real estate

Real Estate

Tightening interest rates will affect U.S. real estate by increasing borrowing costs. This coincides with slowdowns in a number of prime markets; commercial real estate volumes decreased by 11% in 2016, the first downturn since 2009. Investors in U.S. commercial property—in parallel with investors in other prime markets— are deterred by concerns over valuations and changes in tax treatment. Again in parallel with several prime markets, there has been a major infusion of new property developments beyond current buyer appetite.

CMBS lending has also declined this year, partly reflecting the risk-retention requirement of the Dodd-Frank Act. However, there remain many bright spots in this diverse sector. Industrial, biomedical, and logistics property have all had a real renaissance alongside secondary and in some countries tertiary urban centers. The secondary trading market in real estate funds also has been a buoyant growth area.

Our Partners' Perspectives

What is the most important trend driving the outlook for the global real estate industry—and how do you see it unfolding in the year ahead?

Global economic and political uncertainties may unsettle the real estate market this year, as investors try to make sense of shifts in monetary and fiscal policy in the all-important U.S. market, which have ramifications internationally. Despite the continuing low rates for LIBOR and U.S. treasuries, the appetite for investment is softening in many gateway markets in Europe and the U.S., as pricing perhaps exceeds anticipated return potential. However, other areas, such as logistics and industrial properties, and traditional investment classes in secondary markets, are picking up the pace, supported by both the growing importance of eTailing to retail growth and the spread of economic recovery to these geographies. Despite macroeconomic concerns, property remains an attractive portfolio asset for many cash-rich and institutional investors, as well as a hedge against the volatility of the equities markets.

Eric Landau

New York

What challenges do Chinese investors face in pursuing outbound investments—and how can they address them?

Chinese investors’ appetite for outbound acquisitions remain strong in many sectors, including real estate, logistics, and hospitality. In the short term, deal flow will be significantly impacted by the Chinese government’s tightened outbound capital controls. Over the medium to long term, capital controls on RMB will inevitably be reduced and streamlined. Sophisticated institutional investors will then be allowed, if not encouraged, to pursue strategic outbound investment opportunities.

However, as a counterpoint, outbound Chinese investors pursuing complex overseas acquisitions, including the acquisition of regulated businesses, will face additional regulatory and compliance challenges in many western markets, particularly the U.S. This will require careful strategizing for success.

David Blumenfeld and Paul Guan

Hong Kong

What do you see as the biggest opportunity or challenge for Europe’s CMBS market over the next 12 months?

The biggest challenge facing Europe’s CMBS market is identifying investors for new issuances. Many left the market due to the increased regulation and low issuance volumes. Market revival will involve locating new funding and demonstrating why CMBS works so well as a means of real estate investing. Today’s political and economic volatility is a plus, because CMBS gives investors greater diversity to hedge risks in particular markets via a uniquely efficient vehicle—particularly those investors who don’t wish to create origination platforms in multiple jurisdictions. These circumstances should generate greater appreciation among investors for the unique advantages of CMBS compared with other forms of real estate investment.

Conor Downey

London

What is the outlook for the hospitality industry in the year ahead?

The hospitality industry continues to seek innovative ways to attract business in an increasingly competitive market dominated by online private accommodation aggregators. Data analytics are being used to improve the guest experience and ensure maximum value is generated by every hospitality property. There is also greater focus on digital channels to customers as a way to further strengthen links with guests. Mobile marketing is vital, representing the channel for over half of hotel bookings last year. The drive for direct bookings and group business, competition from aggregators, and the pressure on mid-tier spending—together with economic uncertainty and political events—will significantly shape revenues in all markets.

Lauren Giovannone

Los Angeles

Highlights of Our Client Successes

One of New York’s highest value office building deals in 2016

We represented China Life in the US$1.65B acquisition of 1285 Avenue of the Americas, a Class-A, mixed-use tower in Manhattan. The purchaser consortium was led by RXR Realty LLC, with China Life the single largest investor in the transaction. Our client, a state-owned firm, is China’s largest insurer. This deal marked one of the highest value New York City office building transactions in 2016.

Related secures approval for largest private development project in Silicon Valley

We represented The Related Companies as lead land use and environmental counsel in securing unanimous approval from the Santa Clara City Council of the largest private development project in the history of Silicon Valley. The city’s approval gives our client the green light to build City Place—a US$6.5B mixed-use complex with a retail/entertainment center, hotels, apartment buildings, office campuses, and a new 31-acre city park. The project will be built on 240 acres of city-owned land located next to Levi’s Stadium.

LinkedIn acquires properties from Google

We represented LinkedIn in an exchange of strategic properties in Silicon Valley. The multi-part deal included LinkedIn’s sale of 10 acres of real property, as well as its purchase of a 28-acre property, both in Mountain View. LinkedIn also assumed Google’s lease of 950 and 1000 West Maude Avenue in Sunnyvale, and assigned its headquarters lease on Stierlin Court in Mountain View to Google. We have advised longtime client LinkedIn on numerous transactions over the years, including its lease at 222 Second Street in San Francisco, one of the city’s largest-ever lease deals.

Hospitality Practice Group of the Year

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First Tier Firm for U.S. Real Estate

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