A Kuwait Firm Buys GE Offices -- WSJ
October 19 2016 - 2:02AM
Dow Jones News
By Peter Grant
A Kuwait-based financial-services firm seeking more diversity in
a world awash in cheap oil is paying $107 million for a new
Cincinnati office building occupied by General Electric Co. in its
biggest real-estate investment in the U.S.
KAMCO Investment Co.'s purchase of the new development, named
General Electric @ The Banks, is a sign that a new cadre of foreign
investors is playing a bigger role in U.S. commercial real estate,
even in smaller markets like Cincinnati.
The deal comes at a tricky time for U.S. commercial real estate.
Overall U.S. sales volume was down 12.2% from last year to $299.1
billion as of the end of August, according to data firm Real
Capital Analytics.
But a few foreign players are boosting spending. Chinese
investors have purchased or have contracts to buy $12.6 billion
worth of property in 2016, more than double last year, while
investment from Kuwait jumped to $726 million from $500 million,
Real Capital said.
What's more, KAMCO's investment in Cincinnati comes as foreign
and other investors increasingly are looking to smaller cities for
deals with higher yields.
Foreign investment used to focus on major markets such as New
York, San Francisco and Chicago. But prices in those cities have
soared in recent years, driving down yields or so-called
capitalization rates, a common metric in the real-estate industry
that shows the relationship between price and income.
At this later stage in the cycle, cap rates are more attractive
for buyers in smaller markets. For example, the cap rate in KAMCO's
purchase of the 12-story Cincinnati building is about 5.5%,
according to people involved in the deal, meaning that the
building's annual income is about 5.5% of its purchase price. In
cities like New York and San Francisco cap rates of high quality
office buildings are well below 5%.
KAMCO, which is listed on the Dubai stock exchange, has been
expanding its investments geographically as it deals with a
"dramatic drop in oil prices," the company said in its 2015 annual
report. The Cincinnati purchase is part of that diversification
effort, according to Faisal Sarkhou, KAMCO's chief executive.
KAMCO is looking for other U.S. property, Mr. Sarkhou said in an
interview with The Wall Street Journal. Besides diversification,
KAMCO is getting know-how from the U.S. real-estate industry, he
said. KAMCO hopes to "cross fertilize" its experience with other
participants in U.S. deals "to build at home and develop new
markets," he said.
Participants in the Cincinnati deal include 90 North Real Estate
Partners LP, an investment company with expertise in working with
Middle East partners. The London-based firm helped negotiate and
structure the purchase of the building from its developer,
Atlanta-based Carter & Associates LLC, and also took a small
equity stake.
About 60% of the purchase price came from Des Moines-based
Principal Global Investors, according to Daniel Cooper, who is head
of 90 North's operations in North America. Principal's investment
was structured as a lease to keep the deal compliant with the
financial rules of Islamic or "Shariah" law, he said. Principal
didn't immediately respond to a request for comment.
KAMCO's risk is limited because General Electric has leased most
of the space in the building for 15 years, with options for another
25 years. GE, which has links to Cincinnati dating back to 1948,
occupied the building last month.
GE two years ago leased the space on the banks of the Ohio River
and promised to move up to 2,000 workers there. With many of the
jobs coming from suburban locations, the deal has been hailed as a
sign that rust belt cities were beginning to enjoy the same trends
that have been rejuvenating larger cities on the East and West
Coasts.
Office tenants in Cincinnati occupied an additional 160,000
square feet as of the end of the second quarter, according to
real-estate investment-services company JLL. That helped push the
vacancy rate down to 15.9%, JLL said.
Downtown Cincinnati also has seen an increase in residential
development and the opening of new bars and restaurants. A new $120
million waterfront park has been opening in phases for about five
years.
Eastdil Secured LLC represented Carter in the sale to KAMCO.
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
October 19, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
GE Aerospace (NYSE:GE)
Historical Stock Chart
From Apr 2024 to May 2024
GE Aerospace (NYSE:GE)
Historical Stock Chart
From May 2023 to May 2024