Deals Without Borders

Discover how these CCIMs found success with inbound foreign investors.

By Stephanie Bell

As commercial real estate professionals step out of their comfort zones for creative projects in today’s economy, working with inbound foreign investors definitely should be a blip on their radar. However, before launching into this niche, it’s important to understand how international clients do business. In most cases, it’s very different from doing business with U.S. investors but the opportunities presented can lead to unique projects and relationships.

“If you are going to work with foreign clients, you need to learn about their culture as soon as possible and realize they know nothing about your culture or how to do business in your community,” says Kent Clifford, CCIM, president of Clifford Commercial Real Estate in Las Vegas. “You will need to go the extra mile to help them.”

Taking the extra step can entail securing necessary resources such as contractors, architects, engineers, and sometimes financing although many international investors already have their own financing sources. Working with international clients also can result in a continuous relationship for future projects and overall networking.

Below are three CCIM case studies that illustrate the variety of opportunities available with inbound foreign investors. They also highlight how challenging yet rewarding it is to branch out across the globe.

Managing Swiss Assets

Dan S. Martin, CCIM, CPM, managing director, Sperry Van Ness, Arlington Heights, Ill.

Based on a networking referral, Martin began working with pension fund AFIAA Foundation for International Real Estate Investments in Zurich, Switzerland, in 2007. A small company of about 20 people, AFIAA wanted a U.S. commercial real estate professional to help with their American investments. Despite the cultural barrier and unfamiliar work ethic, Martin became the exclusive broker on the project. And soon after, he realized he had made a smart business decision. In 2008, after AFIAA accepted an unsolicited offer and sold its Manhattan office building, Martin helped the company fund and close more than $71 million in properties as the upleg in a 1031 exchange.

Understanding how the Swiss do business was definitely a challenge, Martin says, but learning the process helped AFIAA to trust Martin. The biggest difference was AFIAA’s due diligence process. When AFIAA was interested in a property, Martin would put together a letter of intent and once it was signed, AFIAA would begin its research. The pension fund normally did 90 percent of its due diligence prior to actually signing a purchase contract and, in fact, often signed the contract the day before closing. Sellers had a hard time accepting this process because they wanted earnest money in escrow. Martin convinced the sellers that this approach was beneficial since they could continue marketing the properties while AFIAA was conducting due diligence.

Because of the slow market last year, AFIAA didn’t lose any properties although Martin says it might have been different in a stronger market. And once the fund made an offer, it usually closed in less than 30 days. Another plus was that AFIAA already had financing arranged with European banks — mostly German — that fund within 24 hours. Martin also learned that the trust issue worked both ways. He had to trust the company when the situation usually required legal steps to protect Martin as the broker.

AFIAA promised he would get paid and, in fact, the commission was wired to Martin’s account before closing. Overall, Martin learned that AFIAA’s way of doing business was unique to the way U.S. brokers usually operate, but the end result was successful transactions for all involved.

Martin worked with AFIAA to find and buy properties all over the U.S. In 2008, after looking at 50 properties, the company bought a total of 140 million square feet including a class A office property in Austin, Texas, a warehouse/distribution center in Columbus, and a newly constructed property to house an XSport Fitness in Chicago. Currently, Martin acts as an adviser and communicates with AFIAA on a weekly basis, keeping it informed of what the market has to offer.

A Taste of Germany in Vegas

Kent Clifford, CCIM, president, Clifford Commercial Real Estate, Las Vegas

During a six-month period in 2001, Clifford said no three times to a group of four German investors looking to buy land in Las Vegas for the first U.S. location of the historic Hofbräuhaus restaurant in Munich, Germany, which is visited by 3 million tourists each year. In fact, Clifford had actually visited the restaurant while serving as an officer in the U.S. Army in Germany as did many other military personnel.

Finally, when the investors assured Clifford they were in the process of getting the license from the City of Munich, which brews the beer for the Hofbräuhaus, he decided he would wait for them to obtain the license. Once the investors had accomplished that, Clifford believed they were serious.

With the right to use the Hofbräuhaus name obtained, Clifford and his partner Jerry Shapiro found a 1.53-acre site in Las Vegas in front of a non-gaming hotel. However, before purchasing the property, one of the investor’s relatives convinced a German investment company to invest $11 million in the project. The head of the company came to Las Vegas to meet with Clifford and his clients. After showing him the site, the investor decided to go through with the deal but needed a U.S. bank to come up with $3 million, posing a new challenge. Clifford and his partner took the investors to four different banks but no one was willing to personally guarantee the loan.

Determined to see the deal through, Clifford approached a developer/friend. The investors pitched the project and the developer, liking the location, put his signature on the loan for $65,000 a year for three years. The developer is and was very financially sound, and the bank readily took his signature. The deal closed on the land for $2.4 million in June 2002.

Next, Clifford and Shapiro were hired as consultants and began asking engineers, architects, and contractors to submit proposals. They also hired a company to help with zoning issues as well as a law firm to assist in getting the liquor license. They also needed a reciprocal parking agreement with the hotel behind the project as zoning was dependent upon it. Clifford and his clients agreed to valet the cars and the hotel owners let them use their parking lot. By doing so, Clifford helped the investors meet the parking requirements by planning and zoning.

Clifford’s role went beyond just consulting. For example, the clients hired a contractor who turned out to be the wrong choice. Clifford advised them to hire a company he knew monitored construction jobs per the contracts. He also introduced them to accountants and attorneys. After  working on the project, Clifford remarks that he used all his skills and some he never knew he had before this deal was done. Currently, the restaurant is up and running in Las Vegas. And, seven years later, Clifford and the investors still enjoy a strong friendship.

Maryland Home to Indian University

Sydney Machat, CCIM, ALC, associate broker, Long & Foster Commercial Realtors, Keedysville, Md.

In 2008, Machat’s company posted 50 acres of farmland near the Antietam National Battle Field in Maryland on their local listing site.  A few days later, Machat received a call from a personal friend of the chairman of Vinayaka Missions American University, which was looking to expand its school of nursing. VMAU’s parent school, Vinayaka Missions University in Tamil Nadu, India, specializes in medical-professional and dental schools. The university has 17 branches around the globe including Malaysia, Thailand, China, and Dubai, United Arab Emirates.

Initially Machat told the representative that it didn’t make sense to put a university on that site because it didn’t have enough infrastructure to house a school. Machat advised the interested party to look for land that had better access to highways and utilities and conducted a search to find a more suitable location.

Through his search, Machat found the 144,000-sf, four-story former Allegheny Power corporate headquarters in Hagers-town, Md. Approximately one hour from Washington, D.C., and Baltimore, the property had public utilities, fiber optic lines, a backup power supply, a 325-car parking lot, and 44 acres of land for future use.

The representative agreed on the site, so Machat wrote a letter of intent and the contract. With financing secured from a London bank, the university purchased the land with cash for $8.5 million in August 2008.

After the buyers returned to India, they asked Machat to stay on as their U.S. adviser/consultant. Machat accepted and became the administrative adviser for the Maryland branch of the university. In this role, Machat is responsible for daily operations of the building and land, managing the facilities, and working on getting the license to open the school.

From working on this project, Machat admits that the personal relationship aspect of an international transaction is important,  including the extra time to build a rapport. In retrospect, Machat says brokers should recognize the importance of incoming prospect calls. The buyer called him because they had seen the land advertised on the Internet. And to get the job done, Machat really had to listen to the requirements of the buyer and fully analyze its needs. N




 
U.S. Inbound Foreign Investment by Property Type
      
Property Type
    2008 Volume ($)
      
Office
    10.6 billion
      
Hospitality
    1.7 billion
      
Multifamily
    1.3 billion
      
Retail
    896 million
      
Industrial
    398 million
      
Source: Colliers International
     

 
Top 10 Countries Investing in U.S. Real Estate
      
Country/Region
    2008 Volume (Billions)
      
United Arab Emirates
     $5.7
      
Germany
     $3.2
      
Europe other
     $1.7
      
Israel
     $1.0
      
Japan
     $0.8
      
United Kingdom
     $0.6
      
Canada
     $0.5
      
Australia
     $0.5
      
Americas other
     $0.2
      
Source: Colliers International
         

Stephanie Bell is associate editor of Commercial Investment Real Estate.

Getting Started

The Certified International Property Specialist curriculum offered through the National Association of Realtors is a smart way for industry professionals to gain experience and insight into working with international investors. For more information on the CIPS program, visit its Web site.

Are Foreign Investors Good for the Economy?

While most U.S. investors are expected to hold tight to their cash and wait out the recession until it hits bottom, some foreign investors plan on taking advantage of the steep decline in valuations. Inbound foreign investors plan to increase their real estate investment activities in 2009 relative to those made in 2008, reports the 17th annual survey conducted by the James A. Graaskamp Center for Real Estate at the University of Wisconsin School of Business. 

Association of Foreign Investors in Real Estate members expect “more favorable investment fundamentals to return in 2009” and “are poised to move more aggressively on acquisitions,” according to C. MacLaine Kenan, executive director of Arcapita in Atlanta. A recent AFIRE survey revealed that “compared to transactions completed by October 2008, foreign real estate lenders say they plan to increase lending by 54 percent globally and by 58 percent in the U.S., while equity investors plan to increase investment activity by 40 percent globally and 73 percent in the U.S.” 

So what should domestic investors and developers take away from these reports? Foreign investors continue to perceive the U.S. commercial real estate market as being advanced and fundamentally sound relative to other global real estate markets. Another AFIRE poll showed that 37 percent of foreign investors believe that the U.S. provides the best opportunity for capital appreciation. 

Overall, foreign investors value the lack of entry barriers to the U.S. commercial real estate market and recognize the stability, consistency, security, and transparency that characterize the U.S. investment environment. The qualities that exemplify the U.S. real estate industry, when paired with an increase in foreign investment, should assist in alleviating the current liquidity crisis and bringing about a gradual normalization of market conditions.

— by Daniel G.M. Marre, partner in Perkins Coie LLP’s real estate practice group in Chicago. Contact him at (312) 324-8362 or dmarre@perkinscoie.com.