Foreign Investors Step Outside Comfort Zone

The recent sale of Sherman Plaza drew unexpected attention from foreign investors. Sherman Plaza is located in Van Nuys, which is not a typical market of interest for foreign or institutional buyers, yet Canadian investor Pacific Reach Properties won the asset in a deal that became highly competitive.

“For this transaction we saw a few foreign investors but Van Nuys typically does not attract significant foreign investor interest. Gateway markets and CBD locations are much more popular with the majority of foreign capital,” Kevin Shannon, president of West Coast Capital Markets at NKF, tells GlobeSt.com.  “This sale demonstrates continued interest in higher yielding suburban office assets. The yield on suburban office is much more attractive than multifamily and industrial deals late cycle. The current frothy debt market augments this yield advantage for the product class although Sherman Plaza was a debt assumption deal.” Shannon represented the seller, Majestic Realty, in the deal.

The property is Pacific Reach's first office acquisition in Los Angeles. Although it is located outside its typical investment markets, the yield made it a great acquisition opportunity as well as a good way to cut their teeth on office. “Pacific Reach was looking to diversify into office product and invest more in Southern California,” says Shannon. “While they don't have extensive office experience they were attracted to the existing strong yield with this property especially compared to yields that could be achieved with multifamily product. Pacific Reach owns several multifamily projects and Sherman Plaza was their first Southern California office acquisition.” Majestic, likewise, sold the property to diversify into other value-add assets. The seller had renovated and stabilized the asset prior to the sale. “Sherman Plaza is one of the best class A assets in Van Nuys,” adds Shannon. “This submarket continues to benefit competitively from rising occupancy and lease rates in the neighboring submarkets. The San Fernando Valley office market has consistently been improving.”