Archives for December 2019

Overseas investors in U.S. commercial real estate assets, including those based in China, are now net sellers as a group, according to a new report by Real Capital Analytics.
That group’s dispositions were outpacing acquisitions by nearly $20B during the first three quarters of 2019. Assuming the trend continues through the rest of 2019, that would make this year the first one since 2012 that overseas investors sold more U.S. properties by dollar volume than they bought, according to RCA.

The relative outflow of CRE investment capital from the United States during Q3 continues a well-established trend this year, with overseas investors shying away from ever-bigger stakes in U.S. property.
RCA characterizes the change as a return to more normal investment pattern, not a crash.
All together, non-U.S. investors snapped up $10.5B in U.S. commercial assets during Q3, the company’s U.S. Cross-Border Investment Compendium for the third quarter shows. At the same time, they sold $29.2B in assets.
One deal in particular raised the total net sales of U.S. assets during the quarter: Singapore-based GLP’s massive sale ($18.7B) of American industrial properties to Blackstone Group. It counts as a Chinese disposition, since a Chinese consortium acquired GLP in 2017.
As recently as 2018, China was the fourth-largest overseas investor in U.S. properties, with Canada topping the list every year, according to RCA. During Q3 2019, investors from China bought about $1.41B in U.S. CRE, down 75% from the same period a year earlier.
The recent drop in Chinese investment is in stark contrast to the mid-2010s, or roughly 2014 to 2017, when Chinese investors seemingly couldn’t get enough American (or other foreign) assets, bagging a number of trophy properties in gateway cities.
Other factors may be at work in the Chinese pullback besides the Sino-American trade war, especially Chinese government policy.
“Chinese investors have become net sellers as authorities in China have restricted speculative outbound investment,” the report says.
Even No. 1 investor Canada’s investment volume is contracting, the report notes: the total was $25.7B during Q3, down 24% year over year. No. 3 investor Singapore was also down 60% year over year, with a total of $2.8B for the third quarter.
Other countries were variously up and down for the year in Q3 2019. More capital flowed into U.S. assets from Germany, Switzerland, Israel and Bahrain, for instance, but less from the Hong Kong SAR, the Netherlands and France.
Among individual investors, RCA says, the top cross-border buyer into the U.S. during the third quarter was Brookfield AM of Canada, acquiring 161 properties for more than $12B.
Allianz of Germany was a distant second, buying four properties for less than $5B. No individual Chinese investor was in the top 20 buyers by dollar volume during the quarter.
By: Dees Stribling (Bisnow National)
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According to a new report from CBRE, strong fundamentals have increasingly made U.S. medical office real estate a favorite of institutional investors, keeping investment volumes at high levels and capitalization rates low this year in relation to conventional offices.
CBRE’s report cites several factors behind the continued popularity of medical office, including a steady vacancy rate at 10.3 percent despite a 10-year high in construction completions in the second quarter, a sustained increase in average asking rents since 2013, and strong demand for health-care services due to an aging population and other demographic trends.
As a result, transaction volume for medical office buildings stands 50 percent higher this year than before the recession, though it has receded from its early-2018 peak. Foreign investors, domestic institutions and real estate investment trusts are steadily getting more active the medical office market. Cap rates – a measure of a property’s income as a percentage of its price – for medical offices have pulled even with those of conventional offices after years of registering higher.
“There is a continued rush by capital to this property sector,” said Ian Anderson, CBRE Head of Americas Office Research. “This is a generational, secular trend driving interest in this type of real estate. The median age of the American population is gradually increasing, and health care as an industry is moving more toward treatment at outpatient centers and medical offices than at hospitals.”
CBRE defines medical offices as office buildings in which at least half of leasable space is occupied by medical uses such as dental, surgical or special practitioners and services. Many such facilities include special power requirements, lab space and high parking ratios. This classification excludes medical stores, hospitals and long-term care facilities.
CBRE’s report identifies multiple markets with ideal conditions for additional growth in this sector, noting that West Coast markets tend to have the tightest vacancy, and Midwestern markets showed strong demand in the past year.
“Multiple indicators – economic and otherwise – point to continued healthy growth for this sector,” said Christopher Bodnar, CBRE Vice Chairman of Investment Properties, U.S. Healthcare Capital Markets. “Americans’ health-care spending has increased exponentially in the past 20 years to an unsustainable rate. As such, the healthcare industry and consumers continue to move toward outpatient treatment to help drive down costs. These are long-term, fundamental shifts that attract institutional investors to medical office.”

By: WPJ Staff
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Developers are remaining careful on land acquisitions this time around.

Multiple candidates for the Democratic presidential nomination proposed bans on hydraulic fracturing – a process used to extract fossil fuels from underground that was credited with the nation’s recent oil and gas boom – should they win the presidency.
The recent boom in extraction was led primarily by fracking provided billions in state revenue and made up more than a third of New Mexico’s budget.
Fracking involves the pumping of water, sand and chemicals underground to break up shale rocks, allowing oil and natural gas to be extracted for energy development.
U.S. Sen. Elizabeth Warren of Massachusetts said she would not only ban fracking but place a moratorium on any oil and gas leases on public lands.
“On my first day as president, I will sign an executive order that puts a total moratorium on all new fossil fuel leases for drilling offshore and on public lands. And I will ban fracking—everywhere,” Warren tweeted on Sept. 6.
But a report from the U.S. Chamber of Commerce’s Global Energy Institute found such policies could cost New Mexico 142,000 jobs or 15.8 percent of the state’s workforce and eliminate $86 billion in cumulative gross domestic product (GDP) through 2025.
A ban on fracking could also cause New Mexicans to lose $26 billion in household income, the report read, at an average of $10,723 per household in 2025.
The State would also lose $8 billion in state and local tax revenues during that time, read the report, and federal government tax receipts would drop by $8.3 billion.
From 2013 to 2019, New Mexico’s GDP grew by about $11 billion, per the report, up to $99.4 billion this year from $88.4 billion six years ago.
New Mexico’s unemployment rate also dropped from 6.9 percent in 2013, records show, to 4.9 percent this year.
“The bulk of those gains can be attributed to the recent boom in oil and natural gas production stemming from hydraulic fracturing,” read the report. “Because of hydraulic fracturing our air is cleaner, our economy is stronger, and we have stabilized global energy prices, reducing costs for American consumers and helping allies around the globe.”
Fracking debate shifting away from bans.
President of the Global Energy Institute Marty Durbin said he hoped the study could inform the national conversation about fracking, and move it away from outright bans to a discussion on what the industry can do to continue improving safety and protecting the environment amid the boom in fracking.
“We need to start shifting the debate,” he said. “You’ve got a lot of candidates trying to get attention. They’re taking extreme stances. I understand that, but they have to be held accountable.
“There’s real-world harm if you turn around and ban fracking.”
Durbin said New Mexico was ideal to open up the discussion, and point to the benefits – locally and nationally – of oil and gas development.
“We’ve shown it can be done safely. We can have those discussions,” he said. “Let’s continue to reap the benefits and see what that means for a state like New Mexico.”
The New Mexico study was the first part of a national study the Chamber was planning to publish in the coming months, looking at the impacts to six other states.
“(The study) really shows the interaction between industry, consumers and local government,” Durbin said. “It really shows what benefits can be attributed to which activity, so you can see that if you stopped a certain activity, what the impact would be.”
New Mexico leaders oppose fracking ban
A four-year moratorium on fracking throughout the state was proposed in Senate Bill 459, during New Mexico 2019 legislative session.
The bill died in the Senate Conservation Committee.
A fiscal impact report from the State’s Legislative Finance Committee (LFC) found the bill would cost New Mexico about $3.5 billion in lost revenue from oil and gas extraction, while costing local governments $327.5 million through the bill’s term until 2023.
“Substantial changes to how this industry operates in New Mexico – such as a temporary ban on hydraulic fracturing – would cause severe revenue losses,” read the report. “Without a source of revenues to replace these losses, this bill would have a substantial negative budgetary impact.”
New Mexico Gov. Michelle Lujan Grisham said she supported the oil and gas industry, and the role the Permian Basin region played in supporting the state’s economy.
“I’m an advocate for the state of New Mexico,” she said. “That means I’m an advocate for southeast New Mexico and all forms of energy including the fossil fuel industry.”
Nora Sackett, spokesperson for Lujan Grisham’s office said the governor would call on any Democrat elected to the White House to take a balanced approach and respect states’ individual needs instead of sweeping bans on industry practices.
“The governor would expect a Democratic White House to work with the different states and give them the ability to figure out how to best deliver on our collective transition to renewable energy sources and support our investments and different needs, as any competent and professional federal administration would,” Sackett said.
A U.S. Sen. Martin Heinrich (D-NM) said he was also opposed to ban on fracking. He said he supported a shift to renewable energy, but worried and outright ban could halt American energy production, forcing the U.S. to rely on foreign countries, putting national security at risk.
“As an engineer, I am certain that our capacity to confront the climate crisis rests heavily on our ability to make policy driven by facts, by data, and by the best available science,” Heinrich said.
“There’s no question we should be moving away from fuels that contribute to climate change. However, outright bans risk unintended consequences like shifting production to places like Venezuela and Russia.”
By: Adrian Hedden, Carlsbad Current-Argus
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