Newspaper article

Foreign Investors Are Flocking to Minneapolis Commercial Properties

Newspaper article

Foreign Investors Are Flocking to Minneapolis Commercial Properties

Article excerpt

Is downtown Minneapolis going down the drain?

Apparently not, according to foreign investors. They are upping their outlays in commercial real estate -- office buildings, industrial sites and shopping centers -- in the Minneapolis area. So says Jones Lang LaSalle Capital Markets Research, a global property management company.

That may come as a bit of a surprise, considering that the IDS Center, Capella Tower and some other iconic, downtown buildings have recently gone on the block. A batch of such up-for-sale announcements occurring all at once might make you feel as though everybody's running away.

Maybe some of those owners are abandoning ship, but others are climbing aboard.

In the second quarter of 2012, the Twin Cities reeled in $384 million in cross-border commercial real estate investments. That amount put it in the top 10 of the nation's cities, No. 8 to be exact, sliding in ahead of Boston and Phoenix, both of which are larger. (Just in case you were wondering, London is -- and remains - - the most sought-after location for real estate investment dollars.) Here's how the U.S. numbers shake out:

According to Josh Gelormini, vice president of Jones Lang's Americas Research Group, some $180 million went into retail, $153 million into office buildings and $51 million into industrial properties.

Before anybody comes down with a heavy case of xenophobia, you should know that "cross-border investment" does not necessarily mean that Kim Jong-un of North Korea bought Nicollet Mall or that the notorious Joseph Kony now owns a parking lot around the corner from your office.

Foreign investment, says Gelormini, means that the money is "globally sourced." Usually, it is a pool of funds, mostly from overseas, collected by a financial institution -- a pension fund, a private equity company, a bank or an insurer -- that is invested in a portfolio of properties.

A mover in the Twin Cities market recently has been IndCor, an affiliate of Blackstone Real Estate Advisors, which is in turn part of the Blackstone Group, a gigantic New York-based private equity group a la Bain Capital, with offices in Asia and Europe.

Ownership by such abstract entities may seem somewhat unsettling, but when office and industrial buildings cost hundreds of millions of dollars, you can't expect even Warren Buffett to go all in on one.

Foreign money has come into to the U.S. real estate market as part of what Gelormini calls "a safe haven strategy." Investors abroad are desperate to avoid volatile global economic conditions both in Europe and in developing nations. And for those who are looking for a better return than what U.S. Treasuries are paying (the yield on a five-year bond is currently 0.65 percent), real estate makes a decent option.

It's no surprise about most of the cities on the list. …

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