The global recession pushed many investors to the sidelines. Now that capital is back with a vengeance looking for a place to land, and some firms are moving beyond their own borders to clinch.
“When you do talk about the recession in the U.S. or the financial crisis around the world in 2009 and 2010, we slowed down a lot of our development. As the economies came back, we started allocating capital again,” says Peter Lowy, CEO of Sydney-based Westfield Group.
Last August, the Australian shopping center developer announced its intent to enter the Brazil market with a roughly $445 million investment. The company acquired a 50 percent interest in Almeida Junior Shopping Centers S.A., which currently owns and operates five shopping centers in southern Brazil, including two under development. The expansion represents Westfield’s first new market entry since entering the U.K. in 2000.
Westfield also is moving forward with plans to expand into Continental Europe with a regional shopping mall near Milan. The company acquired a 50 percent stake in a 60-hectare site adjacent to Milan’s Linate airport from Italian developer Gruppo Stilo. Despite the financial troubles in Italy and across Europe, Westfield was attracted to the project because of Milan’s high-income demographics and its reputation as one of the world’s fashion capital cities.
“When you look at our strategy as a company, we are expanding our presence in major iconic developments around the world,” says Lowy. At the same time, Westfield is selling assets that are producing marginal returns and taking the capital from those sales and rolling them into the new, larger projects, he adds.
Global investment activity represented some $400 billion in 2011, according to Jones Lang LaSalle. Although the first quarter got off to a slow start with $77 billion in direct commercial real estate investment occurring globally, JLL is forecasting that activity will pick up as the year progresses to produce a similar volume of investment activity in 2012. According to the first quarter report, cross-border and inter-regional transactions represent about 39 percent of all transactional activity, and global funds and REITs are leading the charge of international investing.
Investors such as New York-based W.P. Carey are committing significant dollars to overseas investments. Among the $1.2 billion in total investments the firm made in 2011, an estimated 65 percent were international transactions. The global investment management company specializes in providing corporate sale leaseback financing and build-to-suit financing. Recent retail deals include providing $57 million infinancing for Austrian developer BOP to build three modern big box stores in Croatia for Konzum, a Croatian-based food and beverage retailer.
“Our ability to fund 100 percent of the capital needed to complete the development of these retail sites highlights not only how we can provide alternative financing solutions to developers, but also shows the massive opportunity that we continue to see in Eastern Europe due to the lack of traditional bank construction financing,” says Jeffrey Lefleur, a managing director at W. P. Carey.
Retail expansion attracts capital
Ten years ago, few retailers had a global presence or were even considering international expansion. That has all changed, notes Lowy. U.S. retailers, for example, have cut back on domestic expansion and are instead expanding in Europe. In addition, international retailers are stepping in to fill some of the vacancies in U.S. retail malls and shopping centers. “You now deal with retailers on a global basis,” he adds.
The field of leading international mall developers remains a fairly short list. However, the push for international expansion coming from a wide variety of retailers from Gucci to the Gap may soon change that. The Internet has helped to fuel that international expansion by giving retailers access to new foreign customers. Gap, for example, has a good Internet presence in Australia, which has prompted the company to open physical stores in that market.
Indianapolis-based Simon Property Group is one firm that has joined Westfield in accelerating its international expansion in recent months. In March, Simon announced that it had acquired a 28.7 percent equity stake in the French shopping center company Klepierre for about $2 billion. Simon also has announced plans to develop Shisui Premium Outlets, as well as a new joint venture with BR Malls Participacoes S.A. to develop outlet centers in Brazil.
Despite the growing opportunities, investors and developers continue to tread carefully. Westfield typically spends several years getting to know a new market before committing major capital. For example, the firm’s investment in Brazil is a sizable stake, but not huge by Westfield standards. “It is not the largest investment that we have made, but it is a toe in the water,” Lowy says. “Our job in Brazil right now is to fully understand the marketplace and make sure the reality on the ground matches the potential we think it has.”
International investment in real estate estate will be discussed in the Global Real Estate Investment Strategies: Keeping the Flow of Capital Around the World session at the ICSC Retail Real Estate World Summit.