Smoothing the way for US companies overseas.

American corporations face significant real estate challenges as they rush to develop business and expand overseas. They are finding that acquiring office or industrial space in a foreign city can be far more complex than a similar negotiation in the U.S.

Leasing or purchasing commercial real estate in Europe is beset with language, cultural and legal pitfalls. Even in the United Kingdom, where language is not a problem, the duration of leases and its potential long-term liability pose enormous problems for "flexibility conscious" U.S. companies.

While it's true, for example, that British leases traditionally run for 25 years, with five-year upward only rent reviews, recent market developments have allowed for more flexibility. Many U.S. companies are unaware that it is very possible to have five or ten year "break" clauses, something that did not exist two years ago in the U.K. Of course, local brokers and landlords will try to get unschooled U.S. concerns to sign up for H years.

To cope with these problems, many American companies are now able to look to their local real estate provider to assist them with their international needs. A new group of real estate specialists, versed in the complexities of finding space and negotiating leases in foreign, lands, has emerged within companies like Grubb & Ellis in response to their clients, needs.

A true international brokerage service, as opposed to a referral service, has made the investment of basing a qualified corporate services professional overseas. This foreign-based person not only understands what a U.S. company needs for service, he or she also knows the nuances of the local markets. This includes assembling the best local service providers - broker, lawyer, space planner, etc.- that meet the specific need an American company will have in a specific market.

The international division of Grubb & Ellis has recently served this role for numerous companies. In Munich, we recently represented VLSI, a California based computer chip manufacturer in their lease of 35,000 square feet of office space. There are also searches underway for them in France, the U.K., and the Far East.

Grubb & Ellis has undertaken assignments for Atlanta-based Turner International in Paris and Warrentech and Canon in London. Each of these companies has benefitted from having a Grubb & Ellis professional in Europe, coordinating the local services and communicating closely with the company's traditional broker, a Grubb & Ellis professional in the U.S.

Tenant brokerage as we know it in the U.S., for example, is much different overseas. This can range from who pays the representative - in England the tenant rather than the landlord traditionally pays the broker - to the basic skill levels which can be far less developed in areas of strategic advice and financial analysis.

Grubb & Ellis seeks to overcome these barriers by maintaining strong local relationships that are constantly checked. We work with the strongest provider for a specific assignment in each particular city as opposed to using one provider for all of Europe. This structure allows us to do what is best for the client.

Foreign Investors Renew Interest

In addition to helping American companies expand overseas, international brokers such as Grubb & Ellis are increasingly involved in helping U.S. property owners expose their real estate to an international marketplace.

Most of the new foreign investment is coming now from Europe, particularly Germany, Great Britain, and the Netherlands. And much of it is being placed in New York real estate.

A recent survey by the Association of Foreign Investors in U.S. Real Estate (AFIRE) found 46 percent investors planning to increase U.S. holdings. October of 1981, recalled Austin K. Haldenstein, senior vice president of Vandenberg. "They hit 18.3 percent on a 30-year fixed rate," he said.

A rise in interest rates always affect sales, observed Hall F. Willkie, director of Sales for Brown Harris Stevens. "They were a lot lower than they have been for many years and even at this higher rate they are a bargain," he said. "In our market, which is higher end, it has less of an effect than on first-time buyers."

Pat Goldwater, director of field operations for Property Resources Corp., which manages buildings and also has a sales division, said "I have more sales than I've had in long time. The last 3/4 was a killer," she added of the last interest rate jump. "I still think lots of people remember what was going on when things were near 20. People are taking losses, but the [apartments] are moving."

Some brokers are finding that buyers are becoming discouraged. Linda Platzer, whose eponymous brokerage firm handles residential sales and the leasing of commercial office space, said she is finding things have slowed with the interest rates higher. "I was working with a few people who have put their search on hold," she sighed. "It didn't have to do with the season," she added of the typical Thanks-giving to New Year's slowdown.

Arthur J. Mirante II, president and CEO of Cushman & Wakefield, believes the rise in interest rates will not affect commercial development because that is so minimal right now due to the oversupply. In Hong Kong, he said investors were concerned that the rise would slow the purchase of apartments.

From the consumer point of view, there will be an immediate stop in activity, believes Paulette Bonanno, vice president National Cooperative Bank, that provides financial services to cooperative nationally.

As for underlying loans, Bonanno said the interest rise is "killing or suspending major loans that are very interest rate sensitive."

Many co-ops have existing loans at 9 percent and they want to refinance now, she said, often borrowing extra money to do renovation work. "They want to borrow at 9.25, but rates are at 9.5," said Bonanno. "I have two rather large loans like that."

Ironically, she said, some of the loans taken with certain banks like J.P. Morgan have pre-payment provisions based on yield maintenance, and for those buildings, the higher rates would make it beneficial to refinance at this time.

If a building wants to pay off a 9 percent loan and the rates had now dropped to 5 percent, they would have to pay the difference over the life of the loan as a pre-payment penalty. "Because yield maintenance penalties are declining, many buildings are now going to prepay the loan and not get hit with the prepayment penalty," she explained. "It makes sense and they will get their money somewhere else."

Appraisers have also felt the affects of the rise in interest rates. Alan J. Greenstein, R.M., S.R.A., who heads the New York State Association of Realtors said, "The appraisers that I talk to have very little to do. The glut of business that resulted from the refinancing is long gone." He noted that the rise in interest rates over the last year has slowed the market down and affected prices. "The rates have really shot up. Within the year, the Federal discount rate went from 3 to 4.75," he said.

"One of the big lobbies [the National Association of Realtors! has is to maintain the status quo on mortgages," Greenstein noted. "That's a very big thrust of our lobbying efforts."

Those efforts will be working overtime because people are already talking about yet another rise after the first of the year.