Monday, September 17, 2012

Valley in top 10 in US for foreign investors

For the first time, metro Phoenix was among the top 10 U.S. markets in terms of foreign investment in commercial-real-estate assets in the second quarter.

Local real-estate analysts said a number of factors contributed to the boost in foreign investment in Phoenix, including a dearth of attractive, available commercial properties in coastal U.S. cities and the stabilizing of Phoenix-area real-estate prices.

While Canadians have dominated the Phoenix area's offshore commercial-real-estate investment activity in recent years, there also have been purchases by European, Middle Eastern and Asian investors, analysts said.

More foreign investment in local office, retail, industrial and apartment properties would help bolster the Phoenix area's commercial-real-estate market, which has been slow to recover from a severe downturn that began in 2008, some analysts said.

"In the past, Phoenix has not been a magnet for offshore investment," said Dennis Desmond,senior managing director of commercial-real-estate firm Jones Lang LaSalle in Phoenix. "It's a great sign for Phoenix to see that type of interest from offshore investors."

Others warned that too much foreign investment in metro Phoenix could have the effect of siphoning precious revenue from the local economy. Time will tell whether the increase in offshore real-estate investment in metro Phoenix is a trend or an anomaly, analysts said.

In the second quarter, foreign investment in Phoenix-area commercial-real-estate totaled about $317 million, according to a report issued in late July by Jones Lang LaSalle Capital Markets Research.

That was enough to place metro Phoenix at No. 10 on the list of U.S. markets with the most foreign commercial-real-estate investment activity, according to the report.

New York topped the list with just over $1 billion in offshore real-estate investment in the second quarter, the report said, followed by San Francisco, with foreign real-estate investment totaling roughly $685 million.

Desmond said it was the first time Phoenix has broken the top 10 in the quarterly report, known as the Global Capital Flows Report.

The report includes purchases of existing office, industrial, retail and apartment properties but does not include residential investment such as single-family-home purchases, Desmond said.

Nor does it include raw land purchases or capital investment in the construction of new buildings such as manufacturing and retail facilities, he said.

Two large office purchases by a Canadian real-estate investment trust, or REIT, contributed significantly to Phoenix's placing on the top-10 list in the second quarter, Desmond said.

Artis REIT, based in Winnipeg, purchased north Scottsdale multitenant office building MAX at Kierland, 16220 N. Scottsdale Road, for $79 million and the GSA Phoenix Professional Office Building, 21711 N. Seventh St., in Phoenix, for $75 million, both in the second quarter.

The GSA building is the local headquarters for the FBI.

Those two purchases totaled $154 million, nearly half the Phoenix area's total for offshore commercial-real-estate investment in the second quarter.

Artis representatives said MAX at Kierland was an attractive investment because it is a certified "green" office building by the U.S. Green Building Council, has a relatively high parking ratio of 3.5 spaces per 1,000 square feet and serves as the corporate and regional headquarters for several multinational corporations including Universal Technical Institute.

The GSA building also was good investment because it is a certified green building and was 100 percent pre-leased by the federal government for 20 years, the company said.

Artis owns several other Phoenix-area commercial properties including a 100,000-square-foot industrial building at 7499 E. Paradise Lane, in Scottsdale; the Humana Building, 91 W. Glendale Ave., in Glendale; and Union Hills Office Plaza, 2550 W. Union Hills Drive, in Phoenix.

In all, there have been 11 commercial-real-estate purchases of at least $10 million in metro Phoenix by foreign investors since January 2010, Desmond said.

Desmond said continued economic uncertainty in Europe may encourage more European real-estate investors to seek out properties to buy in places such as metro Phoenix.

In general, U.S. real estate always has been attractive to offshore investors for a number of reasons, said Mark Stapp, director of the Master of Real Estate Development program at Arizona State University's W.P. Carey School of Business.

Most important, there are no barriers or restrictions that would prevent or limit foreign investment in American real estate, Stapp said.

"Anybody can show up here and buy a piece of real estate and have the same ownership rights as a U.S. citizen," he said.

Another appealing aspect of the U.S. as a place for real-estate investment is its political stability, Stapp said. There's a minuscule risk of losing the property because of a government overthrow or civil war.

Beyond the general appeal of U.S. real estate, metro Phoenix is considered an attractive place to invest because it's a growth market with relatively new structures, he said.

Unlike some local experts, Stapp said he sees both an upside and a downside to increased foreign investment in Phoenix-area commercial real estate.

The positive effect is that it creates liquidity in the local real-estate market and generates revenue for local professionals such as commercial-real-estate brokers, he said.

The negative effect is that it takes value from a fixed, local asset and exports that money away from Phoenix to wherever the investor lives, Stapp said.

"The question is what are they buying, why are they buying it and what are they doing with it?" he said.

With the stock market proving to be a less sure way to generate investment revenue than in the past, Stapp said it's likely foreign investment in American real estate will only increase in popularity.

Still, he said, a single quarter with significant foreign investment doesn't necessarily mean offshore real-estate investors are gearing up to flood metro Phoenix with their cash.

"If this is an anomaly, it really doesn't mean very much," Stapp said.

Desmond said it will take another year before local real-estate analysts can judge accurately whether the recent increase in foreign investment is anything more than just a blip.

Local offices of commercial-real-estate brokerages already have benefited from the foreign investments, including the Phoenix office of CBRE, which is the designated leasing agent for MAX at Kierland.

"I would like to think it's the beginning of a trend," Desmond said. "I think it's too soon to tell."

by J. Craig Anderson - Aug. 11, 2012 The Republic |

Valley in top 10 in US for foreign investors

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