Safer Haven for Foreign Money
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Earlier this year, developer Korean Air Lines, a subsidiary of Korean conglomerate Hanjin Group, revealed the design of what is expected to become one of L.A.’s tallest buildings, the new Wilshire Grand. The team displayed its $1-billion project in a photographic rendering of how the L.A. skyline will look when completed in 2017.
The 73-story building is set to feature a sleek architectural façade. It is crowned with a glass pediment and spire, topping out at 1,100 feet and making it among the tallest buildings in the western US. The project includes a 900-room, four-star luxury hotel, 45,100 square feet of retail space featuring world-class restaurants and 400,000 square feet of class A office space.
A spokeswoman told GlobeSt.com at the time that from a developer’s standpoint, the project demonstrates Korean Air’s commitment to Los Angeles as a global hub.
And less than a mile away, another noteworthy property made headlines just a few months ago. As GlobeSt.com reported, US Bank Tower in Downtown Los Angeles, owned by MPG Office Trust, was sold to Beringia Central LLC, a wholly owned US subsidiary of Singapore-based Overseas Union Enterprise Ltd.
The deal was seen by CRE office executives as a plus for the area and the office market in general and several industry insiders, in fact, told GlobeSt.com that the trade is a positive step if only because it “diversifies the number of owners in the L.A. office playing field.”
The new owner, for which the tower is its first investment here, is pleased with the way the US commercial real estate market is looking and sees interesting opportunity in the US market relative to Asia.
For that deal, Downtown L.A. was a market of particular interest to the group, according to Richard Stockton, the locally based president and CEO for OUE in the Americas. He previously said that “We like what we see in terms of the revitalization of the area. We like what’s happening in the entertainment district.” He added that he would like to see more residential units being built and occupied. “Downtown Los Angeles is going through a bit of a Renaissance, attracting more employers to the area. We hope to be part of that and continue to drive it in the right direction.”
What these two projects have in common is the foreign investment component—a trend we’re hearing more of these days, especially Southern California.
At our RealShare L.A. conference, for example, Industry Leaders panelist Emile Haddad, president & CEO of Aliso Viejo-based FivePoint Communities, explained that there is an influx of money coming into this country. Haddad pointed out that in certain markets, he wasn’t surprised to see foreign money, but what was unexpected was the high percentage of foreign buyers in certain communities.
In Irvine, for example, most of the buyers are coming from Asia—mainly China and Korea—Haddad said. In addition, in other areas like in the Southeast, “A lot of people thought the condo market in Miami would take a long time to get absorbed, but it actually absorbed very quickly thanks to the South American buyer influence.”
RealShare L.A. moderator Scott Farb, partner of CohnReznick, has also noticed a huge amount of capital coming to our shores. “The US remains the world’s favorite place to invest in real estate, primarily because we’re still perceived as a safe haven, especially given the current instability in Europe as well as the economic slowdown in China and Asia,” he said. “There’s lots of capital coming in from all over the world to the US to buy primarily class A commercial properties and higher end residential properties in gateway cities such as L.A.”
In addition to the previously mentioned Asian and South American investors, Scott Sweeney, CEO of Property Income Advisors Inc., tells Real Estate Forum that he has seen a strong increase in activity from Gulf-based investors over the past 12 months.
“Historically, they’ve preferred to invest in their local markets, with any outside investment typically focused on central London,” he says. “The Middle East real estate markets were negatively affected during the downturn and many are still struggling with oversupply and a lack of demand.” Additionally, “London has gotten quite pricey and competitive.”
In the past, Sweeney continues, many Gulf-based investors used fund vehicles to invest in US real estate. “During the market downturn, they learned that the property valuations weren’t accurate, the fee schedules were high and, when things went bad, they had no say in how to address the issues,” he says. “As a result, today we see a much stronger preference for direct investment.”