Focus on Commercial Real Estate: Globalization Is Key to Real Estate Industry Growth

By Reiss, Dale Anne | Journal of Real Estate Portfolio Management, January 1, 2002 | Go to article overview

Focus on Commercial Real Estate: Globalization Is Key to Real Estate Industry Growth


Reiss, Dale Anne, Journal of Real Estate Portfolio Management


INSIDER'S PERSPECTIVE

Put "global" in front of some words and the connection makes sense: global economy, global capital markets, global entertainment, or global sports. As for a global real estate market, it hasn't arrived-yet. What exists is mostly a patchwork of national real estate markets, some similar, but most strikingly different. The first guiding principle for real estate owners, investors and users is: "there is no global real estate market per se."

If a seamless, integrated global real estate market does not yet exist, it is not due to a lack of interest on the part of corporations, businesses, and other users of space, nor indifference on the part of real estate investors and owners. Companies see globalization as a means to find new markets, move closer to customers, and reduce manufacturing and other costs. Investors, too, are looking beyond their own borders, in part because some home markets are too small or too competitive and do not offer many investment opportunities. Investors are trying to realize higher returns by taking advantage of inefficiencies or unique opportunities in local markets, while owners are seeking to expand their existing portfolios of assets and build on the success of their domestic businesses.

Globalization offers these parties increased exposure to markets, more investment choices, access to global capital markets, and additional opportunities to increase deal flow to achieve greater geographic diversification, reduce dependence on a single market, and smooth or increase portfolio returns. For the host country, global investment means increased domestic employment, greater access to international capital to finance growth and compete internationally, access to global technologies, and other benefits.

In the global environment, the key to success for owners, investors and users of real estate is to really understand local real estate markets. Whether they're investing billions around the planet, or millions in a few countries, owners, investors and users should have a thorough knowledge of the markets in which they choose to invest or operate. They should know these markets as well as their home markets.

Even sophisticated real estate professionals can make the mistake of taking their knowledge of their home real estate markets and trying to apply it to other markets. But what's true in one market is not necessarily true in another. International best practices are developing but are not universally accepted and almost always have national twists. Often, these best practices are adapted to local traditions, cultures, and politics. As a result, every market has a unique set of obstacles or barriers to entry that, depending on one's viewpoint, can be pitfalls or opportunities; for example, laws favoring tenant rights may be an obstacle to investors and owners but an opportunity for multinational companies and businesses. The key is to recognize these obstacles or opportunities, consider the options for dealing with them, and develop strategies to mitigate or exploit them. To deal with barriers to entry and other issues, owners, investors, and users often utilize impartial, reputable local real estate resources, including accounting and tax advisors, attorneys, consultants, brokers, and capital partners.

Despite international efforts to reduce barriers to foreign investment, foreign ownership of real estate in many countries is often subject to specific domestic restrictions and prohibitions, and global investors often utilize specially tailored ownership structures to mitigate such restrictions. In Mexico, for example, direct ownership of real estate by a foreign individual or entity is prohibited within 100 kilometers of the border and within 50 kilometers of the coastline. A foreign-owned Mexican company, however, may acquire trust rights to real estate through the creation of a trust with a Mexican bank as trustee.

Real estate markets slowly but surely are moving toward globalization by removing barriers to entry, adopting global real estate standards, and developing the legal and professional infrastructure needed to attract companies, businesses and investment capital.

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