Change seen needed in U.S. to compete globally.

The rules of the game must change to keep the U.S. attractive for investment in the new global real estate market, according to a prominent European investor who addressed the Association of Foreign Investors in U.S. Real Estate, the official organization for foreign companies and institutions with holdings in the U.S. at its annual conference in Washington, DC.

Only two years ago, the major reason for U.S. real estate investment by overseas investors was that it was a "safe haven" for assets facing the threats of Communism or war; today, this threat no longer exists, noted Albert Behler, president of Paramount Group, Inc., which owns, among other properties, five office buildings in the U.S. including 1633 Broadway and 888 Seventh Avenue, and three shopping centers. Paramount Group is the U.S. property arm of Otto Group, a German conglomerate whose affiliates include Otto-Versand, the world's largest mail order company; Spiegel, Inc., one of the biggest catalogue retailers in the U.S.; Eddie Bauer clothing stores and catalogues; and ECE, Germany's leading retail developer with a 40 percent market share.

Comparing the U.S. and German real estate markets, Behler noted property taxes run about 20 percent of revenue for New York office buildings and about 10 percent for retail space nationwide, in contrast to only a 1 to 3 percent of revenues in Germany. In the United States, a fast and loose borrowing environment in the 1980's resulted in the bankruptcy of many developers and projects and the collapse of many lenders. In Europe, it is extremely rare for even established companies to obtain a non-recourse mortgage. Stringent bankruptcy laws in Germany require an individual -- most real estate is held by individuals, not by corporations which would cause considerable tax disadvantages -- to pay off his debts "until the day he draws his last breath", even if this means living at a meager subsistence level under a rigorous code which permits only a black-and-white TV set.

Careful zoning and planning in Germany diminish the risk for investors since efforts are made to ensure the vitality of downtown areas by limiting the number of shopping malls and hence competitors. In the U.S., minimal efforts are made by local officials to curb a cutthroat retail or office environment.

"Soft" costs such as legal and brokerage fees make development very costly in the United States. Legal fees are over three times higher in the U.S. than in Germany. A broker's commission is paid by the landlord in the United States, except in regional shopping centers, while a 3 percent fee is paid by the tenant in Germany, he said.

Supporting the U.S. government's efforts to resolve the national debt issue and ensure that the dollar regains its strength, Behler said investors must be assured that their holdings in the United States are safe from inflation, currency value erosion and fiscal irresponsibility -- or the United States will be the loser in the global market.

According to the U.S. Department of Commerce, foreign investment in U.S. real estate totaled over $33.7 billion in 1991.