Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/753030
18 S C T / D E C E M B E R 2 0 1 6 S overeign wealth funds were not fond of retail properties in the U.S. in 2016, directing their investments toward other kinds of commercial properties instead. But then again sovereign wealth funds (as the government- owned investment funds of various countries are called), which often have billions of dollars to invest, have traditionally been erratic investors with regard to U.S. shopping centers anyway — sometimes investing hundreds of millions in this segment in the course of a year, but just as often not buying any retail at all. Sovereign wealth fund acquisition of U.S. retail properties was at zero for 2013 and 2014, before climbing to a record $1.7 billion across 10 transactions in 2015, according to New York City–based Real Capital Analytics. This year things cycled back, with only one listed transaction, valued at $289 million, and that deal hardly fit the usual pattern for sovereign wealth funds, not being a trophy asset. "Sovereign wealth funds are very selective, as their preference is to acquire trophy retail properties in the major gateway cities," said Mark Bratt, senior managing director and head of U.S. retail investment sales for CBRE. Those gateway cities are Boston, Chicago, Sovereign wealth skips retail, for now Foreign investment in the U.S. retail sector slowed this year. Australia, Canada and Taiwan were the top investors AUSTRALIA $231.9 $144.6 $119.6 $51 $42.9 $42.7 $31.1 $16.4 $12 $6.3 CANADA TAIWAN SWITZERLAND BRAZIL CYPRUS ISRAEL CHINA IRELAND JORDAN As commercial real estate enters the late stages of the credit cycle, when construction is more feasible, the growth and evolution of commercial real estate marketplace lending bears watching, according to a new report from Moody's Investors Service. Such peer-to-peer lending comprises a growing slice of the multitrillion dollar U.S. commercial real estate finance industry, yet the sector has barely begun to realize its potential, Moody's says in a new report. "Marketplace lending in the commercial real estate sector promises efficiency and speed of execution in terms of mortgage loan originations, as well as access to previously untapped sources of capital," said Tad Philipp, director of commercial real estate research. Marketplace lenders in the commercial real estate space received a boost from a 2013 federal law that allowed businesses to publicly solicit investments from accredited investors, Philipp says. The sweet spot for commercial real estate marketplace lenders is currently loans of less than $5 million. Moody's expects these types of lenders will, at least, prompt peers to raise their game. Los Angeles, New York City, San Francisco, Washington and a handful of other metros where the real estate market is concentrated and where opportunities for new construction are few. Among the retail deals of busy 2015, CBRE acted as financial adviser to the seller of an asset on Arch Street, in Washington, where a Swiss pension fund paid $106 million for a "high-quality urban asset" with retail on the ground floor and office space above. "Most of the income from the building came from the retail," said Bratt. "It sold at a sub-5 [percent] cap rate." Sovereign wealth funds prefer big outlays of capital, so as concerns retail, they prefer top-tier malls or high-street buildings such as that deal in Washington. "Sovereign wealth funds tend to be very conservative investors," said Jim Costello, a senior vice president at Real Capital Analytics. "When they invest in real estate, it's generally a capital- preservation play. They want safe assets so they are not looking at a power center at the outskirts of town that may need a lot of work. What they want is a regional mall with the highest-end shopping. But no one is selling that. Typically, the real estate investment trusts own those assets, and the REITs are not looking to sell." — Steve Bergsman PEER- TO-PEER LENDING Retail investment sale volumes ($ millions) Q1 2016 Q2 2016 F I N A N C E T H E C O M M O N A R E A