The Wall Street Journal
Frustrated with the shortage of U.S. properties for sale, some of America's biggest publicly traded landlords are going global.
The Macquarie Bank Building in Sydney is part of an Australian real-estate portfolio recently acquired by Brookfield Office Properties.
Vornado Realty Trust, which until now mostly has focused on investing in the U.S., has entered a bid for the global private-equity real-estate investment platform of Dutch financial company ING Groep NV, people familiar with the matter said. The ING business could offer Vornado teams in Europe and Asia, as well as the U.S., to manage property and scout for deals.
An ING spokeswoman declined to comment on Vornado's involvement, but said the Dutch bank is "conducting an evaluation" of the real-estate investment-management business, which has about $100 billion in assets under management, and that "a sale is not ruled out." Along with Vornado, private-equity firm Kohlberg Kravis Roberts & Co. and affiliates of real-estate brokerages CB Richard Ellis Group Inc. and Jones Lang LaSalle Inc. are among the firms still pursuing the business, people familiar with the matter said, with final bids due Dec. 1.
Other U.S. office landlords including Brookfield Office Properties and SL Green Realty Corp. in recent months did deals overseas or raised the possibility of doing them.
"London is, in our view, a gateway city and a global financial capital," Marc Holliday, chief executive of SL Green, one of Manhattan's biggest office landlords, said in an interview. "It's more parallel and akin to New York than almost any other domestic U.S. market."
But overseas acquisitions have stirred controversy. Some investors and analysts wonder whether there still are good deals to be had for U.S. real-estate investment trusts. Many overseas markets already are well-traveled both by local companies and U.S. firms that pursue private-equity strategies, such as the real-estate units of Goldman Sachs Group Inc. and Morgan Stanley. In the U.K., an index of office-building values is up 24% in the last year, according to CB Richard Ellis, and London property prices in particular have been bid up by a flood of foreign buyers.
REITs pursuing global strategies also have been criticized for straying beyond their expertise and possibly confusing Wall Street with a hodgepodge of properties. Publicly traded real-estate investment trusts generally have attracted investors by more targeted deal making: allowing people to invest in, say, shopping centers in the Northeast.
"For most REITs, investing overseas is not a core competency," said UBS analyst Ross Nussbaum. After SL Green disclosed last month that it had bought the debt backing an office building in London, Mr. Nussbaum dubbed it "the head scratcher of the week" because the company has made its name focusing on New York City.
The new appetite for overseas investments is partly fueled by the enormous amount of cash public real-estate companies have raised in the past two years for acquisitions. Real-estate investment trusts sold $34.6 billion in debt and equity in 2009 and more than $35.3 billion this year partly for investments. Relatively few properties have been put on the block because values still are well below their peak and banks are trying to avoid fire sales.
Also underlying the trend: Emerging similarities in global hubs such as London, Paris, New York, and Washington that some U.S. landlords believe they can exploit. Big banks and other multinational companies have offices in major financial centers around the world, and many may be interested in having the same landlords in New York and in Tokyo, some company executives believe.
These "global cities" have performed much better in the economic recovery than second-tier cities, drawing an influx of big real-estate investors looking for a stable place to put their money.
"We own modern office properties in the world's largest, most dynamic, business-forward cities," said Brookfield Office Properties Chief Executive Ric Clark. "The tenants that we deal with are in every one of those cities."
Brookfield Office, which owns 70 million square feet of property in North American cities, this year paid $64 million for a 50% interest in a London development project and shelled out $1.4 billion to buy 16 Australian office properties from its controlling shareholder, Brookfield Asset Management Inc.
Office landlords aren't the first to come up with the idea of establishing a global brand for multinational tenants. Warehouse companies ProLogis and AMB Property Corp. became Wall Street darlings during the economic boom by becoming one-stop real-estate shops for companies with global logistics needs.
While warehouse developers can offer global companies uniform construction and warehouse technology, the market demand for a certain office building usually is driven primarily by location, not by the landlord.
For Vornado, a REIT that owns 35 million square feet of office space in New York and Washington, the bid for ING's real-estate-investment business comes as company executives have expressed frustration with the dearth of good deals available in the U.S. real-estate market. The company has explored off-the-beaten-track ways of making money from the downturn, including a $600 million investment in J.C. Penney Co. stock. "We're going around the margins trying to find value," Vornado Chief Executive Michael Fascitelli said at a conference last month.