If anyone knows a good real estate deal, it is John Hitchcox, one of Europe’s top property developers and head of YOO, a London-based company that operates in 15 cities around the world with a development portfolio of more than 8000 apartments.

Mr Hitchcox recently bought a personal residence in South Africa, a property market that he says holds a great deal of promise. “There is a large emerging middle-class community with growing spending power thanks to the policies that [former president Nelson] Mandela’s government and the current government have put in place.” The house, he says, is certain to appreciate in value.


Only time will tell if his bet on South Africa is prescient. Other investors are raising funds and/or buying property to develop in India and China.

But the reason Mr Hitchcox is confident in his assessment of the market is thus: five years into an unprecedented cycle of global liquidity, capital continues to seek out opportunities in real estate – be it office buildings, industrial facilities, shopping centres, apartment buildings, mixed use projects, hotels and resorts or such niche categories as senior, or assisted living housing or golf clubs.

While the US and western Europe are still top investment destinations, increasingly private equity funds, real estate investment trusts and institutional players such as pension funds, non-profit corporations and insurance companies are seeking out new markets believed to be poised to appreciate. Portfolio diversification is also a driver.

“The motivation behind cross-border real estate investments are usually twofold,” Mr Hitchcox says. “One is to invest in another country in order to get, hopefully, higher returns. The other is to balance out other property investments.”

Areas in which YOO is currently investing include India, Panama, Costa Rica and Brazil, he says. Russia, he predicts, will also be a huge market as its housing stock is refurbished and renewed over the coming years, while eastern Europe still has a long way to go.

Global vision

Investors, though, hardly feel limited to this particular list. Various market studies of high-performing areas in 2007 have included not only China and India, but also such countries and cities as Germany, Japan, Russia, Czech Republic, Poland, Romania, South Korea, Hong Kong, Singapore, Sydney, Paris, Stockholm, certain London suburbs such as Thames Valley, Mexico’s Monterrey and the northern maquiladora sites, as well as Edmonton and Calgary in western Canada.

Investment strategies for these markets are equally as diverse. In the past, most investors buying properties across borders tended to limit themselves to stable, class A office buildings in top markets. Indeed, most foreign investors in the US have tended to gravitate to the core markets of Washington, DC, New York, Chicago and a few cities in California.

US exodus

However, the overwhelming consensus among experts is that the rapid appreciation in most global real estate markets is all but over. Indeed, many foreign investors that have holdings in these core US markets are in the process of divesting right now.

For instance, the German firm KanAm Group has sold off a few holdings in the Washington market, which until 2005 was the number one destination for foreign real estate investors in the US, according to the Washington-based Association of Foreign Investors in Real Estate.

Last year New York replaced Washington in this category. KanAm has timed its departure well; office buildings are still trading at record high prices in the city itself and nearby suburbs. In November it sold an office building it owned with SITQ, a subsidiary of Canadian Caisse de Depot et Placement, for $290m. The two firms bought it in 2001, according to local records, for $165m.

Another German-based fund, Blue Capital Investments, also sold a Washington office building recently for $127.5m, having purchased it three and a half years ago for $80m.

These companies illustrate that property remains a good investment. What has changed, the theory goes, is that investors can no longer count on yield compression for returns. Instead, predicts LaSalle Investment Management LLC’s newly released Investment Strategy Annual as well as several other studies, rental income growth – either through new leasing strategies or development or redevelopment investments that add value to a property – should be the prime focus.

For instance, last year Dallas-based Behringer Harvard and HCI Capital AG in Hamburg announced plans to acquire $1.3bn of value-added properties in all categories in the UK, Germany and the Netherlands over the next two to three years. As is typical in such funds, each partner is kicking in a certain amount of equity and leveraging it by 75% to 80% for the acquisitions.

“We believe this is a great time to increase our emphasis on international investments,” says Jason Mattox, executive vice-president of Behringer Harvard. As more European countries adopt legislation that allows for the formation of real estate investment trust-like companies, property values in these countries will grow, he says. “There are opportunistic and value-add strategies that are unique in these countries right now and we believe, with this partnership and our own approach to investing, we will uncover opportunities that others may not.”

Thus far, the joint venture has invested in an office portfolio in the Netherlands and also owns a multifamily property in Germany from an earlier partnership with HCI.

Another example is provided by McLean, Virginia-based Sunrise Senior Living and New Jersey-based Prudential Real Estate Investors. The two firms have built 12 senior citizen living communities in the UK and have 18 under development or in the construction phase. Recently they contributed another $200m in equity in order to develop an additional $1bn of such properties in the UK.

Emerging Europe

Eastern Europe is also receiving more investment. Luxemburg-based Orco Property Group, to name just one example, recently acquired a brewery in Bratislava, which it intends to develop into apartments.

It is Asia’s real estate markets, though, that are attracting the greatest levels of investment. New Songdo city in South Korea is a $25bn, 607-hectare joint venture project between New Jersey-based Gale International and a subsidiary of the Korean steel conglomerate, POSCO. San Francisco-based Grosvenor is building a luxury apartment complex in Tokyo. Sydney-based Lend Lease Corp has raised $243m for its new Asian Retail Investment Fund, which will be invested mainly in the Singapore retail market but also in Malaysia, Taiwan and Thailand.

China and India

High-growth China and India, unsurprisingly, are attracting huge amounts of capital. Colorado-based ProLogis, for instance, recently acquired land for a new industrial park at the Port of Dalian in China. The company already had a presence at the ports of Tianjin, Shanghai, Qingdao, Ningbo, Shenzhen and Guanghzhou to service such customers as L’Oréal, Menlo Worldwide, Nokia and Samsung.

Kraig Kast, CEO of Atherton Trust in Redwood Shores, California, feels China might be too speculative for his conservative investment profile. The firm is increasing its allocation in international markets, including Europe, Japan, South Korea, Australia, Singapore and Thailand as well as China and India. In China, though, he says “we are more cautious”.

India, on the other hand, is a good opportunity in the long term and is getting an increasing share of Atherton’s aggressive portfolio. Mr Kast believes property values in India could rise as much as 300% in the mid term.

Indeed, India is the current emerging market darling among investment funds. Dorothy Alpert, national managing director, real estate, hospitality and construction at Deloitte & Touche, believes the market warrants the attention, but is dubious about specific growth projections.

“People know its potential is big but we don’t how big. It is still difficult to size the market,” she says. In the current global real estate markets, though, for many investors it is enough to know that the country has plenty of headroom for appreciation.