Study confirms enthusiastic German investment in NYC market.

German investors, finding the U.S. real estate market, in particular New York City, highly appealing during the late 1990's, will continue to invest with gusto here over the next three years, according to a study initiated by the Investment Banking business of Jones Lang LaSalle.

Sixty German investment groups surveyed by Jones Lang LaSalle indicate that German investment in U.S. properties through 2003 will total at least $4 billion to $6 billion in equity.

"Assuming the use of 50 percent to 60 percent mortgage financing, the total gross volume of property acquisitions by German investors could be in the range of $10 billion to $15 billion," said David R. Brown, managing director of Jones Lang LaSalle Investment Banking.

The survey report examines trends that Brown and other Jones Lang LaSalle investment bankers began to recognize and help shape through contacts with European funding sources. According to Brown, German investors are influenced by regulatory and tax provisions that favor investment in the U.S. and other markets and provide greater returns than those available in their own market.

"Open-ended funds have benefited from massive cash in-flows into their publicly traded vehicles, and regulations require them, to invest more than half their funds in real estate assets," said Brown. "Also, a 1989 convention between Germany and the U.S. exempts individual German investors from German income tax on earnings from investments within the United States, as long as they pay U.S. tax, which is generally lower."

Germans have been particularly interested in the New York office market, picking up such properties as 1211 Avenue of the Americas, 95-99 Wall Street and the Colgate Palmolive Building. RFR Holding LLC, an American real estate company headed by German-born Aby Rosen and Michael Fuchs, has doubled the size of its office portfolio in Manhattan during the past several months. Through their ties to German banks and financial institutions, Rosen and Fuchs have recently acquired 1328 Broadway, 390 Park Avenue (Lever House), 17 State Street, 521 Fifth Avenue, 608 Fifth Avenue and many others.

Approximately two-thirds of the open ended and closed-ended funds, insurance companies, pension funds and other institutional investors surveyed by Jones Lang LaSalle seek returns ranging from eight to 10 percent. Willing to invest as joint venture partners, or in some cases through investments in private operating companies and REITs, the German investors focus on properties of high quality, the survey showed.

"Historically, most German investors have concentrated on fully leased Class A office properties," Brown said. "Because of the amount of capital they will invest, German groups are now willing to consider other property types, including high-end urban retail and office property located in suburban areas.

While German investors have relaxed their former insistence on fully leased, multi-tenant office properties, they have pronounced preferences for investment in New York, Atlanta, Boston, Washington, D.C., Chicago, Florida and Dallas. Other cities mentioned in the study as targeted investment locations are Denver, Phoenix, Houston, Philadelphia, Orlando, Miami, Cincinnati, Minneapolis and Detroit.

Transactions completed by Jones Lang LaSalle with German capital in 1998 and 1999 included such notable investments as a closed-ended fund's $168 million investment in Citicorp Center, San Francisco; a private investment of $325 million in Nations Bank Plaza, Dallas; and an open-ended fund's $113 million purchase of an office building in downtown Chicago.

"During the next three years, many of the smaller closed-end funds or newer funds are looking to start by acquiring properties in the range of $15 million to $30 million and expect to invest a total of $50 million to $100 million," Brown said. "At all levels of investment in the near future, German capital will have significance in the U.S. real estate market."