More than 60% of real estate executives, investors and other experts expect to invest in properties or land outside the U.S. in the next 12 months, according to a new study released this week. The Bryan Cave Real Estate Executives Forecast Survey found 61% of real estate professionals plan to park cash outside the U.S., with the greatest interest being in Mexico and China. The survey, which polled 343 professionals, including public and private real estate company executives, investors, opportunity funds, commercial mortgage bankers, lenders and brokers, showed 15% consider Mexico as a key investment market, while another 15% named China. Other countries of interest included the U.K., Canada and Japan, where 12%, 8% and 8%, respectively, of those surveyed plan to invest in land or property. The results appear to echo the views of a number of real estate executives attending the National Association of Real Estate Investment Trusts investor conference in Manhattan this week. A growing number of real estate investment trusts, such as ProLogis (PLD), Simon Property Group Inc. (SPG), Kimco Realty Corp. (KIM), Public Storage Inc. (PSA), Host Hotels & Resorts Inc. (HST) and Vornado Realty Trust (VNO) have been either expanding or looking to expand outside the U.S. In some cases, such as ProLogis, the expansion is aimed at meeting the needs of tenants who wish to have a global presence. It's "business driven" and "customer driven," allowing the company to leverage its customer relationships and operating platform on a global basis, ProLogis Chief Executive Jeff Schwartz said. Public Storage's decision to acquire rival Shurgard Storage Centers Inc. (SHU) will move the company into the global arena, thanks to Shurgard's well-established international platform. For others, such as Vornado, it's a chance to make selective opportunistic investments in markets where returns may be higher than those in the U.S. However, President Mike Fascitelli said his company is starting small and using joint venture partners. "We made a total investment of $25 million in India, and we'd like to invest more there," Fascitelli said. "While international is something we aspire to and look at, I think it's going to be small initially unless we find a distressed opportunity." Many see opportunity in China but are cautious about making big investments there. "There's so much capital chasing deals there," Simon Property Chief Executive David Simon said. "I think you're going to see a number of high-profile mistakes." He speculates some will wind up building or acquiring properties that wind up being bad investments. Host Hotels Chief Executive Chris Nassetta concurs he sees opportunity in Asia but said the lack of transparency and glut of capital chasing after deals is making him cautious. "We're going to be there over the next five years, but we're going to be really, really cautious because of the transparency issues, particularly in China," Nassetta said. "There are more crains in China right now than anywhere else in the world," which could lead to overbuilding problems. If this happens, there could be opportunistic ways to enter the market. Sam Zell, chairman of Equity Office Properties Trust (EOP), Equity Residential (EQR) and Equity Lifestyle Properties Inc. (ELS), said he sees the biggest growth in real estate over the next 10 years coming overseas. "Growth and opportunity is going to be much more focused outside the U.S. than it is here," as countries adopt REIT structures and real estate securitization. "Brazil, Mexico, Russia, China and India will produce five times as much real estate in the next 10 years as will be done in the U.S.," Zell said. But Zell said he has no interest in expanding his publicly traded REITs over there, as he doesn't believe the tax structures and other factors would benefit U.S. REITs. Instead, Zell said he is seeking out international investment through his private entities. The Bryan Cave survey, which was conducted between March 15 and March 27, also asked respondents about the domestic real estate market. The study found 63% believe the U.S. real estate market will strengthen in the next 12 months, 47% think it will stay the same, and 35% believe it will weaken.
Source: Market Watch
