Another example cited is Urban Union, a newly constructed
office property in Seattle that recently traded for $269 million,
or about $928 per foot. Located near Amazon’s headquarters ,
the building fetched “the highest price per square foot ever paid
for an office building in Seattle,” according to Yardi Matrix. In
Arlington, VA, February’s $460-million sale of the Waterview to
Morgan Stanley Real Estate marked the biggest single-asset
office trade in the Washington, DC metro area since 2007.
It’s not only through attracting tenant classes beyond the
traditional financial and legal sectors that office is keeping up
with the times. “Throughout the current cycle, a number of
trends have emerged that are catalyzing the industry to pio-
neer new frontiers,” reports the paper. “From the growing
needs and desires of the Millennial cohort to the importance
of energy efficiency and sustainability to providing flexibility
to space users through the creation of co-working facilities,
today’s office buildings are taking on a new personality.
Addressing these shifting needs will situate office properties
well for continued growth.”
The report also features an interview with David Gilbert,
president and chief investment officer at Clarion Partners,
along with an analysis of the California office markets. “This
report can help everybody with a stake in office properties bet-
ter understand investment prospects, shared workspaces, gen-
erational demands for working environments, new develop-
ment strategies, and other key market trends,” says Jeff Adler,
vice president of Yardi Matrix. “Subsequent reports will offer
similarly rich insight.”—Paul Bubny ◆
When it comes to investment in real estate assets, America is the
land of opportunity, for both domestic family offices and overseas
investors. With a view toward more long-term investment goals
that reflect prevailing market conditions, both of these groups
have shown a growth trend in real estate investing in recent years.
HIGH NET-WORTH FAMILIES
Family offices have always included real estate in their portfolios
but today, they are becoming a more prominent investor pool.
Although we can name many famous families who historically
generated wealth through real estate (with names on iconic
buildings), many others have made their money elsewhere and
are now increasing their investment allocations into real estate
for several reasons.
For one, they are generational investors.
Family offices are not necessarily looking at
an asset’s ROI today; rather, they are looking
for long-term asset
They’re also attracted to the liquidity US real
estate offers as well as the inflation protection
and stability, as they hold on to the assets for
long periods of time.
Further, more wealthy families are looking to develop institutionalized portfolios, diversifying them to include class A office
space or upscale multi-family projects. Many US markets offer
ample opportunities to expand investment portfolios to include
these assets and enjoy long-term gains for generations to come.
These investors typically come from countries with much
smaller economies (China being an exception) who are seeking
to fulfill their government and institutional real estate investment mandates.
However, their financial resources far outweigh their domestic
investment opportunities, as they may lack the same ground-up
or repositioning projects we have in the States, for a variety of
reasons. These include the resurgence of the suburban office
market and suburban downtowns; the development of transit
hub villages; neighborhood gentrification; the repositioning of
assets from office (or other, such as schools) to residential; and
the redevelopment of mall properties.
Stability is attractive and so are the returns. Just as the family
offices are attracted to US real estate’s stability, foreign countries
seek increasing exposure to the US because of our relatively stable currency, stable government and laws.
The strength of the US dollar is a substantial contributing
factor to foreign real estate investment activity. Even if the asset
does not increase in value, if the dollar’s strength improves
against the foreign currency; these investors may harvest returns
on the currency fluctuation, making the US a terrific inflation
and currency hedge.
Additionally, foreign investors enjoy generous returns in comparison to their home countries. Thanks to our low interest rate
environment, US investments are yielding returns in the high
single digits to low teens. And thanks to tax treaties, many governments and other investors (depending on the country) are able
to make tax-efficient real estate investments here. They often
invest all or part of the acquisition costs as secured lenders and/
or provide mezzanine financing to recapitalize existing properties. Or, they acquire minority stakes in a property, in participating debt or preferred equity structures.
Liquidity, too, is as much a factor for foreign investors aa it is
for high-net worth families. Office buildings on the market for
$1 billion in New York City have bidders lining up with cash in
hand to make a deal. In cities such as Boston, Miami, Chicago,
Houston, Los Angeles, San Francisco and Washington, DC, for
example, foreign buyers are investing largely in office, hotel and
mixed-use assets, knowing they can exit at a fair market price in
a reasonable time period.
Investors taking a long-term approach can do well with US real
estate assets, and generate strong returns over time. Whether
domestic or foreign, family, institutional or sovereign, the US real
estate market offers investors safety, currency and inflation hedging, strong returns and liquidity.
Jahn Brodwin is a senior managing director in the real estate and infrastructure practice at FTI Consulting Inc. He may be contacted at jahn.brodwin@
fticonsulting.com. The views expressed here are the author’s own.
By Jahn Brodwin
The New Real Estate Investors