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Cross-border investment in real estate on the rise: Local brokerages playing a role in growing trend

February 19, 2007

In 2006, $645 billion was sunk into real estate investments across the globe, according to a recent Cushman & Wakefield report.

Of that, $187 billion was sent across borders to invest. And companies everywhere are chasing the most cost-effective spots to locate factories and needed hubs for office space.

With all that cash changing hands, several locally based companies have made sure they're positioned to help play a part.

Take Indianapolis-based HDG Mansur, for example. In the field for 25 years, it's known locally as the go-to company for international real estate investing. It currently has $2.3 billion of assets under management with annual growth at 40 percent or more per year since 2000.

"What has been happening is a globalization of the U.S. real estate market," said CEO Harold Garrison.

Seeing the trend coming, HDG Mansur started taking on wealthy international investors in the late 1980s, a move Garrison said put the company ahead of most of the competition by at least 10 years.

And it's been the fastest-growing segment of the company at least 10 years, a trend Garrison expects to see continue.

More countries

"Without a doubt, over the next 20 to 50 years, the biggest growth in wealth is going to be in the Far East," Garrison said. Individuals and companies taking part in that, including many based in Europe and the Middle East, want their returns invested in real estate across the globe.

About 45 percent of the funds HDG Mansur invests end up in U.S. assets, 45 percent in Europe, and 10 percent elsewhere, Garrison said.

"Before the last five years, the conversation would have been about investing in the United States, maybe a little bit about South America and Europe," he said. "But opportunities in India, China and Southeast Asia are much more mature."

Some say those foreign investors are snapping up real estate along the coasts and in large cities, but they still aren't extremely active in Indianapolis.

John Merrill, a senior vice president for the local office of Los-Angeles based CB Richard Ellis, assisted in the 2004 sale of Castleton Office Park and the 2006 sale of Keystone Office Park to Toronto-based Brookfield Asset Management.

Apart from a handful of deals, he said, he hasn't seen the deluge of foreign investors that primary-market cities, such as Chicago and New York, have. Merrill recently attended a capital conference where talk was on international real estate investing trends.

"I asked the same question I always ask: 'When is the international money going to find its way around the rest of the United States?'" Merrill said. "I'm still not getting the answer I want to hear. They say it may take a while."

Garrison disagreed, saying Australian and German pension funds, especially, are already quite active locally.

The billions in real estate dollars crossing borders don't just come from individuals and funds looking to find the best return on their investment dollars. Companies are constantly realigning their production and marketing needs, trying to beef up in growing markets and take advantage of low-cost labor.

For that, they often call in the advice of brokerage firms that can help steer them through foreign contracts, real estate laws and the finer points of cross-cultural negotiations.

Global alliances

It's a part of the business locally based Summit Realty Group has tackled since its alliance with Cushman & Wakefield in late 2002. There, three brokers in the corporate services division help area powerhouses like Thomson Inc. and Zimmer Holdings Inc. buy, sell, lease and track real estate globally.

For foreign deals, the Indianapolis brokers oversee the transaction, often traveling to the sites and meeting with partners based in the market.

"Multinational companies are always expanding or getting rid of space," said principal James C. Fasone. Summit tracks the options, leases and other details in software that helps companies use their space well and comply with federal rules on disclosure.

Fasone estimated that 95 percent of large companies don't track their real estate well, even when they may have 400 properties or more worldwide.

Besides landing the big clients, Summit's brokers see large potential for growth in providing real estate services to small businesses that are looking at locating manufacturing facilities abroad, perhaps for the first time.

Fasone said small-business owners often don't realize whom to turn to for help in what can be a difficult transaction.

"This portion of the business will continue to grow," he said. "The expertise you need to have for these deals is very critical."

The local offices of CB Richard Ellis and Colliers Turley Martin Tucker offer similar platforms for international deals through their networks.

In recent years, CB Richard Ellis has worked to expand its global network with acquisitions of foreign-based real estate firms, including a majority interest in a Japanese firm in 2005 and a United Kingdom-based firm that specializes in the industrial and logistics sectors in 2006.

For all the players, the challenge that can come with international deals is part of the allure. Garrison told of his first project pitched in the United Kingdom.

The listener's response was: "Oh, that's very nice," with some follow-up questions. Garrison said he walked out of the room and thought he'd been told 'yes,' when, through the subtleties in the questioning, he was really being turned down.

Developing the cross-cultural fluency comes with more time spent in the different markets, he said.

"That's the exciting part of this business," Garrison said. "I find it quite refreshing."

In some circumstances, the sheer mechanics of leases and real estate ownership are different.

In Shanghai, according to Summit Associate Principal Jon Jessup, rents fluctuate weekly, making it hard to get a lease contract drawn up and approved before the financials change. Meanwhile, in Korea, landlords demand tremendously large security deposits but very low rents.

"Every country has its nuances," Jessup said.
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