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Yanks look 'over there' for opportunity.

With U.S. real estate development virtually at a halt, developers with itchy shovels are seeking ventures in other parts of the world to satisfy their creative and entrepreneurial urges.

Europe, in particular, is attracting American builders and creative companies are obtaining development rights and getting a toehold on the other side of the Atlantic. U.S. companies are also eyeing Eastern Europe and pieces of the former Soviet Union as great untapped consumer frontiers waving rubles and kopecks.

In addition, some real estate companies are getting involved in helping corporate American open up new branches overseas. Goldman Sachs was recently hired by the new Russian government to bring American companies to Russia. Garrick Aug Store leasing specialists have recently formed a joint venture with a German counterpart to assist American retailers enter that market.

In Cannes, France, a four-day international real estate exhibition was held, March 14 to 17. The "MIPM" conference draws companies from the United States and Europe that come to discuss current projects, make contacts and attend workshops. In 1991, the forum was attended by, among others, Goldman Sachs, The Disney Company, McDonald's Corporation, the International Council of Shopping Centers, The Glick Organization, RTKL, Enterprise International Development, The Appraisal Institute, and The Urban Land Institute.

William H. Stern, managing director, of Sonnenblick-Goldman Company, said they are the advisor to a U.S. company for sale/leasebacks in Dublin, Paris and Madrid. While the international market is not booming, he said, deals are being made. "You dream that way because there is nothing here," Stern said. "Nobody's making deals here. It's very quiet."

John F. Greenwood, director of operations Europe, of the Cushman and Wakefield/Healey & Baker brokerage joint initiative, is traveling around the United States and discussing the endless possibilities with many different kinds of companies. Greenwood said the main push is coming not from developers or institutions but from corporate America. These companies tell him, "We can't stand still, "so we will open up and do the expansion in Europe."

Greenwood believes the attention of the real estate market has changed to a worldwide view. "We all have to be focusing on a global basis," he explained. "The whole market has changed; they are now global players."

That view is supported by International Real Estate Institute, based in Scottsdale, Arizona, which is holding a three-day World Real Estate Congress in San Francisco from May 3 to 6 to focus on opportunities in other countries. Speakers will be discussing valuations in Eastern Europe; environmental concerns; hotel and resort development; foreign investment in Mexico, the Caribbean and the Pacific Rim; currency issues; cultural considerations; trends in architecture; and future global investment trends.

Jay L. Scholl, a partner and director of marketing and leasing with Rouse & Associates, has been working in Kent County, England for nearly four years after they won a development competition against a dozen United Kingdom companies for a mixed-use project.

Scholl said, "The development business is flat in the States and its much more fun over here," he said. "It's very similar to the marketplace in the U.S. 20 years ago." While the concept of a mixed-use development and/or straightforward business park is novel for England, he said, the rest of Europe is 10 years behind England.

Businesses Opening In Europe

Greenwood said U.S. companies must produce a better product at a better price in order to compete. That also applies to manufacturing since American companies will now go anywhere they can get the best labor and prices. In the meantime, worldwide communications are improving substantially and the American companies are all under a microscope to cut costs. This means they have the ability to move anywhere in the world in order to maintain profits.

The telecommunications companies are making a big push into Europe and the Eastern countries, Greenwood explained, particularly now that these systems are being taken out of government control. For example, ATT is forming a joint venture with the Ukraine and the Dutch, while Ameritech won a contract in Poland and is putting in a cellular system. One American local phone company is even pushing for oversees cable television contracts so it can be in place with its own phone system -- strung through with the television cable -- when the country lets it out for bids.

The next biggest movers into Europe, Greenwood observed, are the courier companies such as Federal Express and DHL, who can easily compete with their European competition. Their presence will also be helpful to American companies who rely on their track record in the States.

"We've talked with Met Life, the Pru, everyone's talking about how they would like to buy property in Europe," Greenwood said. But Europe is also in recession at the moment, he said. One company withdrew from its plans because the international division wondered if it was the right time to put hundreds of millions of dollars into speculative property in Europe, he added.

Greenwood said the U.S. accountants, attorneys and banks are already in Europe waiting for the time the corporate clients come. "What a lot of people don't realize is that they are pushing sub-service," he said, and getting ready for their corporate clients who will need to rent space when they come. IBM is already in Paris while there is a Ford headquarters in England. MTV is renting space in London while a Blockbuster video is making a deal for outlet all over England.

One trend Greenwood observed is for bigger companies to consolidate since European rents are expensive. This is true especially in the United Kingdom, he said, where property owners "wouldn't give way on the 25-year lease." Greenwood said London has 34 million square feet of space available with rents running from 72 pounds down to 50 to 55 pounds. The pound is equal to a little over $2 US.

"Even though it looks expensive in London," Greenwood added, "they know it's the best they can do and better than in the past."

Because there is a recession in Europe as well, rents in Paris and Germany have fallen while, Greenwood said, Madrid and Frankfurt and Brussels have "kept their heads above water."

Another problem is the profusion of various taxes that are different in each country. In Belgium, an American company is liable for a registration tax of 12.5 percent.

"If you pay $1 million for property it can add up," Greenwood noted. "We've got to alert the American companies because there are clever ways of getting around it."

For instance, if the purchaser buys the company, he said, and not the building, the purchaser is not liable for the tax. "But for a single building you are caught with that tax," he said.

There is a Value Added Tax (VAT) on professional fees, such as for brokers and real estate agents, and on rent. So unless the company is VAT exempt, it would pay an average 17.5 percent VAT across Europe, 20 percent in the United Kingdom and 17 percent in Belgium. "You can frighten Americans when you talk about this but there are ways of structuring to avoid it," he added.

Banks are VAT exempt and so are financial buildings. While fees are a lot less, there is a letting fee in the UK of 10 percent of the first year's rent, although it does not matter how many years are on the term of the lease. "But of course, you get a problem because tenants are not used to paying fees and the fee is not paid by the owner of the building but by the tenant," he said.

Greenwood said the Americans seem to have more dealings with the Japanese and they understand them better than they do the Europeans. "I've worked here [the United States] for two years and there is a naivety of European culture and markets," he said.

For instance, he said, building in Europe can be complicated by the expected tenants. The Europeans do not want huge floor plates and like buildings that are more self-contained and have more privacy. But IBM will come in, he said, and prefer five floors at 20,000 square feet.

The Americans are trying to bring their own architects and space planners because they're comfortable with them, Greenwood said. But is it the right policy to take them into Europe, he wondered, because the mentality and culture are different? Are they creating the building for Europeans or specifically designing it for American tenants? In most cases, he said, they go with an American style building.

"But when an American developer wants to sell the results, is it going to appeal to the British and the Dutch?" Greenwood asked.

Greenwood said "Go with an open mind and not a stereo type of what has been done in America." He urges trying to combine what the locals in any city want in that city. While some construction managers can be brought over, the Americans cannot take over the day to day manual workers. Greenwood pointed to the daily afternoon siesta common in Spain. "These American contractors and developers must be aware of these cultural differences," he said.

Other companies are able to work on projects because they have been sensitive to the needs of the local authorities. Roger Saper, a partner in the international division of Jones Lang Wootton, is working with Philadelphia's Rouse & Associates on the development of the 650-acre business park in the middle of Kent, England. At home, Rouse has developed 28 million square feet and created a new skyline in Philadelphia. Although the same size as Rouse's major corporate park in Philadelphia, some changes were necessary for King's Hill in Kent. "English planning is a little more difficult in some areas and some areas are different," Saper said. "They have to change [their plan] and adapt it to British conditions. But they are bringing that particular American know-how about corporate parks."

Kings Hill is a suburban development and will mix business and residential uses with 3.8 million square feet devoted to commercial property, 750,000 square feet to housing, 50,000 square feet to retail space and an 150,000 or 200,000 square feet for an educational facility yet to be defined. A collaboration is already underway between Pennsylvania State University, University of Kent and Thames Polytechnic and the local authorities to plan the school. "We've put into place 40 million pounds or $65 million to kick off first phase," Scholl said.

In some ways, Kings Hill is almost a new-town kind of complex. By spring, 250 residential units will be ready for occupancy, Scholl said. There were some site constraints, he explained, but the residential component will consist of single-family homes, starter homes, middle-income housing as well as upper class. "Four per acre is large," he noted "while two per acre would be outrageous for the UK." The site will also include a golf course.

Scholl said they are taking "very much an American approach." The park will have gardens and ponds to keep the feel of both corporate parks and the Kent countryside. Unlike builders in England, who, he said, tend to build a house and then pave the road to it, Rouse is putting in all the infrastructure first, including roads, sewers and services. He said the first 150 acres already has services, including the utilities British Telecom and Mercury.

Rouse is also working on deals in France, Spain and Germany to expand its operations.

Move Into Eastern Europe

Because land ownership is difficult to prove and it is harder for people to buy land to build, Eastern Europe is being "flooded" with title companies, Greenwood said. In spite of this potential problem, Ford is one company that is forging ahead with Eastern European plans.

Tishman Speyer has also built the largest building in Europe, the Mezzerstern.

Tishman Realty and Construction International is the co-developer with Austrian partners Warimpex and Porr Construction of a 300-room five-star hotel in Warsaw called the Diplomat Hotel. Their role is co-developer and project manager and is due to open in the spring of 1994.

Greenwood said his company is currently involved in office developments in both Prague and Warsaw. "They are American developers putting together these schemes because they are more desperate for the work than their French competitors." he explained.

The 250,000-square-foot Warsaw office building is being built by U.S. Business Centres, Inc., and is adjacent to the metro and several bus routes and features a large parking lot that is the only one of its kind in the Warsaw central business district. Called the International Business Centre, the building will feature an extensive telecommunications system and a business center with full support services. Asking rents will be $50 per square foot, Greenwood said. He believes Warsaw could become the most important office market between Berlin and Moscow.

While the hotels also want to put chains in Eastern Europe, Greenwood said they are concerned about the questions of land ownership and legal title. "You're not going to get Hilton or Hyatt building massive chains," he added.

Financing is also a problem and companies and banks are trying to decide if Eastern Europe is the right place to put money. "In London there are buildings around you and there is a proven market," Greenwood said. "The problem in Eastern Europe is that there is no proven market place and you are going into the unknown. If the soul is willing and you want to do it, go in and take a bank with you."

One multiplex cinema business is being courted by Polish officials who do not want to make the capital investment in the theaters themselves.
COPYRIGHT 1992 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

Article Details
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Title Annotation:US real estate development in Europe
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Mar 18, 1992
Words:2286
Previous Article:25 units to auctioned at historic mill in NJ.
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