US Real Estate Groups Hunt for Capital in Australia

The The Star Online - November 7, 2005

US real estate groups are flocking to Australia to tap a juicy source of capital: A$4 billion of annual pension savings chasing property.

With 10% of Australia's share market devoted to property, compared with about 2% of the US market, US real estate groups see a new wellspring of money. The drawcard for the Americans is that Australian property fund managers value the steady income that comes from real estate, and tend to be longer-term investors than their US peers, who are more focused on capital growth.

Tishman Speyer, which owns iconic properties like New York's Rockefeller Center, last December became the first US group to float a trust in Australia, its only publicly-traded fund worldwide. It raised A$520mil to buy a 45.9% stake in a US$1.85bil portfolio of office buildings mainly in New York, Chicago and San Francisco in a joint venture with Singapore's Government Investment Corp Real Estate Pte Ltd (GIC) and Tishman Speyer.

It was followed by Reckson Realty Corp, which raised A$263mil in September with the float of Reckson New York Property Trust, giving Australians a 75% stake in offices in and around New York, while Reckson kept 25%.

Now, there are companies flying over without any deals to sell, just to meet fund managers in Australia. To the extent a deal ever materialises, the best way for us to get execution is to build those relationships well in advance of that,” said Maryland-based shopping centre group Federal Realty Inc vice-president of investor relations, Andrew Blocher.

The job has become a little harder for US groups, as the gap between cheap debt and rental yields in the US has shrunk, spurring Australian property investors to shift their own offshore focus to Europe.

The US groups say they are not coming to Australia because the capital is cheaper than at home, or because they are looking to unload inferior properties. “If I look at US office acquisitions, Australian capital is by no means cheap,” said Tishman Speyer's Feldstein. Tishman Speyer chose Australia to complete the funding of the group's joint venture with Singapore's GIC, seeing it as a potential platform for a global real estate fund, he said.

Reckson's fund manager in Australia, Francis Sheehan, said if Reckson had been looking to dump assets, it would have been better off selling them in the US. “We could have gained a much higher price,” he said. “But, we retained 25%, which is pretty high in the industry, because we believe in assets and markets.” Reckson is managing the trust with no performance and no promotion fees in contrast to Tishman Speyer.

Californian property giant Maguire Properties Inc joined the trend, selling down stakes in 5 buildings into a US$1.2bil joint venture with Macquarie Office Trust. Sphere: Related Content