CHICAGO—As reported in GlobeSt.com, the California Public Employees' Retirement System announced plans this week to sell as much as $3 billion of its real estate investment holdings. It was just the latest of several major owners that have recently put up vast portfolios for sale. And Erik Foster, principal and practice leader of Avison Young's Chicago-based industrial capital markets team, tells GlobeSt.com that we'll soon see even more portfolios like this hit the market.
“Now is the perfect time for major players to divest themselves of non-core assets that are incompatible with their companies' strategies,” he says. Buyers have become very aggressive and their current “appetite for assets is the strongest it's been since the recession. So if you're going to maximize your value, now is the time.”
Foster is not involved in the CalPERS sale, so he can't speak to what specific assets the pension fund has put on the table. However, he does say that “they're trying to adhere to their core strategy and potentially selling things that don't align with that.” Park Hill Group will help handle the deal, which would be the largest offering ever on the real estate secondaries market.
Numerous buyers have become more interested in non-core assets than ones in core cities partly due to the higher yields available, he adds. Furthermore, the overall improvement in the US economy has pushed up rental rates and increased buyers' comfort with secondary and tertiary markets.
For example, Avison Young recently published its Spring 2015 Canada, US and UK Industrial Market Report, which found that the vacancy rates in all but one of the US markets studied had sunk into single-digit territory.
The US real estate market's overall strength has brought in a host of new players drawn by the possible yields, Foster adds. And “don't count out the voracious appetite that foreign companies have.”
He points to the $8 billion sale earlier this year of the massive IndCor industrial portfolio to Global Logistic Properties Ltd. and GIC Pte. Ltd., Singapore's sovereign wealth fund, as a good example of the forces now governing US real estate. The portfolio was 92% leased and contained properties in 29 markets.
Tia Miyamoto, regional head, Americas, GIC Real Estate, said the two companies bought the IndCor platform from Blackstone because it's “an attractive point in the recovering US industrial market cycle. As a long-term investor, we believe this investment will achieve stable income growth and will allow us to add value over the long run.”
And the offering by CalPERS, Foster says, is “just a continuation of this trend.”
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
