By Donald MacLellan, senior managing partner, Faris Lee Investments | Commentary
Globe Street- Last Updated: September 12, 2013 12:11pm ET
IRVINE, CA-The buyer pool for hard assets in general is growing and the retail property sector is at the forefront of this growth. Historically, insurance companies, pension funds, state employee funds, life insurance companies, and publicly traded REITs were the main players in the investment landscape. However, that has changed. Investors want to purchase tangible assets as stocks and other non-tangible investments are constantly in a state of uncertainty.
Who are these buyers and what does it mean forcommercial real estate?
The first are overseas investors. In the recent past, the investment appetite for these capital-rich buyers – the majority of which are from Asia – were only interested in buying stabilized assets. But as time has progressed and the U.S. market comes into recovery mode, these principals are also buying value-add opportunities as long as the assets are situated in “gateway locations” such as port cities that feature a diverse cultural demographic as well as high population numbers. Many of these international buyers are represented by local principals – either individuals or companies – who are now living in the United States and have relationships with overseas capital. With instability in foreign markets, U.S. property is a natural, stable investment.
Second, we are seeing large family offices and private investors seeking commercial real estate assets … many for the first time. Passive, NNN-leased retail property investments with strong tenants in primary, secondary, and even tertiary markets are considered by this buyer type. Stabilized, multi-tenant centers are also welcome investment prospects. Some of these buyers were developers who have transitioned into investment companies instead, as development prospects dropped off over the past several years.
Next, non-traded REITs are amassing significant private capital their commercial portfolio is growing exponentially. Cole Real Estate Investments is an example of one such operator who has been buying hundreds of millions of dollars of power centers and grocery-anchored centers over the past few years. Again, this buyer type is growing as smaller investors seek stability in commercial real estate and choose to diversify their investment portfolio, garnering higher yields on their investments with hard asset ownership.
Finally, we have seen Wall Street equity funds buying portfolios and operating companies. For example, Blackstone began buying real estate operating companies subsequent to the recession at pricing perceived below actual market values.
With the appetite from a wide array of buyers in the investment pool, ultimately it is a good sign that the demand for commercial real estate in the near-term and long-term will continue. Hard assets will be a favorite commodity for the investment community due to lack of stock market stability, and instability in foreign markets.
Donald MacLellan is senior managing partner of Faris Lee Investments. The views expressed in this column are the author’s own.
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