Australian Firms Building Real Estate Portfolios in U.S.

Thanks to a swelling pool of pension money, Chardonnay and Shiraz aren’t the only things Australians are shipping to the U.S. with a frenzy. Since November, a few leading companies have poured nearly $700 million into California office buildings and shopping malls, setting the stage for another record year for investors from Down Under.

Recent attempts by companies in China and Dubai to buy U.S. assets have triggered a backlash from American lawmakers. But little attention has been paid to the huge surge in investment from Australia, led by Macquarie Real Estate Inc., the Chicago real estate arm of Sydney-based Macquarie Bank.

Last year, Australian companies sank $6.1 billion into U.S. real estate, up from just $3.5 billion the previous year, according to Real Capital Analytics, a New York real estate research company. That was nearly twice as much as the total for Germany, the next-largest foreign investor.

Driving this torrent of Australian investment is an $800-billion pool of Australian pension money that is expected to grow to $2 trillion by 2012, said Mark Baillie, Macquarie’s real estate chief in North America and Europe.

Macquarie has invested $10.5 billion in North America over the last five years and recently closed on a portfolio of high-profile California office buildings that includes One California Plaza in downtown Los Angeles, Cerritos Corporate Center in Cerritos and Stadium Gateway in Anaheim.

Baillie, who also serves as chairman of the Assn. of Foreign Investors in Real Estate in Washington, expressed concern that the congressional outcry over the Dubai Ports World deal could lead to tighter controls on foreign funds. But barring some unforeseen disaster, he believes that the U.S. will remain a top choice for foreign investors.

“They’re looking at a lot of other countries outside the U.S., but they still call America home because of the safety and security,” he said.

Real estate isn’t the only area benefiting from Australian investors, who are also enjoying a strong currency and 14 years of consecutive growth. Macquarie has also sunk money into major U.S. infrastructure projects, including toll roads in San Diego, Chicago and Washington.

This week, Australia’s Woodside Energy unveiled a plan to build a liquefied natural gas terminal off the coast -- about 22 miles from both Point Dume in Malibu and the northern tip of Santa Catalina Island -- and another Australian company, BHP Billiton, has announced similar plans for a floating LNG facility farther north.

Ben Thornley, a New York-based investment specialist with the Australian government, said U.S. investment in Australia also was increasing, spurred by the recent completion of a bilateral trade pact. But he said the U.S. still had the stronger allure, with at least “100 billion Aussie dollars” seeking a home in the U.S. at any given time.

“There’s more money flying out of Australia than going the other direction,” he said.

Investment experts said Australia was on the leading edge of a boom in investments driven by the privatization of retirement systems around the world. In the early 1990s, the Australian government, concerned about its ability to serve a rapidly aging population, began requiring employers and workers to invest in private pension plans.

The rerouting of pension funds from that country to the U.S. hasn’t triggered warning bells here. Thornley said the close political alliance between the Bush administration and the Australian government has smoothed the way for business.

Not all Australians are newcomers. Westfield Group, the world’s largest publicly traded retail property firm, came to the U.S. in 1977 and expanded rapidly in the 1990s when the American shopping mall industry was undergoing massive consolidation. Westfield is now the largest shopping center owner in California and last month agreed to buy 15 stores from Federated Department Stores Inc.

Peter Lowy, Westfield Group co-managing director, said his firm would spend as much as $4 billion over the next five years on renovations of its U.S. malls, including a $500-million upgrade of its Century City property that will include 260 luxury condominiums. “We’ve been here so long that we’re viewed as a domestic company,” said Lowy, who is also making a big bet on Britain with plans for a $2.7-billion mall in downtown London.

Some U.S. investors are starting to bypass Wall Street and head straight to Australia. In 2004, Tishman Speyer, the private New York developer, raised $400 million through a property fund it listed on the Australian Stock Exchange. The firm later returned to Australia and raised an additional $54 million to purchase the building housing Gap Inc.’s headquarters in San Francisco.

Rob Speyer, Tishman’s senior managing director, said it was much easier to raise capital in Australia than through public or private markets in the U.S., which is particularly important in today’s hot real estate market when the goods are being snapped up fast.

“You can literally within a couple of days go to your investor base there and they will commit to significant allocations,” he said.

Dan Fasulo, Real Capital Analytics’ director of market research, predicted that more U.S. firms would follow suit, given the success Tishman and others have had in monetizing their portfolios. Last month, New York-based Cohen & Steers Inc., a leading investor in U.S. real estate investment trusts, listed two global property funds on the Australian market.

“As long as the yields in the U.S. stay relatively attractive on a risk-adjusted basis versus the rest of the world, there’s no reason to think that this trend will slow down,” Fasulo said.

The U.S. has been the recipient of foreign investment surges in the past, triggered by currency shifts, large pools of accumulated capital or rising oil prices. In the 1980s and early ‘90s, it was the Japanese armed with a strong yen who paid astronomical prices for U.S. trophy buildings and golf courses. After Japan’s bubble collapsed, the Germans with their strong currency led the way into the United States.

Stan Ross, chairman of the Lusk Center for Real Estate at USC, said Americans should welcome foreign investment in real estate because those assets can’t be taken out of the country and aren’t easily sold off, like stocks or Treasury bonds.

“This is long-term investment capital,” said the former managing partner of E&Y; Kenneth Leventhal Real Estate Group. “It’s not trader capital.”

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Landowners from Down Under

Here are the regions whose investors poured the most money into U.S. real estate in 2005 and the largest transactions with Australian connections this year.

Sales of U.S. real estate in 2005 by country or region

(in billions)

Australia: $6.1

Germany: $3.4

Middle East: $1.7

Pacific Rim: $1.5

Canada: $1.1

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Recent sale of properties to Australian interests

(in millions)

Wells Fargo Center, Denver: $355

One California Plaza, Los Angeles: $324

San Diego Tech Center, San Diego: $183

Washington Mutual Campus, Irvine: $151

Cerritos Corporate Center, Cerritos: $101

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Source: Real Capital Analytics