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Advising foreign players: mix of U.S., off-shore ideas.

New York's foreign investors, who are located thousands of miles from their properties, rely on investment advisors and managers in United States, many of whom, but not all, share the same culture. The professionals who make this their niche find that their strategies combine American business acumen and the philosophies of their clients' countries.

They say managing these buildings is somewhat different because there is an emphasis on speaking the language and understanding what is expected by the different cultures.

One of their functions for all their international clients, said Baring Advisors' Senior Vice President Joseph A. Versaggi, is to explain the differences in U.S. management practices.

The clients, he said, are extremely frustrated by the legal aspects. "They cannot understand -- and I don't blame them a bit -- the legal system," he said. "They think it is obstructive and carries a tenant bias to the detriment of the landlord."

In fact, Versaggi said, some investors are so frustrated between the legal and regulatory environment they are walking away from the U.S. market. These investors are disillusioned by environmental laws and the liability problems, Versaggi explained, particularly because there is no definitive legislation in these areas and proper compliance is left to the "unpredictable" judgement of the courts.

Most managers of property for foreign clients are fluent in the language or enlist translators to ensure the clients understand what is happening with their properties.

Cid V. Keller, managing director and CEO of Promenade Real Estate Corp., has developed computer software programs that create reports in several languages. "It is much easier to read reports in the language of the ownership," he noted.

While Keller speaks Portugese, Spanish, Italian, and French, others in his office speak German.

Wilhelm A. Rosenberg, a German native manages a blind pool for 15 to 19 high net worth Europeans. His dazzling background includes being a Munich trained jurist, Certified Real Estate Expert, Investment Advisor, and a Stock Analyst. He also holds an M.S. in Real Estate from NYU.

Additionally, Mega Funding International, with Sari Rosenberg as president, is a new company which acts as mortgage brokers for projects that are either not of interest to the blind pool or are more personal residential or commercial mortgages for their international clientele.

Over the last 10 years as president of Mega Invest International, Rosenberg has helped restructure one portfolio of $125 million and controls $550 million in New York area investments comprised of about 3,800-plus residential units and 790,000 square feet of commercial and retail price. He is also studying a mixture of proposals for another $160 million in investments including shopping centers, hotels, residential and commercial property.

Rosenberg's reports to investors are done not only in English, which, he said, is his "most difficult thing," but in French, and in Hebrew. Luckily, he said, his Spanish investors know French and he is also fluent in Polish.

Baring Advisors is a real estate investment advisor and management firm serving primarily U.S., British and Japanese investors and is the U.S. arm of Baring International Property Services, which is the global real estate group within Barings, based in London. In the United States, it manages $852 million in investments and some 7 million square feet.

For its Japanese clients, reports are translated and then checked by the client's Japanese representative here in the United States before the documents are sent to Japan. Versaggi stressed that Japanese translation work is very difficult and must be done by specialists because there are many nuances to the language. While there is one correct way to make the translation, he explained, there are three ways that will make the clients laugh, and another way that will get them angry.

Mazhar Raslan, president of I.T. Properties acts as the representative for primarily Saudi Arabian investors. "We are after a number of properties but in today's world," he noted, "the residential is the most appealing because of the way they are priced."

As one recent investment, I.T. Properties is purchasing a block of condominium apartments in the Lincoln Square tower and is intending to rent them to foreigners who need a place to stay when in the city. "It's a very interesting opportunity," Raslan said.

Among other projects, Raslan managed the 75-story Texas Commerce Tower in Houston and co-authored a book with Cushman Wakefield. The company is also invested in the Helmsely Palace and owns other hotels in Minneapolis, Minnesota as well as the Canyon Ranch spa in Lenox, Mass.

For the most part, Versaggi said, owners must follow the customs and practices of the country then are investing in so there is not much difference in their approach to property management.

The Japanese investors, however, are extremely detail-oriented so, Versaggi said there is often more effort involved to please these clients. "They want to check every fact and figure very carefully," he explained.

Additionally, the Japanese are "meticulous" on the management side and are concerned about small details that are of less interest to a U.S. investor. "Their zero defect tolerance on the manufacturing side carries over to the management side," he said. "They want everything done perfectly."

Rosenberg said his German clients also have different investment and management criteria. To help meet their expectations, his controlling system is computerized and management ensures that the overall loss factor in payments is very low compared to other companies. "We have never had loss factors in excess of 5 percent," he said.

Rosenberg said he is able to accomplish this with aggressive in house marketing and by taking on only stable tenants. "We'd rather have an apartment sitting empty for two months," he explained. The company examines financials and rental histories and conducts investigations that, he said, a regular owner manager probably would not do. "We have the time to do it because our financial strength was there first and we do not want an economical deterioration of the buildings," he explained.

The strategy carries over to Mega Invest's commercial management of properties such as Crossroads Tower in Queens with 560,000 square feet. With the building rented to such companies as the Queens District Attorney's office and Mutual of America, Rosenberg said they are able to achieve their goals by being aggressive in the marketing and using the best people in the market.

On the investment level, Versaggi said, Baring does things a number of different ways because their foreign investors tend to analyze investments differently. "We take the time to think like our clients and put the deal into terms they can understand," he said.

For instance, Versaggi noted, U.S. investors use the Internal Rate of Return as key analytical tool, whereas the foreign investors focus on different measures. "They are less enamored of the 10-year discounted cash flow forecast. That is one tool they will accept but not the one that necessarily convinces them a deal is good or not."

As for the Japanese, Versaggi said, most investment has stopped and they are trying to salvage the deals they already have. "In most cases they're licking their wounds a little bit and are not satisfied with the investment performance," he explained.

While most Japanese investment has been made through joint-ventures and in top tier quality properties, in this down market even the top has slipped and the joint-venture partners may not be seeing eye-to-eye on strategy.

"For some Japanese there is still a greater reluctance to face the realities in the real estate market and face the declines of values and rents," Versaggi observed. "This may hurt them by limiting their ability to respond to the changing market fast enough."

Keller has represented foreign ownerships of property in New York for the past 13 years. He said 95 percent of his clients are foreigners and come from five different cities: Brussels, Paris, London, Geneva and Frankfurt. He is also beginning to represent South Americans.

Keller also uses different kinds of budgets and forecasting methods for his investors. He explained it is difficult for them to understand loss factors so he has created "rentable area" for the reports.

"I do several small things that altogether make much more sense for a foreigner to allow him to be closer to his assets," he explained.

Promenade currently manages seven commercial buildings in New York comprising 1 million square feet. Among them is the management of 120 East 56th Street and the marketing of 16 East 52nd Street. While one of his properties is located Downtown, Keller said, "everybody" is getting out. "People Downtown are struggling to keep whatever they have," he said sadly. "Overall, everybody is very scared about what is going on there."

As time goes by, Promenade is creating its own image and expanding its portfolio by marketing to foreigners. "It's a niche and we are going to be successful," he said.
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Title Annotation:real estate industry offers services for foreign investors
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Sep 16, 1992
Previous Article:7 buildings award custodial contract.
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