, by 2020, according to Brookfield data. A strengthening greenback has also been a draw. The U.S. currency has gained 11.5 percent this year against a basket of 10 global currencies that Bloomberg tracks.
“There’s more money than assets,” Cruise said. “Everything I’ve known for 26 years from a value perspective has completely changed.” Real estate and infrastructure is “well valued” in so-called gateway cities, he said, such as New York, London, and Hong Kong. “It’s crazy — you can’t get into those markets.”
Symbiotic relationship
Brookfield Financial and Brookfield Asset Management, which oversees $175 billion in assets, benefit from operating under one umbrella, said Mark Rothschild, an analyst at Canaccord Genuity Corp.
“BAM does a lot of deals so having the expertise inside the company to analyze different deals and understand the market is of value,” he said from Toronto. Brookfield Asset Management has returned 164 percent, including dividends, over the past five years, compared with 60 percent for the S&P/TSX Composite index, Canada’s benchmark equity gauge.
Ten percent of Brookfield Financial’s advisory work leads to deals for the parent company, Brookfield Asset Management, according to Cruise. Brookfield Financial has advised on at least 600 transactions worth $50 billion, including helping Dallas-based private equity firm Lone Star Funds sell C$1 billion of 295 German retail and office buildings to Dundee International REIT in 2011, Cruise said. Toronto-based Dundee listed on the Toronto stock exchange to fund the transaction. The firm, now called Dream Global Real Estate Investment Trust, has rallied 15 percent this year, the best performer on the Standard & Poor’s/TSX Capped REIT Index.
Germany, Asia
Brookfield offices in South Korea and Dubai would focus on drawing foreign investors to deals in Europe and North America, Cruise said. He was in the Asian country in November, meeting with pension funds and private equity firms as an investor from the country wanted to buy a German client’s office buildings.
“A lot of new foreign capital guys have just started going cross-border,” Cruise said. “If you go to Asia — mainland China, Korea, Japan — they don’t go cross-border all that often, but it’s really enhancing right now. What they always need on their first deal is strong on-the-ground local support.” Brookfield also works with clients on private-public partnerships and recently won the mandate to advise on the A$1 billion ($920 million) Perth Stadium in that would be their largest so-called P3 deal. The project will yield about A$9 million in fees, Cruise said. Cruise also says he has his eye on Spain and Portugal, though his priority right now is building out the U.S. “I am completely convinced it’s the future of Brookfield Financial,” he said.
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