ONTARIO, CA—What many foreign buyers are looking for is different than what American buyers seek out. That is according to locally based CBRE National Partners' SVP Michael Kendall, who exclusively chatted with GlobeSt.com about where private investment is going in the investment sales world.
GlobeSt.com: You have a theory on why cap rates are lower than ever—what has been most influential in the trend?
Michael Kendall: Yes, investors are willing to live with historic low cap rates, meaning the yields they're willing to accept are about the lowest we've ever seen (particularly in infill locations).
What many foreign buyers are looking for is different than what American buyers seek out. Traditionally, investors have looked for the largest potential return on investment when choosing a real estate. What's unique here is foreign buyers (and particularly Asian buyers) are beginning to flood the market, and contrary to what we're used to seeing, their goal is not to lose money. They don't care as much about profitable returns—it's more important to them that they don't lose value. We're seeing it affect all property types.
Additionally, the volatility in real estate and equities globally has made US real estate a safe haven and has drawn a significant amount of foreign capital to the US, and specifically to Southern California.
GlobeSt.com: When you say “investors” are you referring to private capital, institutional capital, or both?
Kendall: Both. The market is driven by both classes of investors. US institutional capital is primarily looking for safe, dependable yields and preservation of capital. Private investors are typically less risk-averse, but are very focused on managing their tax liabilities. These are both high net worth individuals and sovereign wealth funds (that essentially invest on behalf of foreign governments). Typically, this global capital is most interested in preservation of capital and in many cases, they simply want to get money out of their home currencies and into dollars as a safe haven. This convergence of institutional, private/1031 exchange and foreign capital has led to the historic low cap rates that we are seeing now.
GlobeSt.com: Where is most of this foreign capital coming from?
Kendall: China, Singapore, Taiwan, Canada, the Middle East and Mexico.
GlobeSt.com; Your team focuses on industrial product, what are you seeing in that area specifically?
Kendall: E-commerce has changed everything for big box distribution centers: consumer expectation for faster and cheaper delivery is now affecting demand for warehouses both large and small. Although currently e-commerce is not affecting the private capital world, we do think it's going to start affecting it. Fulfillment centers are moving into smaller buildings closer to city centers in order to meet the demand for next day and same day delivery.
GlobeSt.com: Any predictions you would like to make moving into the New Year?
Kendall: There's still a much larger discrepancy between gateway/primary markets and secondary/tertiary markets than there ever has been. This historic spread in cap rates is driven by perceptions of risk. As the core cap rates stay low, we are starting to see investors consider the secondary markets in order to get better yields. The private investors are leading this charge and certain institutions are starting to follow suit.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
