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Foreign buyers seek quality deals.

Members of the National Realty Club Were treated to a discussion about foreign investment in the United States during a luncheon meeting last month.

Representatives of investor groups spoke about the kinds of properties they are interested in as well as problems facing them in their searches.

Wilhelm A. Rosenberg, president and CEO of Mega Invest International, who represents primarily German investors, suggested brokers provide more information to the interested buyers. Acquisitions with a cash-on- cash return of less than 10 percent for residential and 13 percent for commercial investments are not to be considered, he noted.

Seller numbers cannot be relied on, Rosenberg explained, and the seller's broker is not a credible source of information because they have a conflict of interest.

He implored interested sellers to provide a "standardized credible information flow," with the burden of due diligence passing to the sellers." Sellers and buyers are disenchanted with brokers using the same set up," he added.

With a sales pitch provided by independent firms, Rosenberg would like to have information on cash flow and vacancy trends, real business histories and rents as well as a business plan with updated numbers.

He noted he cannot rely on major accounting firms to provide the information because it takes them too long and costs too much money. Instead, he has turned to real estate SWAT teams who provide the information at a fixed price with a two-week turnaround. "Credible information is an absolute must," he said. "Prove your case to me with a scenario that eliminates surprises. There can be no more 'as is, where is, no warranties' sales."

Attorney Simon R. Shane, chairman of Stratagem, a United Kingdom holding company that specializes in overseas investments, has been involved in both Heron Tower and the Harbor Creek offices in New Jersey.

"Don't give up your day job," he joked to the industry crowd assembled in the 60 East Club atop the Lincoln Building. "Your sellers are not realistic yet," he agreed with Rosenberg, adding that this is close to the optimum time to invest. "Everyone is waiting for something to happen."

Shane complained about the seller's one- to two- page set-up. "Whoever brought you the deal, will they be around to deliver on the model?," he wondered. If the risks aren't fleshed out, he said, any investor is buying blind.

In one deal, his company identified the need for an office park near the airport in a suburb of Atlantic City. That development, Greenfield Office Park, is now fully leased.

"Hold and work the deal," he advised. Shane noted this is an investor's market and not a speculator's. "When sellers appreciate that fact, confidence and attraction will return to the market," he said. "Buy the best and hope for the best."

John Sann, a partner in Sann & Howe, is counsel to Amprovest and other foreign clients and is involved in the purchase, sale and leasing of all kinds of properties, distribution, retail and dwellings.

He advised an investor in 450 Lexington and works with Dutch pension funds.

Sann said his investors are looking at Chicago, Washington and its suburbs, New York City and its suburbs, Boston and Atlanta. "These five cities represent two-thirds of the Dutch investments in the United States," he noted.

About 80 percent of the investments are made in office buildings; 15 percent in retail and the rest in residential, industrial and land deals.

For about 60 percent of the properties, the ownership structure is 100 percent equity. Twenty-five percent are owned with partial equity. These funds also work with American partners or other Dutch investors.

In the last year, Sann said, there has been a tendency to go into development rather than going into existing buildings. He does not expect much in the way of purchases right now. "If there is a turnaround, they may well be interested in part of a major deal and to continue investing and expanding their portfolios," he said.

Alan T. Kessler, president and CEO of Commercial Developments International/East (CDI), recalled that Fred Rose once said at a Real Estate Board meeting: 'Real estate is like sex: when it's good its terrific. When it's bad, it's not so bad.' "He was wrong on both accounts," Kessler observed.

Kessler left Tishman in 1991 to become a developer of commercial real estate an oxymoron, he noted. He said the "competition in the build-to-suits is becoming more and more competitive and much too risky for anyone with common sense."

CDI is not a vulture fund, he explained, and shuns distressed properties. They do buy quality properties from distressed owners, he added, with a focus on stable areas.
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Title Annotation:evaluation of international real estate investors; New York, New York real estate market
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jun 30, 1993
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