Global Opportunity: U.S. Investing Deals Around the World
- Sep 29, 2016
While volatility is calling some cities into question as investment targets, plenty of opportunities exist today for multifamily acquisitions overseas. Global investor Hines, for instance, has developed residential condominiums in countries such as Brazil, China, Germany, Italy, Poland and Spain. “Our current focus on purpose-built rental opportunities will take us to any country that is showing strong market fundamentals,” declared Lisa Newton, vice president of multifamily operations for Hines.
Currently, Newton says, Hines is working on developments in Ireland and Germany, “with both countries experiencing strong demand for professionally managed rentals.” Indeed, Germany is one of the prime spots for such deals these days. In fact, much of the same dynamic is at work there as in the U.S.: Overall, the economy is in reasonable shape, with apartment rents rising particularly fast in urban areas, where the Millennials want to live. According to data compiled by the research institute Empirica, apartment valuations in seven major cities, including Frankfurt and Berlin, rose 14.5 percent in 2015, the most since 2000.
Investors have taken notice. Last year, about 23.3 billion euros ($26 billion) in residential property portfolios, including large residential complexes, changed hands in Germany, up about three-quarters from 2014, according to CBRE.
Apartments as a component of mixed-use space in an urban setting—so popular in larger American markets—have also caught on elsewhere. Take, for instance, Tishman Speyer’s current redevelopment of the former Metzler bank site at Grosse Gallusstrasse 16–18 in Frankfurt. The building, which will be complete in 2018, will include 645,000 square feet of commercial and residential space in 45 stories.
According to the company, both office workers and residents want innovative elements such as openings, galleries and staircases spreading across multiple floors, along with integrated outdoor areas. “We’re incorporating these changes in user requirements into the high-rise,” said Florian Reiff, senior managing director of Tishman Speyer in Germany. “The connection of work and living in a building in the downtown area is what current and future generations will aspire to.”
Germany, with its longstanding strong economy, might seem like an easy call for U.S. investors inclined to buy or develop in other countries, but what about less robust economies? “In Europe, the biggest difference—and challenge—(is) the divergent pace of recovery in the region,” observed Jeffrey Dishner, senior managing director & global head of real estate acquisitions for Starwood Capital Group.
The company established its Global Opportunity Fund X last year to buy a broad spectrum of properties around the world. This year’s investments have included $310 million to acquire a portfolio of four extended-stay hotels and one residential complex in London, establishing the firm as a player in the city’s extended-stay hotel/serviced apartment market.
“A number of northern European countries have stable and expanding economies, while the vast majority of countries in the south are experiencing substandard economic performance,” said Dishner. “So while we are investing in higher current-yielding opportunities in the north, in the south we are more focused on distressed investing through non-performing and sub-performing loans.”
Other markets are also posing wildcards, most recently the U.K. in the aftermath of the Brexit vote. The outcome is still too tough to predict, but investors say that in the short term, at least, a stronger dollar means more buying power for U.S. investors, although ROI could be reduced for certain kinds of real estate.
The upshot is that Brexit has increased uncertainty, but that doesn’t seem to be deterring investors. Earlier this year, for instance—when Brexit was a looming possibility—Related Cos. acquired a 50 percent stake in Pocket, a U.K. affordable housing specialist that’s the leading developer of homes for first-time buyers in London. The deal also coincided with the launch of initiatives by the British government to attract more first-time buyers into the market.
Other parts of the world offer growth opportunities for experienced U.S. investors despite uncertainties that make Brexit seem tame. Despite Brazil’s current economic problems and public health issues, investors like Hines consider it a long-term play, given its standing as the world’s ninth-largest economy by nominal GDP and seventh by purchasing power parity.
Since entering Brazil in 1998, Hines has developed a portfolio of projects in the residential, industrial and office sectors. The firm most recently joined with Tecnisa to make Hines’ largest Brazilian acquisition thus far, in Jardim das Perdizes, a mixed-use residential project in São Paulo with office, retail and hotel components. Hines Brazil also recently acquired an ongoing development in São Paulo’s Vila Mariana neighborhood that consists of a 244-unit condo project spanning four buildings.
Countries like Brazil also offer opportunties in affordable housing. Paladin Realty Partners, which focuses on Latin America, recently ponied up $6 million in equity for a joint venture called IZP Empreendimentos e Participaçoes, which is focused on building low-income housing in São Paulo. The joint venture’s first development will be in that city’s Vila Madalena neighborhood. The condo project will include 300 small units (about 320 square feet) priced around $100,000, and 80 even smaller units (215 square feet) priced at about $66,000. Most of these will go to buyers earning less than $27,000 a year under Brazil’s affordable housing program.
“We will take advantage of the steady demand for affordable housing in Brazil,” noted Ricardo Raoul, managing director of Paladin Realty and head of its investment activities in Brazil. “Now’s an opportune time, due to Brazil’s huge housing deficit, which is about six million homes, the vast majority of which is concentrated in the low-income segment.”
Niche segments offer another opportunity for U.S. investors abroad. Student housing, for instance, is popular in a lot of places.
Hines, for instance, entered the student-housing market earlier this year with the acquisition of several development sites in the U.K., according to Newton. “Student housing has performed exceptionally well in the U.K., and is expected to continue to do so,” she observed.
Private real estate equity firm Harrison Street Real Estate Capital and GSA Investment Management Group have agreed to put $285 million into student housing in Dublin over the next five years. The Irish capital has generally been short on such accommodations.
The partners’ first development, Mill Street, Dublin 8, will provide a mix of bedrooms for 400 students, as well as shops, a restaurant and office space. Mill Street will serve students of Trinity College Dublin and Royal College of Surgeons in Ireland, both of which are within walking distance of the development. “Dublin offers an opportunity to generate attractive risk-adjusted returns for investors similar to those experienced over the past decade in the U.S.,” explained HSRE president & CEO Christopher Merrill.