Joining the Global Party

Investing overseas

By Suzann D. Silverman on Apr 10, 2012 in News

Global business. Those are catchwords the real estate industry has been grabbing onto for some time now, always as if it’s a current trend. Businesses are expanding globally; U.S. real estate service providers need to follow their clients, and investors purchasing property overseas can be their landlords. And foreign lenders are as much a source of funds as domestic alternatives, whether in the United States or in their own countries.

The only thing is, none of this is new. Corporations have been expanding worldwide for decades, and many have long since established themselves in other countries. Foreign investors have been buying U.S. property for years, and plenty of foreign banks have U.S. offices. (Think back to the Japanese purchases of trophy assets in New York and San Francisco in the ‘80s and the “think globally, act locally” slogan of the ‘90s.)

Some companies get this. In fact, most of the biggest U.S. real estate service providers expanded overseas 10 years ago if not even before then, following their clients into very fragmented local markets, forging local partnerships and carving out niches. A small number of investors have likewise established themselves in a variety of foreign countries, in some cases likewise breaking new ground (pun intended) with their non-domestic presence and determining new ways to take out capital that in some cases was otherwise trapped behind borders.

As for the rest, they are indeed late to join what is rapidly becoming a truly global party, where what’s new is not the idea of expanding into foreign countries or foreign entities investing in the United States but the idea of doing business across multiple continents regardless of your home base. These are truly multinational players, and U.S. real estate participants remain vastly in the minority among their ranks.

But latecomers are not at a complete disadvantage. In fact, those that are active have found that the countries with the greatest opportunities for expansion are constantly changing, mostly because they are less evolved and have only recently become more sophisticated and transparent, requiring an ongoing learning curve. Big focal points among these are the so-called BRIC countries of Brazil, Russia, India and China, and they do indeed offer plenty of opportunity despite continued risk.

Exploring the BRIC Countries

As Brazil’s performance and transparency improve, it is attracting a growing base of investors, mainly to Sao Paolo and Rio de Janeiro. Despite a years-long entrenchment by a couple of U.S. service providers, though, it remains a very fragmented market that will likely require partnership with a local firm for success and development of a local team, according to Clarion managing partner Jeb Belford, and the competition is high for existing talent.

Russia is likewise attracting both investors and developers, although opportunity remains limited to Moscow and St. Petersburg. Investors may find potential in the retail scene, while government plans for managed growth in Moscow are opening up possibilities for developers.

In India, demand for office space and investment properties is slowing as the country’s growth diminishes, and that has discouraged many one-time fans. But its size alone allows capacity for opportunity, keeping players like Hines active.

China, too, has seen its GDP slow down, but it nonetheless offers potential for consulting, leasing, property management and mixed-use development. It can be hard to find and keep local talent there, but service providers and developers alike will find growing opportunity outside of the four main target cities of Beijing, Shanghai, Guangzhou and Shenzen, believes Chris Brooke, CBRE Group Inc.’s president and CEO for China. His main advice: Think long term, despite market volatilities.

Thus, business opportunities continue to grow for those willing to assume risk; just remember that competition is coming from all sides, and with so many long-experienced global players out there, sophistication is a must.

Suzann D. Silverman is Editorial Director of  Commercial Property Executive. For more details on real estate in the BRIC countries, see “Laying the Foundation” by Paul Rosta in the March 2012 issue of Commercial Property Executive.