Wednesday, April 22, 2015

Foreign Investment in Dallas

It’s not for a lack of trying on our part. We routinely market offerings internationally and have had some success. For example, we arranged the sale of 1700 Pacific, a 1.3 million square foot building in downtown Dallas, to Canada-based Olymbec last year. But besides that transaction, and compared to other markets like Houston, foreign investment in Dallas has been tepid at best. Given the size of our office market, foreign investment is shamefully underrepresented—but why?
Foreign investors prefer large investments with a typical minimum threshold of $100 million. With the exception of a few suburban projects, the only properties capable of meeting foreign investors’ minimum investment threshold criteria are in the central business district. Our inventory of properties valued at $100 million or more is very limited.
Foreign investors like office buildings with few, large tenants that have international brand appeal. They prefer few tenants because it makes for easier management. They like tenants with international brands because they know and understand those businesses and credit is easy to underwrite. In Houston and other core markets, it is not uncommon for buildings to have tenants that are 400,000 square feet and larger. In Dallas, those tenants are for the most part entrenched in suburban campus facilities that they own.
There are several other reasons why foreign investment in Dallas has lagged. But before I lose your interest altogether (I know I have maybe two more minutes of your time), let me tell you why I think that is likely to change soon.
1. The relocation of Toyota’s headquarters to DFW is a blockbuster endorsement. Not only does it place North Texas on the international stage, we are also likely to see vendors from international companies relocate here to be in proximity to Toyota.
2. Investment activity in Houston has cooled off for now. Dollars allocated for acquisitions in Houston are transitioning to Dallas.
3. Overall, there are more international investors seeking real estate investments in the United States. They are crowding each other and driving down yields in the traditional core office markets.
4. Advisors are contacting us to alert us about Dallas coming onto the radar screen of more of their international investors. This is always a precursor to increased activity.
I’m hopeful that this trend finally materializes in Dallas, and I’m getting ready. I already speak Spanish and my favorite sushi chef teaches me Japanese. I also have scripted my Dallas story and tour: It includes trips to BBQ venues, Western wear outlets, NorthPark, and the Apple store. Sold!
John Alvarado reporting for D Real Estate Daily