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Overseas Buyers Retreating From Local Commercial Real Estate Market

U.S. commercial real estate investors aren’t the only buyers who’ve cut back on their purchases. International investors, who have long eyed American assets because of the weak dollar and the growing number of attractive, but distressed properties, have also stepped back.

“Investors don’t want to be buying in a declining market,” said Lynn LaChapelle, a broker with Jones Lang LaSalle in San Diego.

LaChapelle and Bob Prendergast, managing director of Jones Lang LaSalle’s capital markets group, sold Paseo Del Mar, a Class A office building in Del Mar Heights, which ranks one of 2008’s top sales.

She said the sale to a German firm may be the last involving a foreign investor for a while in the county.

“Foreign capital comes in waves,” said LaChapelle.

It appears as though the latest wave recently ended.

In June 2007, local developers Lankford & Associates sold Broadway 655 to Dutch real estate investor Wereldhave for $210 million. The 23-story property was 80 percent leased at the time of sale.

The tower, completed at the end of 2005, was the first new commercial office building constructed downtown since 1991.

Wereldhave said at the time that the acquisition fit its policy of acquiring newer, quality properties with high occupancy rates.

In September, Wereldhave acquired DiamondView Tower near Petco Park from San Diego-based Cisterra Development for $161million. The 306,800-square-foot, 15-story building was 91 percent leased at the time.


Too Small In Size

In July, Metzler North America, a division of a German property fund, bought Paseo Del Mar, a three-unit office campus in Del Mar Heights, for $147.9 million. The 232,000-square-foot campus was 98 percent leased at the time of sale.

LaChapelle said local properties on the market currently are too small in size to attract foreign buyers.

She said most look for properties of more than $50 million with high occupancy and located within central business districts.

There are only a handful of properties that fit this criteria in the San Diego region.

Instead, LaChapelle said foreign investors are looking for properties in the larger markets, including New York and Washington, D.C.

“Capital is fickle,” said LaChapelle. “People want to buy the best quality asset in the best market for the best price.”

In addition, LaChapelle said international buyers scour “gateway cities” such as Boston, New York and San Francisco for deals.

“Going forward, San Diego will probably not be on the receiving end of a tremendous amount of foreign capital,” said LaChapelle.

Kraig Kristofferson with CB Richard Ellis in San Diego says he agrees that foreign acquisition activity will slow. He cited global economic difficulties and the lack of available financing.


Wait-And-See Attitude

Kristofferson, a buyer’s broker who represented Wereldhave in the acquisition of Broadway 655 and DiamondView Tower, said overseas investors are taking a wait-and-see attitude.

Yet, there are mixed projections for the year ahead. One group of foreign investors says they are gearing up to invest in the U.S. market.

The Association of Foreign Investors in Real Estate said it expects overseas buyers to spend significantly more in 2009 than 2008.

The report by the association said foreign lenders say they plan to increase lending 58 percent domestically.

In addition, equity investors plan to increase activity by 73 percent stateside.

The survey was conducted in the fourth quarter among association members, who hold $1 trillion in real estate, including $371 billion in the United States.

C. McLaine Kenan, who is chairman of the association, says members acted conservatively in 2008 but are poised to move more aggressively on acquisitions this year.

Survey respondents said multifamily was the preferred property, followed by office, industrial, retail and hotel.

For the past two years, office buildings had topped the interest list.

While interest may be up in other regions, buyers will most likely pass on San Diego.

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