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Foreign Capital Becoming Larger Player In Atlanta's CRE Investment Market

As Atlanta basks in an economic renaissance, investors from across the globe are increasingly joining the real estate investment fray, pushing property prices up.

The Atlanta skyline

While overall office building sales in Metro Atlanta have slowed in Q1 compared to previous quarters, it certainly is not for lack of capital interest.

Investors purchased more than 2.8M SF of Atlanta office at the start of the year, but the amount they paid for that space grew by 73% year over year, to $244/SF, according to a recent CommercialCafé report.

“We've seen some Canadian money, some German money and money from China,” Marcus & Millichap First Vice President Michael Fasano said. “They recognize the strong job growth numbers in Atlanta for the last two years. And it's not just office assets. We're seeing similar dollars flowing from Canada, China and Germany into multifamily as well.”

Atlanta-based Iron Tree Capital, which funnels money from Middle East investors into real estate, also is seeing increased interest in Atlanta and other tertiary cities, especially in multifamily and industrial, said its principal, Scott Arnold.

There is an appealing global concoction taking shape that is making Atlanta particularly tasty: the potential investment yield that foreign investors can get overseas is anemic at best.

Add in the fact that pricing in Gateway cities — New York, Los Angeles, Washington, D.C., Boston, San Francisco and Chicago — are saturated with prices “unrealistically high,” and investors become even more interested in Atlanta, Arnold said.

“There still is sort of a bias toward New York and D.C. to some extent. But, yes, there's a familiarity with Atlanta. People know where Coca-Cola is headquartered,” he said. “They're not amateurs. They do their homework.”

Iron Tree recently planted Middle East money in Atlanta, purchasing industrial and apartment assets here. While it ultimately traded to a Florida pension fund, Atlanta's trophy office building Three Alliance Center garnered a lot of foreign attention when it was being marketed, CBRE Vice Chairman Will Yowell said, particularly from Korea.

The average price per square foot of office buildings that have traded in Atlanta from 2014 to the first quarter of 2018

Three Alliance Center, sold by Tishman Speyer, smashed Atlanta per square foot price records for office at $535/SF. But Yowell — whose career spans some 30 years in Atlanta — has brokered other sales in Atlanta where foreign capital did land, including Vancouver-based Adventus Realty buying 1000 Parkwood in Cobb County and Milton Park in North Fulton County, and The Forum office building off Northside Drive in Buckhead trading to German investor GLL Real Estate Partners.

The recent slowdown in sales is not from any lack of interest, but rather a lack of product. Yowell said so much sold in Atlanta from 2014 to 2016, and so few new buildings are getting developed by historical standards, that it leaves few assets that can be sold.

“Quite frankly, there is a bit of a fatigue and frustration in the marketplace at the lack of available product," he said.

That was a popular refrain in Atlanta's office market last year, when prices first started to encroach on record territory. But foreign capital is adding even more to the demand imbalance, Yowell said. 

“We have seen more offshore foreign capital I would say over the last 12 to 18 months than I can remember,” Yowell said. "It's been a long, long time since we've seen that."