|

"The fall in volumes was driven by global credit conditionswhich made debt both less available and more expensive," says TonyHorrell, JLL's CEO European Capital Markets. "As a result, manypurchasers are unwilling or unable to transact at prices seen in2007, while vendors are unwilling to reduce expectations. This hascaused a stand-off between buyers and sellers, particularly forlarge lot sizes."

|

Europe remained the leader of cross-border transactions, with58% of deals involving foreign or global investors. The figure,however, was down eight points from the 66% recorded last year.Asian cross-border transactions saw an even steeper decline,dropping to 34% from 46%. North and South America, on the otherhand, saw the figure increase to 30% this year from 25% a yearago.

|

But while the Americas saw the percentage of cross-bordertransactions rise, volume declined, resulting in a lower totalvalue. Transaction volume dropped 56% to $75 billion, while totalcross-border investment dropped 47% to $23 billion. In LatinAmerica, transaction volumes were down, but the report names poorproduct availability, as opposed to the credit crunch or economicconcerns, as the main culprit. Canada, however, defied the overalltrend, with volumes rising by 54% to $7.4 billion. According to JLLresearchers, Canada has remained relatively immune to the creditsqueeze due to its traditionally conservative banking and financialsectors.

|

The US figures were especially dramatic, with volume down 61% to$64 billion, due in large part to the absence of the merger andacquisition activity that super-charged the market from '05 through'07. US cross-border transaction volumes fell 53%, from $37 billionlast year to $19 billion this year. On a percentage basis, however,such transactions grew to 27% of the total, up from 23% a yearago.

|

"What surprised us is that a lot of the domestic investors andowners have woken up to the fact that there is limited domesticcapital available today," observes Steve Collins, JLL's managingdirector of the International Capital Group. "The United States isnow open to an international capital insurgence."

|

Collins points to an emergence of new foreign investors in theUS in the first-half of the year, including Spanish investors whopurchased major retail and office product in Chicago, Irishinvestors like Vico Capital who bought 2099 Penn Ave. inWashington, DC and an active German investor base as evidenced bythe $147.9 million purchase of Paseo Del Mar in San Diego by GermanMetzler NA.

|

Collins also notes the emergence of Korean investors with thesuccessful purchase of One Sansome St. in San Francisco and bidsfor properties in Los Angeles and New York City. "The change in theKorean tax law has enabled Koreans to look favorably to the UnitedStates as an attractive investment area," he says, adding thatMiddle Eastern investors are also keying into opportunities toinvest through joint ventures, mezzanine positions and equityownership, though they tend to focus on properties with primelocations and high marquee value.

|

The JLL exec expects to see an uptick in cross-border activityin the second-half 2008 as there is no lack of capital availableand it needs to be invested into prime real estate to meetallocation requirements. "In the past 120 days, we have met with ortalked to more than 25 investors looking to invest in United Statesreal estate this year and beyond," he remarks.

|

Though a number of foreign investors are still seeking"fire-sale" prices in the US, Collins says the market is unwillingto come through on such hopes. The same may not be true elsewhere,according to Horrell, who predicts it may take another year fordebt markets to stabilize. In the meantime, he believes we arelikely to see increased distressed selling.

|

"High growth markets or core markets perceived as oversold arelikely to attract the most attention from buyers," he says. "Withhigh velocity of pricing change comes opportunity for buyers. Therange of opportunity will increase for those able to commit equityin the next 12 months."

|

According to the report, investors are also seeking out marketswith lower transparency but solid growth fundamentals, such LatinAmerica, particularly Brazil, Central and Eastern Europe and Asianmarkets like Vietnam. Researchers expect full-year investmentvolumes to be at least 35% below '07 levels.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.