Real estate investment is increasingly becoming a global business, with widening competition as more players place money around the globe. Depending on investment goals, players may be drawn to the recovering U.S. markets or the lagging European markets. And while U.S. investors seek opportunities in Asia, local investors there are already well entrenched.

Foreign investors are so eager to pursue opportunities in U.S. real estate that they are racing to join the biggest deals, making it sometimes difficult to differentiate between clients and competitors. That was a conclusion among speakers on the Urban Land Institute Spring Meeting keynote panel, “Capital Markets: Who Has the Capital and Who is Getting It,” which was moderated by Christopher Ludeman, CBRE Group Inc. president of brokerage services and the capital markets. Capital is flowing in from around the globe, ranging from the top-ranking Koreans—now permitted to invest abroad and only held back in the U.S. by FIRPTA limitations—to those from the Middle East and Canada, noted LaSalle Investment Management global head of the capital markets Jon Zehner. And he is keeping an eye on China and Australia as capital sources.

The Japanese, too, are eager to invest outside their slow-growing borders, noted J. Michael Stedman, senior executive vice president of Union Bank, whose employer is owned by Bank of Tokyo/Mitsubishi.

Meanwhile, some big U.S. investors see more opportunity overseas than in their own backyards. Zehner observed that the spread between assets in primary and secondary markets is now 75 to 100 basis points in the U.S. and Canada but 250 to 350 basis points in Europe. In fact, his company is representing a major Asian financing source venturing with a regional European fund to invest in U.K.-located residential property. The U.K. economic cycle is six to 12 months behind the U.S.’s, according to Charles Fedalen Jr., executive vice president & group head of the Wells Fargo CRE Institutional and Metro Markets Group and the Wells Fargo Real Estate Banking Group.

Elsewhere, John Miller, senior managing director for Tishman Speyer, pointed to a fund his company recently put together using Chinese currency to invest in that country. He noted a lot of pent-up demand there.

Wherefore Art U.S. Returns?

Speakers on “The Next Best Bet: Making the Case in a Capital Constrained Market” all expressed interest in European investment. But they also see opportunity in various segments of the U.S. market, although with the U.S. recovery at something of a midway point, identifying risk-adjusted returns can be challenging, they said.

The multi-family sector continues to attract attention, and PIMCO vice president Chris Flick is no exception. He said he still sees room for growth even though the best deals were done two years ago. Damian Manolis, managing director at Prudential Real Estate Investors, advised seeking out micro areas that work, even in more concentrated cities like Seattle and Washington, D.C.

Starwood Capital Group senior vice president Mark Deason, however, sees more opportunity in recovering sectors such as the office market, where he said you can still achieve cash-on-cash returns in the double digits (although largely only as much as 10 percent). Pricing is far ahead of fundamentals in the primary markets but more closely aligned in secondary markets, he noted, although he confessed to remaining focused on the primary cities. And Manolis pointed to the recovering job market and lack of development as contributing to a more solid office sector, even while companies are pursuing smaller space-per-person ratios and hoteling to minimize office size. Flick was less optimistic about the sector but allowed that opportunity could increase as conditions improve.

The panel as a whole was less optimistic about retail and industrial property, although Flick suggested a “barbell” model to retail opportunities, with high- and low-end properties offering the best bets. Grocery-anchored centers, he said, are too popular to offer good deals. That makes it necessary to focus on in-line retailers for growth—and that, the panel agreed, requires strong relationships with national retailers, the better to identify expansion plans. As for industrial, only development offers returns, Flick affirmed.

It is also challenging to find good hotel deals, especially in the limited-service segment, Deason said, although his company has been an active hotel buyer. The panel agreed hotels may have hit the bottom of the cycle and are about to turn upward again.

A series of audience polls turned up continued favor for the multi-family, industrial and retail sectors, with office and hotel eliciting a more negative response.

Industrial Income Trust, of Denver, a non-traded REIT, has purchased the 11-building, 808,400-square-foot Broadway 101 Commerce Park in Mesa, Ariz., for $77,002,000 in a cash deal, it was announced Thursday by Cassidy Turley. The closing took place the previous day, Commercial Property Executive was told by a spokesperson for Cassidy Turley, which represented the seller, Lincoln Property Co.

Built in two phases in 2005 and 2007, Broadway 101 Commerce Park comprises five warehouses, three general industrial buildings and three office/warehouse buildings. At 2140-2360 E. Broadway, the property is one-half mile from the Loop 101/Price Freeway.

The Cassidy Turley sales team included executive managing director Tom Powers; executive vice presidents Bob Buckley, Steve Lindley, Tracy Cartledge, Mike Haenel and Andy Markham; and vice president Marc Tuite. Powers works in Cassidy Turley’s Cincinnati office, while the other six brokers are in the Phoenix office.

Broadway 101 triggered “exceptional buyer interest with major institutional investors including several that were new to the Arizona market,” Buckley said in a release.

In addition, Cassidy Turley has handled the leasing at Broadway 101 since the project’s inception. The park is leased to a diverse tenant base that includes Worldwide Technology Holdings, PCT International, Aviall Services (a Boeing subsidiary), Mitel Networks, Siemens Water Technologies and Patterson Dental Supplies.

While the property was in escrow prior to closing, the Cassidy Turley spokesperson told CPE, the property enjoyed additional lease-up, with its occupancy moving into the high 80 percent range.

That’s consistent with nearby properties, according to first-quarter 2013 market stats from Cassidy Turley, because the West Mesa submarket ended the quarter at 11.6 percent average vacancy.

Overall, industrial space in metro Phoenix is doing dramatically better than just a year ago, according to the Cassidy Turley report, with user activity up sharply, strong net absorption, spec projects increasing and rents likely to rise 3 to 5 percent by year’s end.

Like us on facebook: https://www.facebook.com/CPExecutive

BNSF Railway’s $500 million Southern California International Gateway took a big step forward this week when the Los Angeles City Council approved the environmental impact review and a 50-year lease for the 156-acre project near the Port of Los Angeles.

Southern California International Gateway

Located within four miles of the San Pedro Bay ports, the SCIG facility would shorten the distance trucks loaded with cargo would have to travel before transferring containers to rail. Supporters say that would reduce emissions and provide cleaner air because the trucks would not have to travel 24 miles up the 710 Freeway. But media reports note there is opposition to the project, particularly from city of Long Beach officials, area residents and some health and environmental groups.

Both BNSF and Los Angeles officials deny there would be significant health and environmental issues and say the Fort Worth, Texas,-based freight transportation company’s project would set standards for the use of green technology.

“We applaud the Los Angeles City Council, the Mayor’s office and the Port of Los Angeles Harbor Commissioners for their commitment to green growth. With their input, BNSF’s SCIG project is setting a new standard of excellence in reducing emissions and realizing a positive impact on local communities,” Matthew K. Rose, BNSF chairman and CEO, stated in a release. “We are investing more than $500 million in private funds to build this state-of-the-art facility, which will help keep the San Pedro ports competitive, and we look forward to the jobs, air quality and traffic benefits the facility will bring to Southern California.”

Noting that SCIG would be the “greenest intermodal facility in the United States,” Los Angeles City Councilman Joe Buscaino said in the release that BNSF was including more than $100 million in green technologies, clean trucks and funding for zero emissions research.

“This project demonstrates that it’s possible to achieve air quality and health risk improvements and keep the international trade industry in Southern California strong,” Buscaino said.

The facility would be located at an existing industrial site, which is between Sepulveda Boulevard, the Pacific Coast Highway, the Dominguez Channel and the Terminal Island Freeway. A BNSF spokesperson told Commercial Property Executive that there were currently four tenants still operating at the site and the company was working with them on relocation.

The project dates back to 2003, when BNSF sent letters to officials of the ports of Los Angeles and Long Beach asking if they had property available and would they be interested in working with BNSF on a new intermodal facility, according Lena Kent of BNSF. The Port of Los Angeles officials agreed to the proposal and in 2005, BNSF began to draft the environmental impact review. Kent said the company hopes to begin construction in 2014 if the start is not held up by potential litigation from opponents. Construction will take three years from start to finish, she noted.

The project will provide approximately 1,500 jobs each year during construction. By 2036, the SCIG is expected to create 22,000 new direct and indirect jobs in Southern California, including 14,000 in the Los Angeles area.

About $100 million of the estimated $500 million to build the SCIG will come from investments in green technology. The intermodal facility will feature wide-span, all electric cranes, ultra-low emission switching locomotives and low-emission rail yard equipment. Only trucks built after 2010 will be allowed to transport cargo between the marine terminals and the SCIG. By 2026, 90 percent of the truck fleet will be LNG or equivalent emissions vehicles.

Duke Realty Corp. has sold the Shops at Pembroke Gardens, a 391,120-square-foot lifestyle retail center in South Florida for $188 million to an undisclosed buyer as it continues to reposition to mainly industrial holdings. The Indianapolis REIT noted that proceeds of the sale to an institutional joint venture would be used toward the purchase of an industrial portfolio.

“The sale of this retail asset is in alignment with our asset repositioning strategy, which includes divesting our retail holdings and targeting an asset allocation mix of 60 percent bulk industrial, 25 percent suburban office and 15 percent medical office by the end of 2013,” Denny Oklak, Duke Realty chair and CEO, said in a news release. “This disposition is a significant and strategic step in our repositioning strategy that has decreased our investment allocation in retail assets and resulted in significant gain. Proceeds from the sale will be accretively recycled into an eight-building industrial portfolio that we currently have under contract for purchase.”

Duke Realty built the retail center, located at the Interstate-75 and Pines Boulevard interchange southwest of Fort Lauderdale, in 2008 in conjunction with Jeffrey R. Anderson Real Estate, according to a company spokesperson. The center is 90 percent leased with stores like Bath & Body Works, Sephora, Banana Republic, Barnes & Noble, Old Navy, Ann Taylor and Cold Water Creek and numerous restaurants including The Cheesecake Factory.

“The Shops at Pembroke Gardens is a highly leased property and has quickly established a dominant presence in the South Florida landscape since it was built in 2008, making it attractive to investors,” Danny Finkle, senior managing director of HFF, which advised Duke Realty on the sale, noted in the release.

Finkle’s team at HFF included Jim Batjer, managing director; Luis Castillo, director; and Robert Saracco, a senior analyst. The team worked with Jeff Behm, vice president of dispositions for Duke Realty.

Duke Realty also owns seven acres slated for retail development outside but contiguous to the Shops at Pembroke Gardens and another 44 acres that has been master planned for approximately 700,000 square feet of Class A office space. A Duke Realty spokesperson told Commercial Property Executive that the firm is interested in either selling or leasing those properties.

Ed Mitchell, senior vice president of Duke Realty’s South Florida operations, noted in the news release that the properties have “outstanding accessibility and visibility.” He added that his team is “ready to work with interested parties on land sales and development opportunities.”

Duke Realty has been remaking its portfolio since the fall of 2009, when it consisted of 55 percent office, 36 percent industrial, 5 percent medical and 4 percent retail. Since that time, the firm has been disposing of non-core assets and acquiring more industrial properties, including selling a suburban office portfolio to an affiliate of the Blackstone Group in October 2011 for $1.1 billion. More recently, Duke Realty sold its interests in a joint venture to its partner Chambers Street Properties for $98.6 million. The portfolio consisted of 16 office properties and one industrial asset – Goodyear Crossing Industrial Park III, an 820,000-square-foot warehouse and distribution facility in Phoenix.

The REIT currently owns two other lifestyle retail properties – The Shops at West End in St. Louis Park, Minn., and The Shoppes at Montage in Moosic, Pa.

“Duke Realty’s long-term strategic plan calls for exiting the retail sector,” the REIT spokesperson told CPE. “We will market and sell our remaining retail properties when appropriate to maximize value.”

At the 2013 Mortgage Bankers Association CREF/Multifamily Housing Conference, David Durning, president and CEO of Prudential Mortgage Capital Co., explains Prudential’s targets for balance sheet, Fannie Mae, Freddie Mac and FHA, CMBS and bridge financing for 2013.

At the 2013 Mortgage Bankers Association CREF/Multifamily Housing Conference, Marisha Clinton, director of research, Capital Markets, at Jones Lang LaSalle, names markets and industries that are on the “to watch” list for real estate investors.

A joint venture of Behringer Harvard and CT Realty Investors has sold the Interchange Business Center, a 667,024-square-foot industrial asset in Southern California’s Inland Empire. The purchase price and identity of the buyer—described as one of the nation’s largest privately held real estate advisors—were not immediately disclosed.

Located at 1420-1440 Third St., in San Bernardino, the three buildings sold by Behringer Harvard and CT Realty are situated on a 34-acre site. Interchange Business Center’s fourth property, a multi-tenant office building, was sold last October.

Behringer Harvard acquired Interchange Business Center in November 2010 through its third joint venture with CT Realty, a real estate investment and development firm based in Aliso Viejo, California.

“When we acquired this asset, we believed that Interchange Business Center represented an attractive opportunity to capitalize on market stress by acquiring Class A industrial space in a recovering market at a significant discount to replacement cost,” Jason Mattox, Behringer Harvard’s COO, told Commercial Property Executive. “We expected this asset to benefit from a strong Inland Empire location and superior quality of construction. We believe this property fulfilled our expectations for upside potential.”

According to Mattox, the partners had completed their value creation strategy for the asset, which focused primarily on improving occupancy, so this was an opportune time to sell the property and redeploy the proceeds.

All told, partnerships of Behringer Harvard and CT Realty Investors have acquired and disposed more than 2.4 million square feet of high-quality industrial space in the Inland Empire.

“The Behringer Harvard REIT that invested in Interchange Business Center pursues an opportunistic investment strategy,” he said. “CT Realty has been an outstanding business partner and we are pleased with the attractive returns achieved by our joint ventures.”  The REIT reaped a 12.7 percent annual average return from the sale of the four buildings at Interchange Business Center.

By Paul Rosta, Senior Editor

As first-quarter results filter in from around the real estate industry, executives continue to take a cautiously upbeat view of business prospects, according to the latest CPE 100 Quarterly Sentiment Survey. Three months into 2013, 83 percent of the industry leaders surveyed expect slow but steady growth for real estate investment this year. The findings are among the highlights of the year’s first quarterly survey of the CPE 100, a national group of real estate leaders representing a broad spectrum of industry business areas.

“While the general economic recovery might downshift this summer due to sequestration and transparency issues in Washington, commercial real estate fundamentals should continue to improve, as they have for the past 12 quarters,” said CPE Senior Associate Editor Mike Ratliff, who coordinates the Sentiment Survey.

Competitive financing terms were cited by 42 percent of respondents as the trend that will most strongly influence capital markets and investment this year. Another 33 percent felt that stepped-up investor attention to secondary and tertiary markets will have the greatest impact. That impression could result from a perceived shortage of high-quality supply in the most desirable markets. As investors search for yield, declining cap rates for top-tier properties in primary markets may also make them more open to alternatives.

Continuing a pattern of recent years, executives hold multi-family properties in high esteem. About four out of 10 named the sector when asked to name the category holding the most promise for development in 2013. Industrial assets came in second, earning support of one third of respondents. “Industrial space is heating up, thanks to an uptick in manufacturing and the demand for well-located distribution space,” Ratliff said. “E-commerce continues to grow, and Amazon, eBay and Walmart are all piloting same-day delivery programs. If the trend catches on, investors are likely to be seeking out distribution space close to the major urban markets.”

The CPE 100 Sentiment Survey’s snapshot of economic impressions remains cautiously optimistic, if reflective of today’s volatile conditions. Only half of survey respondents said they think that general business conditions will be at least somewhat better three months from now. That marks a decline from one year ago, when 63 percent of the CPE 100 looked forward to a short-term improvement in business conditions.

According to 41 percent of those surveyed, the health of the commercial real estate sector will improve during the next three months—findings virtually identical to one year ago. And about six out of ten executives agree that their own business will be in better shape in three months than it is today. At this time in 2012, 53 percent of executives said that their business would be performing better in three months, and 47 percent predicted that company performance would be unchanged.

Rexford Industrial has purchased a seven-building, 473,345-square-foot industrial complex on 21 acres in Glendale, Calif., from an undisclosed institutional owner for $56.2 million. The acquisition was made through its Rexford Industrial Fund V REIT, which will be used to buy more than $500 million of industrial assets in Southern California.

The high-quality property has single and multi-tenant buildings, including two retail frontage buildings. It is fully leased to 27 tenants, including Staples, Anderson Printing, Nordstrom and Pep Boys. Located at 3332-3424 North San Fernando Road and 3550 Tyburn St. in Glendale, the property has easy access to I-5, and is not far from Burbank and downtown Los Angeles. The tenant spaces range from 3,000 to 5,000 square feet and have high ceiling clearance and dock-high loading.

“This project is best in class in that particular market,” Howard Schwimmer, Rexford co-founder and senior managing partner, told Commercial Property Executive. “It has always had a strong occupancy level, even during the recession.”

Schwimmer, who has been in the industrial real estate business for 30 years, said every time he passed the location, “I looked at that and wanted to own it. That has finally come to fruition.”

Both the buyer and seller were represented by Steve Silk, Jay Borzi and Adam Pastor of Eastdil Secured.

Rexford is a leading industrial real estate investment firm that acquires, manages and develops all classes of industrial properties in Southern California, including core, value-add, repositioning and re-development.  The company, which operates more than 7 million square feet of industrial properties, specializes in highly-sought-after infill Southern California locations.

The Glendale property is “the epitome of infill industrial real estate,” Schwimmer said, adding that it is in a very densely populated area, where most of the product was built in the 1950s and 1960s.

Schwimmer said the firm has “a huge pipeline of additional acquisitions we’re working through.” He said they make three or four bids a week on properties and about 60 percent of the properties they do acquire are off market or lightly marketed.

In January, Rexford announced that its fifth real estate fund, RIF V, had closed with $127 million in capital commitments. Schwimmer told CPE that over the past two years, Rexford has bought more than 3 million square feet of assets. He said the firm has the buying power to acquire an additional 2.5 million to 3 million square feet.

“Our strategy is two-fold, we focus on the distressed that still continues to be present in the marketplace as well as looking at stabilized acquisitions and others,” Schwimmer said.

One of the keys to the firm’s success is the ability to do all the redevelopment and repositioning in-house. Schwimmer said they even have two general contractors on staff to focus on the value-add assets.

“We’re very nimble in terms of some of the deals we’re working on now,” he added.

In June 2012, Rexford acquired a 1.2 million-square-foot industrial complex in Camarillo, Calif., for $59.1 million. The property had 300,000 square feet of vacant space that was in an older building. Schwimmer said the firm is converting that into seven new industrial units with all new offices and loading areas.

More recently, Rexford picked up two industrial complexes for a total of $12.6 million. A 78,183-square-foot asset that is fully leased was acquired in Carson, Calif., for $5.4 million. The property has five units and is located near the Ports of Los Angeles and Long Beach in the South Bay submarket, one of the top performing industrial markets in the United States. The second acquisition was an 88,146-square-foot, multi-tenant property in Montclair, Calif., in the West Inland Empire submarket. Purchased for $7.2 million, it has six multi-tenant buildings and is 84 percent leased.

Schwimmer said Rexford focuses solely on Southern California because it is the largest industrial market and has the lowest vacancy rate in the U.S.

“It is 70 percent larger than number two, which is Chicago,” he concluded. “Tenants that occupy our buildings are from national companies to local entrepreneurs and generally all have to be here serving this large population.”

One of the defining qualities of a leader is the ability to be comfortable making decisions in the midst of uncertainty, according to leadership consultant Julie Benezet, founder and managing principal of Business Growth Consulting.

Benezet, who formerly led Amazon.com’s corporate real estate department, recently spoke to attendees of the Women’s Leadership Forum at CoreNet Global’s spring meeting in New York.

Benezet pointed out that business leadership and management involve two different types of skill sets and executions. Management is concerned with ensuring a business plan goes forward, and the criteria of success and the end point of management projects are “knowns.”

Leadership, however, addresses larger strategic questions and requires the ability to inspire others to believe in a vision. A leader pursues “bigger, scarier, bets” and “to do that, she will have to go down the pathway of not knowing,” said Benezet. A leader who is correctly doing her job will be “traveling to a lot of unknown places” and “be comfortable with the discomfort of not knowing.”

Executives in the world of corporate real estate have to “figure out things long before everyone,” said Benezet. They are faced with a changing work world in which the needs for real estate are fast changing. They will ask a lot of questions for which there may not be answers. Leaders need to be “in a frame of mind that sees strategic opportunities in every moment,” Benezet added.

To pursue their dreams, Benezet suggested executives identify what drives them in their careers and in overcoming adversities, and what are their defensive mechanisms, such as micro-managing. It is only when they can properly manage their motivators and their blocks or defense mechanisms, that people can effectively pursue their possibilities, she concluded.