REal Talk with Adam Perrotta - Tuesday

In an investment market where many buyers have remained on the sidelines--either due to not being able to get their hands on acquisition dollars or still waiting for prices to hit bottom--sovereign wealth funds could enter the buying scene in a big way, according to a report Deloitte.

It would seem that the most logical SWF buyers would be Middle Eastern and other oil-rich nations. While the energy sector has been hit by the sluggish economy, the sky-high oil prices that prevailed before the crash truly hit likely gave these funds plenty of reserve cash. Add in the fact that prices are slowly creeping back up again, and these SWFs surely have plenty in their coffers.

The question is, where will they spend it? What types of properties will be most attractive to SWFs? What markets? Will funds look for outright ownership, or partner with domestic owners? And at what point will the funds really start buying in earnest? Will they wait for other types of firms to make the first move? Or will they look to lead the market?

A lot of questions, some of which might soon be answered.

Canada Hotel Sector Sees Unexpected Dropoff

Last week I blogged about the Canadian leasing market and about increasing activity north of the border. I talked about the industrial sector as well as investment getting plenty of attention, but I haven’t talked about hotel sector. Later that same week I wrote a story about the global credit crunch and recession hampering Canada’s hotel sector. A new report by Colliers International indicated that the Canadian hospitality market experienced a 77 percent decline in investment activity over the past year, falling to $1.1 billion.  However, despite the downturn in activity, the report expressed optimism for the future.

Even though Canada in general is doing better than other hotel markets, the country’s economy has slowed and as a result has affected new hotel development to a degree. At the same time, Canada’s banking system has fared better than the United States’, as banks there largely avoided subprime mortgages. Thus lending for hotels in Canada is less constricted than in its neighbor to the south. But how long can this continue? Will Canada remain relatively insulated from the economic problems that have hampered the market here in the U.S.? Or could Canada's hotel market falter further in the coming months?

Activity Continues North of the Border

I wrote a story last week about the Canadian leasing market, and it has occurred to me that there has been a lot of activity going on in Canada--across most sectors--in the last few months. It seems as though despite widespread downsizing among companies, the gloomy economy has not prevented firms such as AMB Property Corp. from luring in tenants. Last week, the firm has leased approximately 250,000 square feet of space at its AMB Millcreek Distribution Centre in Toronto to a leading global transportation services and logistics management company. AMB has been drawing tenants to its Canadian  properties for a while now. Late last year, it leased more than 590,000 square feet of industrial space to a wholly-owned subsidiary of a Fortune 100 company, stabilizing its more than 1.1 million-square-foot development in the Greater Toronto Area West submarket. Also in 2008, the firm leased more than 532,000 square feet of the development to Vitran Logistics, a wholly-owned subsidiary of Vitran Corp. Inc.

But what captured my attention even more was that industrial leasing was not the only area getting attention in Canada. Also last week, our contributing editor Barbra Murray reported that in Calgary developers of the 1 million-square-foot Phase I of the $1 billion Eighth Avenue Place aren't giving much thought at all to the idea of bringing construction to a halt at a time when major cities around the world are seeing construction projects put on hold because of financial struggles. Montreal-headquartered international investor SITQ, Calgary's Matco Investments Ltd. and Alberta-based Alberta Investment Management Corp. are the owners of the development.

And on the investment front, last week RioCan Real Estate Investment Trust announced the completion of acquisition of the portfolio of six grocery-anchored properties located in the greater Montreal area totaling approximately 454,000 square feet. The purchase price for the portfolio was $67.5 million. Also, the Manitoba Public Insurance Corp. said earlier this month that it has agreed to acquire Cityplace, an office and retail complex in Downtown Winnipeg, from Huntington Real Estate Investment Trust for $81.5 million.

Are these deals evidence that Canada is still doing well in spite of the gloomy economy? Will developers and investors continue to look for opportunities north of the border?

International Groups to Tackle Affordable Housing as Global Real Estate Challenge

-- On a global level, there are no geographical boundaries when it comes to affordable housing shortages. And with that topic in mind the United Nations Economic Commission for Europe (UNECE) recently held a seminar in New York City along with its Real Estate Market Advisory Group (REM) and the International Real Estate Federation (FIABCI) to address the affordable housing issue and the role it can play in rebuilding the real estate market.

In addition to examining the source of the current real estate development plight and its social consequences, the seminar's panel of industry experts spoke about potential solutions to the problem and the importance of determining alternative models and tools to address the housing issue on a worldwide platform.

The group noted that refined and increased regulation should be a vital component of a new approach, as should a retreat from global markets in favor of a more efficient incorporation of domestic resources. Additionally, the experts resolved that a higher degree of monitoring and international coordination should also be a priority. Panel members also cited such cooperative endeavors as public-private partnerships as a practical means of bolstering the refurbishment and construction of affordable housing.

UNECE is already taking action push the ideas promoted at the seminar beyond notion stage and into practice for its member countries. The organization's real estate group, REM, will host a conference in Rome in late March to hammer out the details for a new manual, of sorts, the "Guidelines for the Development of the Real Estate Market for Social and Economic Benefits."

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Century Casinos to Sell South African Properties for $48M

By Michael Fickes, Contributing Correspondent

-- Century Casinos Inc. is selling Century Casinos Africa Ltd. to Tsogo Sun Gaming Ltd., a casino and hotel resort owner and operator in Southern Africa.

The Fourways, South Africa-based Tsogo Sun Gaming has agreed to a purchase price of $48 million. The properties include The Caledon Hotel Spa & Casino near Cape Town (pictured) and 60 percent of Century Casino Newcastle in Newcastle.

Century Casinos is an international casino entertainment company. It owns and operates casinos in Cripple Creek, Colo., Central City, Colo., and Edmonton, Alberta, Canada.The company also operates casinos aboard a number of cruise ships.

The company's Austrian subsidiary, Century Casinos Europe GmbH, holds a 33.3 percent ownership interest in Casinos Poland Ltd, the owner and operator of seven full casinos and one slot casino in Poland.

This is the second sale announced by Century Casinos this month. Early in December, the company announced the sale of the Century Casino Millennium in the Marriott Hotel in Prague for $2.3 million.

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First Industrial Gets $110M Loan for CalSTRs JVs, Discontinues European Operations

By Gail Kalinoski, Contributing Editor

-- First Industrial Realty Trust Inc. has obtained a new $110 million term loan facility for its joint ventures with the California State Teachers' Retirement System (CalSTRS), the second-largest public pension fund in the United States. The news came one day after the REIT said it was discontinuing its European operations as part of a cost-cutting measure.

The Chicago-based REIT said Thursday that the three-year term loan is priced at LIBOR plus 2.75 percent. The loan could be expanded up to $275 million and allows for a revolving credit line of up to $175 million, for a total potential facility of $450 million. A syndicate of three banks provided the loan: WestLV, acting as administrative agent; PNC Bank and Regions Bank.

“The ability to execute this term loan at attractive terms in the current challenging credit environment reflects the quality of our joint venture assets, our sponsorship and our joint venture partner,” Ed Tyler, First Industrial's interim CEO, said in a company news release.

Robert Walter, senior vice president of capital markets for First Industrial, led the company’s team on the transaction.

First Industrial has been working with CalSTRS for some time. As reported Sept. 23 by CPN, the REIT extended the terms of five joint ventures with CalSTRS through December 2018. The JVs are: the $1.6 billion Development and Repositioning JV (FirstCal 1); the $1.6 billion Strategic Land and Development JV (FirstCal 3); the $475 million FirstCal Europe JV; the $285 million FirstCal Canada JV; and the 2005 Core JV (FirstCal 2), which was formed for the acquisition of a $1 billion portfolio.

First Industrial and CalSTRS had also extended the respective investment periods for the Development and Repositioning JV; the Strategic Land and Development JV; FirstCal Europe; and FirstCal Canada through December 2011.

In October, First Industrial said the FirstCal Europe JV had invested in two buildings with a total of 1.3 million square feet that were to be built in a business park in Belgium. An Oct. 8, CPN report noted that construction had started on the first building, a 461,000-square-foot distribution center in Bornem.

On Wednesday, First Industrial announced it was discontinuing its European operations as part of an ongoing cost-cutting and realignment program. A First Industrial spokesman told CPN that the company was closing its offices in France, Germany, the Netherlands and Belgium. He said about 20 employees there would be let go. The two buildings in Belgium that it had invested in as part of the CalSTRs JV are the only commitments or assets the REIT had in Europe. "At this time, we have a forward commitment. In terms of what will happen to them in the future is yet to be determined," the spokesman told CPN.

The company also said Wednesday that Mike Havala, its CFO, had resigned and was replaced by Scott Musil, who had been the REIT’s chief accounting officer. The resignation comes almost two months after Michael Brennan stepped down as president & CEO amid turmoil in numerous REITs due to the recession. First Industrial’s stock price, which had traded as high as $37.23 per share, was trading Thursday on the New York Stock Exchange at about $7.75 per share at mid-day.

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ProLogis Announces Leases in Japan, Nevada

By Elena Gontar, Staff Writer

-- ProLogis has pre-leased approximately 190,000 square feet near Tokyo to Arata Co., a wholesale distributor and third-party logistics provider.

Construction on ProLogis Parc Zama I, a five-story distribution facility totaling more than 1.2 million square feet and located in the city of Zama, commenced in April 2008. Arata is expected to occupy the space upon completion in June of 2009.

This is ProLogis' second lease with the company.  Arata currently occupies approximately 129,000 square feet at ProLogis Parc Funabashi in the city of Funabashi, near Tokyo.

The city of Zama is a central logistics hub in Japan's Kanagawa Prefecture, providing convenient access to the greater Tokyo and greater Nagoya areas. ProLogis Parc Zama I is located 25 miles from Downtown Tokyo along Route 246. The park also is near a commuter train station.

ProLogis' Japan portfolio totals 38.2 million square feet  of industrial space owned, managed or under development. Major customers in the country include DHL, Nippon Express, Panasonic Logistics, Askul, Hitachi Transport System, Seiyu/Wal-Mart, Yamato Logistics, FedEx and Nikon.

Additionally, ProLogis announced today that it has signed lease agreements for distribution space totaling 272,000 square feet in shell-development facilities in Reno, Nev.

Husqvarna Professional Products Inc. has leased 90,000 square feet of previously un-leased space from ProLogis at Silver Lake Business Park. The company will use the facility to distribute its products to customers throughout the West Coast. This is ProLogis’ first lease agreement with Husqvarna.   

Moreover, Jacobson Cos., an Iowa-based third-party logistics provider, is relocating and expanding with ProLogis into 182,000 square feet of shell-development space at Tahoe-Reno Industrial Center.

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ULI Sees Turbulent Times for Asia Pacific CRE

By Eugene Gilligan, Senior Editor

-- Declining asset prices, rising cap rates, and rising foreclosures have characterized the commercial real estate sector in the U.S. of late, but this gloomy scenario will likely become more familiar in the Asia Pacific region as well, according to the Emerging Trends in Real Estate Asia Pacific 2009 report, recently released by the Urban Land Institute and PricewaterhouseCoopers L.L.P.

The report provides an outlook on real estate investment and development trends, as well as trends by property sector and metropolitan area. The report is based on the opinions of a range of real estate professionals, including developers, investors, property company representatives, lenders, brokers, and consultants.

The report found a significant and possibly permanent change, as Asian banks have re-rated real estate for risk, and with debt being re-priced, investors will demand higher yields. Financing acquisitions with high leverage appears to be a thing of the past.

No area of the Asia Pacific region is immune from the effects of the economic downturn and the credit crisis, according to Stephen Blank, ULI’s senior resident fellow for finance. He noted that Hong Kong, which many experts thought might largely escape the effects of the global downturn, is feeling some pain.

“Residential prices are down, and the downtown office sector is showing some weakening,” Blank said.

Not surprisingly, Blank notes that the financial services sector across Asia Pacific has been severely affected.

“But the manufacturing sector has also been hit pretty hard,” he said.

Many of the survey’s interviewees said they will be selective in their investments. One interviewee said he would be “picky about markets and partners.”

Blank notes that commercial real estate pricing is off about 20 percent from their highs in the U.S., and survey participants expect the same to be true in the Asia Pacific. Blank said, though, it may be too early to be certain how steep pricing declines might be, because transaction levels have been muted.

“We’ll have to wait until the refinancing ball gets rolling, to see what the banks do,” he said. “There could be more volatility.”

In terms of investment, Tokyo, Singapore, and Hong Kong rank one, two and three, respectively. Shanghai fell from first to fifth place, ranking after Bangalore. Bangalore, Mumbai, Taipei, New Delhi, and Kuala Lumpur are all new entrants to the top 10.

The office sector took the top ranking for both investment and development. Ho Chi Minh City is ranked the best market for buying office properties, followed by Tokyo, Mumbai, Shanghai and Bangalore.

The industrial/distribution sector ranks second for favored property types. Shanghai gets the top buy rating, followed by Ho Chi Minh City, Bangalore, Mumbai, and Guangzhou.

Retail ranked third, with Ho Chi Minh City gaining the top buy rating, followed by Mumbai, Shanghai, Bangalore, and Beijing. Residential (rental) apartments rank fourth in property sectors, with Ho Chi Minh City, Mumbai, Bangalore, Tokyo and Taipei the top five buy markets.

Hotels saw a major change in investor sentiment in this year’s survey, tumbling to fourth place after being the favored property type last year. The top five markets are Mumbai, Bangalore, Ho Chi Minh City, New Delhi and Shanghai.

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Pair of Firms Lease 250,000 SF at ProLogis Complex in Japan

By Elena Gontar, Staff Writer

-- ProLogis has signed new lease agreements for approximately 250,000 square feet of distribution space in Osaka, Japan to two third-party logistics providers.

Sankyu Inc. has leased approximately 184,600 square feet at ProLogis Parc Osaka II, a distribution facility located at the Port of Osaka. Sankyu currently leases approximately 54,000 square feet from ProLogis at ProLogis Parc Amagasaki.

Also at ProLogis Parc Osaka II, Kintetsu World Express  has leased approximately 64,500 square feet. Kintetsu is now occupying approximately 209,000 square feet of ProLogis' facilities in locations across Japan, China and in the United States.

"Our portfolio of industrial properties around the Port of Osaka continues to attract leading Japanese companies looking to maximize the efficiency of their supply chain operations," Mike Yamada, co-president of Japan for ProLogis, said in a release. "We are pleased to increase our business with both Sankyu and Kintetsu at ProLogis Parc Osaka II."

ProLogis Parc Osaka II is an eight-story, 1.8 million-square-foot distribution facility. Other customers at the park include Daikin Industries, Hamakyorex, Flobal Corp. and Vantec Corp.

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China's Tallest Tower Breaks Ground in Shanghai

By Elena Gontar, Staff Writer

-- Ground has broken on Shanghai Tower, planned to be China's tallest building at 2,074 feet high. The project, being developed by Shanghai Tower Construction & Development Co. and designed by Gensler, is slated for completion in 2014.

Shanghai Tower (pictured) is located in the Luijiazui Finance and Trade Zone. The project will complete a trio of towers including the adjacent Jin Mao Tower and Shanghai World Financial Center. The building will house Class-A office space, retail, a luxury hotel and cultural venues. Below-grade facilities include retail, connections to the Shanghai Metro and three floors of parking.

"With Shanghai Tower we celebrate not only China's economic success and increasing connection to the global community, but also our company's commitment to developing properties that demonstrate the highest, noblest and most exquisite design achievements possible," Qingwei Kong, president of Shanghai Tower Construction, said in a release.

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