AN ASSESSMENT OF FOREIGN INVESTORS
IN THE WASHINGTON, D.C. REAL ESTATE MARKET
by
S. JOHN HODGE
B.A., Accounting (1977)
Finance (1979)
M.B.A.,
University of Texas - Austin
and
S. KENT ROBERTS
B.S., Engineering Management (1969)
Missouri School of Mines - Rolla
Submitted to the Schools of
Urban Studies and Planning & Architecture
in partial fulfillment of
the requirements for the Degree of
Master of Science in Real Estate Development
at the
Massachusetts Institute of Technology
September 1987
S.
John Hodge & S. Kent Roberts -
1987
The authors hereby grant to MIT
permission to reproduce and to distribute copies
of this thesis document in whole or in part.
Signatures of the authors
S. John
odge
Department of Urban Sjdies and Planning
l)31, 1987
//.A
S. Kent Roberts
Department of Architecture
1987
/'--)July 31,
Certified by
Lawrence S. Bacow
Associate Professor, Urban Studies and Planning
Thesis Supervisor
Accepted by
Michael
Wheeler
Chairman
Interdepartmental Degree Program in Real Estate Development
S AC
EINSTUE
ECNftOLOGY
QF
1JUL
2
*
LIBRARIES
ACKNOWLEDGMENTS
This thesis
is
the effort
of
experience in international
two students who had
real
Washington, D.C. market place.
search was
limited to two
estate investment or in the
The time allotted for our reDuring this time
months.
Washington, D.C. but we
only made
field trips to
pleted an
exhaustive study
real
no prior
of the international
estate investment and capital
we not
also comaspects of
flows.
Given these limitations, interviews
were of critical import-
ance.
than 50
We wish
shared their
special
to thank
time and
the more
knowledge with us.
thanks to the
National
individuals who
We wish
to give
Association of Realtors (NAR)
who sponsored our thesis as part of a broader study examining
foreign investment
ticular
national
we
want
patterns in
to thank
Operations
Mariam
of the
Economic Research and Sean
the United States.
NAR,
for
providing us
while we
our
were in
work would
conclude
thanks to
these
with
Flick, Director
of
Our special gratitude goes
Director of Bear Saint Properties
an office
and secretarial
Washington, D.C.
have been
Inter-
Burns, Economist for the personal
time and assistance they gave us.
to Rusty Lindner, Managing
Manager -
Meyer,
Fred
In par-
much more
acknowledgments
Professor Lawrence S.
been a guiding light.
2
Without
this assistance
difficult.
without
giving
Bacow, M.I.T.
services
We
a
cannot
special
He has truly
AN ASSESSMENT OF FOREIGN INVESTORS
IN THE WASHINGTON, D.C. REAL ESTATE MARKET
by
S. JOHN HODGE and S.
KENT ROBERTS
Submitted to the School of Urban Studies and Planning
and to the School of Architecture in partial fulfillment
of the requirements for the Degree of
Master of Science in Real Estate Development
ABSTRACT
of a _ joint study by the
one part
research represents
Our
the Massachusetts
Realtors and
of
Association
National
Estate Development.
Technology Center For Real
Institute of
foreign investment
was to examine
of the study
The purpose
patterns in U.S. real estate by analyzing investment activity
Angeles, and Chicago.
cities: Washington D.C., Los
in three
Many of our conWashington, D.C.
This thesis is focused on
other
findings in
by the
supplemented
have been
clusions
parts of the joint study. (See Notes [183 & [193)
Central to our research is the question "Do foreign investors
counterAmerican
their
estate differ from
U.S. real
in
following:
include the
findings
significant
Our
parts?"
"capital
estate as a
real
United States
view
foreigners
haven"; foreigners are "long-term" investors in U.S. real esaccept lower returns under certate; foreign investors will
interested in very high qualtain conditions (they are only
ity well located properties); exchange rates are important in
the investment decision (favorable rates are a buy signal but
hold signal); foreign investors have
unfavorable rates are a
foreigners are "predisposed" to
strong location preferences;
investors are relationship
estate; foreign
in real
invest
as foreign ininvestors are cash buyers;
oriented; foreign
they act
more familiar with the U.S. market,
vestors become
U.S. investors.
more like
In conclusion we believe that an increasing foreign presence
present great opportunities for
in the U.S. marketplace will
all kinds of U.S. real estate players.
Thesis Supervisor: Lawrence S.
Title:
Bacow
Associate Professor,
Urban Studies and Planning
3
TABLE OF CONTENTS
Acknowledgments
............................................ 2
Abstract ................................................... 3
CHAPTER 1 -
Foreign Investment in the United States ........ 5
CHAPTER 2 -
The Washington, D.C. Market:
CHAPTER 3 -
Foreign Investment and the Washington,
D.C. Real Estate Market ............... ........
An Overview ...... 12
27
CHAPTER 4 -
Profiles of Investors ......................... 35
CHAPTER 5 -
The Foreign Investor's Strategy for
Investing in United States Real Estate ........
CHAPTER 6 -
APPENDIX A -
Notes [
40
Significant Findings and Implications ......... 44
Washington, D.C. Properties
Involving Foreign Investors ..........
........
51
3 ...................................................... 60
4
CHAPTER 1
FOREIGN INVESTMENT IN THE UNITED STATES
INTRODUCTION
to the recent surge of foreign
Much publicity has been given
in the
investment
in U.S. securities,
13.4%
increased
to
total
foreign
and real
estate
For 1986,
United States.
investment
businesses
$209 billion. [1]
Approximately
$21
billion of this amount was invested in developed real estate.
On average over the last
introduced
$10
billion
eight years, foreign investors have
annually. [2]
(See Figure 1-1.)
The appeal of
the United
U.S. market
factors.
U.S. has shifted
deficit in the
The balance
of trade
the economy
from a net supplier
net importer of capital.
to a
the
States as a destination for foreign
capital has been attributed to several
*
to
new money
of
of
investment capital
The United States
[5
is currently the largest debtor nation in the world and
seems to have an insatiable appetite for money. [63
*
The
as being
U.S. is perceived
country and one of
a politically
stable
the strongest remaining bastions of
free enterprise. [7] & [83
*
Recent
depreciation
currencies has
of
the
dollar
produced what seem like
to foreign buyers of U.S. assets.
5
[6)
vis-a-vis
other
great bargains
1-1.
FIGURE
FIGURE 1-1.
TOTAL FOREIGN DIRECT INVESTMENT INTHE UNITED STATES
SHOWS %INVSTED INREAL ESTATE EACH YR
260
24-0
IL
220
0
200
z
180
0
160
140
ix
120
4
100
80
60
z
40
20
0
1980
1981
1983
1982
K]
NON R.E.
SOURCE: Real Estate Review [3]
6
1984-
REAL ESTATE
1985
1986E
*
interest
Nominal
foreign
some
the U.S. than in
rates are higher in
countries;
from
investors
accordingly,
these countries can obtain higher current returns here.
dollar denominated
significant if
is especially
This
investments are financed with the foreign currency. E63
*
The Japanese government has
recently relaxed limits on
foreign investment. [93
foreign
in
increases
further
predict
observers
Many
investment in the U.S. as:
(1)
investment
in
opportunities
the
U.S. remain
attractive relative to other investments;
(2)
pressure for reinvestment in the U.S. continues to
in Japan,
build
surplus;
to the
due
one of the most active
the Japanese have been
investors in the U.S. for the past several
(3)
foreign
investors become
export
growing Japanese
years;
more knowledgeable
[103
and
comfortable with U.S. markets, and;
(4)
the number of participants in the market continues
to increase.
E113
Indeed, foreigners
and
the establishment
of manufacturing
and acquisitions, and the purchase of real
is the foreign
Especially interesting
invested
estate.
Since
large amounts
be
foreign investment in the U.S. in-
strong interest in direct
to U.S. real
continues to
additionally, there
corporate stocks;
cluding
U.S. Treasury bonds
buyers of
are heavy
of
plants, mergers
estate.
investor's attraction
the late 1970's, foreigners have
capital
7
into U.S.
properties.
While current
the total
foreign ownership represents only- about
value
of developed real estate in the
U.S.,
1% of
it is
noteworthy that in the few markets in which foreigners have a
presence,
their activity
has
had a
significant impact
on
values. [63
U.S. real
estate is appealing
foreign
real
investment
low
very
to
relative
inflation
comparable
yields
reduced
countries are
in
competition
inexpensive.
from
U.S.
sell
local
is perceived to
Third,
U.S. tax
the
-
investors typically do not
liquid, and
be accessible,
the
Second, current yields
In contrast, U.S. real estate
real estate.
rekindle,
thereby reducing
hedge,
buildings in many
grade office
Additionally, foreign
has
a
portfolio.
volatility of the overall
on investment
Should
portfolio.
would provide
estate
for several
diversification benefits to the
First, it provides
reasons.
to the foreigner
tax reform
shelter
oriented
investors. [123
The majority of foreign equity investment in U.S. real estate
has come from pension
real estate
erence for
cities
companies.
invest
These
high quality
such as
Angeles.
funds, and insurance, construction and
investors have shown
office buildings in
New York,
in
stable and
downtown office
large American
Washington, D.C.,
This can be explained
a pref-
Boston
and Los
by the foreigner's desire to
familiar
markets.
The interest
in
locations reflects
properties over suburban
the foreigner's lack of familiarity with large-scale suburban
office development.
tend
to
be
Shopping centers and multifamily housing
avoided,
largely
due
to
more
a
intensive
management requirements. [133
Many questions are currently
circulating about the future of
foreign investment in U.S. real
to pour
in?
If so, how
will
8
estate.
Will
the deals be
money continue
structured?
How
sensitive are
foreigners to fluctuations in
What property
type and geographic preferences
exhibit?
Do the
foreigners pay
their American
than
exchange rates?
more for
counterparts?
And,
do foreigners
U.S. real
estate
what opportunities
are available for U.S. real estate professionals to establish
relationships with foreign investors?
the above questions is that
The common assumption underlying
foreign real
this.
the U.S. real
investor,
the nature
understanding
By better
to corroborate
has been done
little research
But
erparts.
count-
differ from their U.S.
estate investors
estate
foreign
of the
professional
will be
more
effective in serving this important segment of the market.
RESEARCH OBJECTIVE AND METHODOLOGY
The
purpose of
between
this
paper is
investors
foreign
American counterparts.
explore the
to
in U.S. real
The research
estate
differences
and
their
addresses this issue by
analyzing foreign real estate investment in Washington, D.C.
This paper represents one part
of a joint study conducted by
Realtors and
the National
Association of
Institute of
Technology Center For Real
the Massachusetts
Estate Development.
was to examine
foreign investment
patterns in U.S. real estate by analyzing
investment activity
The purpose
of the study
in three cities;
These
cities
dispersion and
Los
were
Angeles, Chicago, and Washington, D.C.
selected
based
on
their
their popularity as destinations
geographical
for foreign
investment.
The
research
was
literature search
in
organized
three
was performed to gain
stages.
First,
a
an understanding of
the overall context of foreign investment and the Washington,
9
universe of foreign owned real
our
knew.
To
We started
by
done.
already
investors we
and
lawyers
the brokers,
contacting
estate in Washington, D.C.
never been
has
knowledge, this
determine the
was made to
an attempt
Second,
D.C. market.
We asked them to give us the names of others they felt
were key
local
hand knowledge of
other contacts and
about
fifty
searching
only
acquired.
We
At
turned up
same
the
deals.
of
specifics
the
get
when continued
names we
already
had
on interviewing the
We focused on obtaining
and
the
Lastly,
the
transaction
the
various parties
of the
to
began
reached the point
then began to concentrate
into
motivations
we
point
this
key players in foreign owned
insight
we had
the network expanded until
is, we
That
convergence.
Each contact led
foreign investment.
us to
names.
had first
D.C. market place and/or
players in the
involved.
data was organized and analyzed.
LIMITATIONS
It is important that the reader understand the limitations of
nature of the real estate business is such
The
this study.
that research can
cess.
The
often be a difficult
and frustrating pro-
business is transaction oriented
and information
about specific deals is proprietary and difficult to come by.
This is compounded by the fact that foreign investors tend to
be secretive about their activities.
While
identify
the
Washington is
data
endeavored
we have
universe
of
to
accurate,
foreign
owned
our attempt
to
estate
in
real
error of omission.
subject to the
is subject
interviewed a
to be
the extent
bias to
"representative" sample of
that
Also, our
we have
foreign investors.
No attempt was made to statistically verify our work.
10
not
ORGANIZATION
Chapters 1,
of
context
2,
and 3
of this paper describe
foreign real
estate
in the
involved in the Washington
market and de-
scribes how they differ from the American investor.
Chapter 6
provides a summary
United
Chapters 4 and 5 profiles the
States and in Washington, D.C.
foreign investors
investment
the historical
of our findings
the implications.
11
Finally,
and evaluates
CHAPTER 2
THE WASHINGTON, D.C. MARKET:
consists of
Area)
counties and
the District
five Virginia
investment
eign
(Metropolitan Statistical
Washington, D.C. MSA
The official
The majority
in
concentrated
employment of the MSA:
five
of forthese
of
the population and
comprise over 80% of
jurisdictions which
five Maryland
of Colombia,
counties.
been
has
AN OVERVIEW
the District, and Arlington, Fairfax,
These five markets
Montgomery, and Prince George's counties.
provide the focus for this chapter.
(See Figure 2-1.)
HISTORICAL CONTEXT
French
architect and
engineer Pierre
L'Enfant.
1790 city plan calls for
long diagonal
usual
blocks and
90
appearance to the
Columbia owes much of its
The District of
degree
angle
rotaries
to provide
vistas.
The
avenues,
which were
scheme
reference
extended
planned to
even to
be
vistas cut across the
streets,
points
L'Enfant's
and
circular
within the
diagonal
the
width
160 to
of
400 feet
the
wide.
Although the Capitol
is the center of the historic plan, most
of
and
the
Northwest
commercial
quadrant
counties.
The
residential
of the
Capitol
District,
Hill
area
activity
and
is
in the
consists
in
the
adjacent
mostly
of
government and institutional uses. E143
Unlike
most
primarily of
major
markets,
low-rise (8-12
Washington,
story) buildings.
D.C. consists
Strict height
limitations have been set in the District to preserve the
12
FIGURE 2-1.
WASHINGTON, D.C. MSA (METROPOLITIAN STATISTICAL AREA)
MONTGOMERY, MD
FAIRFAX, VA
PRINCE GEORGE'S, MD
SOURCE: Rand McNally, Inc.
13
visibility
of
Building.
the
Washington
These restrictions limit
penthouse) of most buildings to
small
area
(less than
FAR's
certain
(floor
the
Capitol
(exclusive of
within a relatively
miles) structures
of
130
buildings along Pennsylvania Avenue,
circumstances,
area ratios)
from 6.5
trict range
and
the height
90 feet;
two square
feet are allowed, while
under
Monument
reach 160
feet.
within the central
Applicable
business dis-
These restrictions
to 10.
force de-
velopers to build to the lot line and straight-up in order to
Clearly, these zoning restrictions
maximize square footage.
limit future development
L'Enfant's layout
Europeans
in combination with the
gives the
strictions,
find
iniscent of
in the District. [153
District
many of the
the international
and
human scale
older European capitals,
Japanese identify with its
appeal.
much architectural
ambiance
the city's
city's-zoning re-
low-rise scale.
while the
This, along with
the for-
recognition of Washington, gives
eigner a better understanding of
rem-
the city, relative to other
U.S. cities.
THE ECONOMY
Growth:
Historical
Prior to
ington
the first half of
more closely
town, than
the 20th century, life
resembled
a stately capital.
nation, there
The District
and there was
was a
general
was surrounded
that of
in Wash-
a Western
frontier
Beyond the governing
lack of
activity in
by small farms
little commerce or industry.
of the
the city.
and plantations
Any growth that
occurred was usually the result of government spending. [143
Policies evolving from the Depression and World War
14
II marked
a major
surge in
federal
employment and
created a
large,
permanent bureaucracy of lobbyists, associations, and support
The
groups.
majority of
occurred in
bureaucracy frequently
the new
District, but
the
the employment growth
chose to
live in the adjacent suburbs. [143
Beginning in the 1960's, another increase in federal spending
had a significant impact on expansion.
curred
33 percent of metropolitan
creased from
52 percent
in
and Maryland;
the
however, with the
growth spilled into
areas of Montgomery, Fairfax
and Prince George's
of the Capital
This
and employment growth.
city's overall
growth
corridors.
pattern was consistent with the
plan to decentralize government employment and
transportation
suburban
major
toward
[133
The 1970's
and early 1980's characterized
the area's
economy.
and
occurred in
The District saw a sustained decline in population
counties.
pand;
in-
Beltway,
1964 completion
direct
of
employment in 1960,
Growth initially
1970.
close-in suburbs of Virginia
much wider
the development
Suburban employment
centers.
suburban business
major
to
which fostered
suburbs,
in the
This time, growth oc-
Government employment continued
however, the largest
"high technology"
growth occurred in
sectors.
growing rapidly, and there was a
ness formation
this growth
another change in
the "services"
Existing businesses
began
very high rate of new busi-
and corporate in-migration.
occurred in
to ex-
the Maryland and
The
majority of
Virginia suburban
markets. E163
Recent Trends:
Population and Income
The Washington MSA
population has grown by
1980 to almost 3.5 million today.
15
about 1.4% since
While the growth rate has
FIGURE 2-2.
WASHINGTON, D.C. NSA DEMOGRAPHICS, 1980-1986
COUNTY
D.C.
POPULATION
CHANGE
1980-85
POPULATION
1985
COMPOUND
ANNUAL
GROWTH
1980-85
1986
PER
CAPITA
INCOME
626,000
(12,432)
-0.47
$18,600
678,100
643,400
126,800
84,400
40,900
13,029
64,347
12,008
11,649
6,262
0.4%
2.1%
2.0%
3.0%
3.4%
$15,500
23,600
14,400
13,900
14,500
1,573,600
107,295
1.4%
$18,611
687,800
169,000
157,600
63,600
48,300
92,046
24,364
5,001
6,173
7,830
2.9%
3.2%
0.6%
2.1%
3.6%
$21,800
15,400
24,900
18,100
14,200
1,126,300
135,414
2.6%
$20,739
MARYLAND COUNTIES
PRINCE GEORGE'S
MONTGOMERY
FREDERICK
CHARLES
CALVERT
MARYLAND COUNTY TOTALS
VIRGINIA COUNTIES
FAIRFAX
PRINCE WILLIAM
ARLINGTON
LOUDOUN
STAFFORD
VIRGINIA COUNTY TOTALS
VIRGINIA INDEPENDENT CITIES
ALEXANDRIA
FAIRFAX CITY
MANASSAS
FALLS CHURCH
MANASSAS PARK
INDEPENDENT CITIES TOTALS
TOTAL NSA
UNITED STATES
107,500
20,300
19,500
9,500
6,900
4,283
(237)
3,995
(15)
376
0.8%
-0.27
4.7%
0.0%
1.1%
$24,700
23,400
17,500
27,700
13,900
163,700
8,402
1.1%
$23,400
3,489,600
238,679
1.4%
$19,500
239,283,000
12,222,000
1.05%
$14,400
SOURCE: Salomon Brothers, Inc. [131
16
to decline, it still
recently begun
(See Figure 2-2.)
rate by 40%. [133
growth
Population
Since
1970,
has
uneven
been
lost
District has
the
ulation, compared to 25% in 1970.
jurisdictions.
across
approximately
120,000
the metropolitan pop-
18% of
currently comprises
it
people;
exceeds the U.S. growth
This decline has been more
than offset by an increase in the suburban population of over
The most populous counties are Fairfax,
320,000 people. [133
Prince George's, and Montgomery, each comprising about 20% of
the
population.
total metropolitan
had
Counties
the
[143
1980-1965.
largest absolute
almost
Figure 2-2.)
35%
was estimated to be $19,500
higher than
of the ten
average. (See
wealthiest counties in
(see Figure 2-3.),
largest metropolitan
the fifth
York,
the United
policy, especially
diversified and
Philadelphia.
growth has been shaped
the
employment base
Direct government employment
employment in 1970 to 28%
by Government
location decisions;
less reliant on Government
increased from 21%
the U.S. behind
and
federal spending and
since 1970,
Washington, D.C. is
employer in
Chicago,
Angeles,
Los
Historically, economic
growth.
national
Employment
With two million jobs
however,
the
in
[133
Recent Trends:
New
from
Consistent with its relative affluence, the MSA
includes five
States.
gains
population
(See Figure 2-2.)
Per capita income for the MSA
1986,
and Montgomery
Fairfax
fell
has become
spending for
more
its
from 38% of total
in 1985, while services employment
to 31%. [133
17
(See Figure 2-4.)
FIGURE 2-3.
WASHINGTON, D.C. MSA EMPLOYMENT AND EMPLOYMENT GROWTH, 1985-1986
1980
1985
1986
ACTUAL
% OF
EMPLOYMENT TOTAL
ACTUAL
%OF
EMPLOYMENT TOTAL
ACTUAL
% OF
EMPLOYMENT TOTAL
1975
X OF
ACTUAL
EMPLOYMENT TOTAL
SUB AREAS
D.C.
577,000
42%
616,000
38%
631,000
33%
641,000
32%
MONTGOMERY COUNTY
PRINCE GEORGE'S COUNTY
OTHER 3 MARYLAND COUNTIES
149,000
111,000
171,000
11%
8%
12%
275,000
213,000
72,000
17%
13%
4%
339,000
239,000
85,000
18%
13.
4%
350,000
251,000
89,000
18%
13%
4%
MARYLAND SUB TOTAL
431,000
317.
560,000
34%
663,000
35%
690,000
35%
FAIRFAX COUNTY
ARLINGTON COUNTY
OTHER 3 VIRGINIA COUNTIES
109,000
97,000
156,000
8%
7%
11%
195,000
118,000
149,000
12%
7%
9%
282,000
142,000
191,000
15%
7%
10%
305,000
146,000
204,000
15%
7%
10%
VIRGINIA SUB TOTAL
362,000
26%
462,000
28%
615,000
32%
655,000
33%
1,370,000
100%
1,638,000
100%
1,909,000
100%
1,986,000
100%
TOTAL D.C. MSA AREA
UNITED STATES
76,945,000
97,614,000
90,406,000
TOTAL EMPLOYMENT
100,167,000
BY COUNTY
2.0
1.9
1.8
1.7
1.6
1 .5
1.4
1.3
1.2
C
-2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
TOTAL MSA
D.C.
1975
MONTGONERYPRINCE
E=
1980
GRG'S
E \\1985
SOURCE: Salomon Brothers, Inc. [13]
18
FAIRFAX
ARLINGTON
1986
OTHER COS
FIGURE 2-4.
FIGURE 2-4.
1985 EMPLOYMENT MIX IN
INMAJOR
MSA COUNTIES
COUNTIES
D.C. NSA
WASHINGTON D.C.
MAJOR WASHINGTON
1985 EMPLOYMENT MIX
CONSTRUCTION
MANUFACTURING
TRANSPORTATION,
COMMUNICATIONS &
UTILITIES
WHOLESALE TRADE
RETAIL TRADE
FINANCIAL,
INSURANCE &
REAL ESTATE
SERVICES
GOVERNMENT:
FEDERAL
STATE/LOCAL
TOTAL
PRINCE
GEORGE'S
MSA
D.C.
ARLINGTON
FAIRFAX
MONTGOMERY
6.1%
4.3%
2.2%
2.4%
2.6%
1.9%
7.9%
6.0%
7.1%
5.1%
9.1%
4.9%
4.7%
3.4%
11.3%
5.8%
1.8%
4.3%
3.7%
16.5%
1.5%
8.8%
5.2%
9.2%
4.6%
20.3%
4.6%
19.2%
5.4%
25.1%
5.8%
31.0%
5.5%
33.5%
5.0%
31.5%
6.9%
29.9%
6.8%
33.6%
3.8%
21.0%
18.0%
10.0%
35.4%
7.2%
28.8%
4.7%
6.2%
12.3%
13.5%
8.3%
9.5%
16.7%
100%
100%
100%
100%
100%
100%
GOVERNMENT
& SERVICE EMPLOYMENT
100%
90%
80%
70%
0
60%
Li
0
40%
30%
L)
20%
10%
0%
MSA
FEDERAL GOVMT
ARUNGTON
D.C.
ST/LOC GOVMT
SOURCE: Salomon Brothers, Inc. [131
19
FAJRFAX
MONTGOMERY
=I
PRINCE GRG'S
SERVICES
Approximately 80% of the area's employment is centered in the
District,
and in
Fairfax,
total.
the major
Prince
Montgomery, Fairfax,
lington comprise
respectively.
George's, Arlington
18%, 15%, 13%
(See
and
District employment comprises about 32%
Montgomery Counties.
of the
Prince
and 7% of
Figure 2-3.)
employer in
George's and Artotal employment,
The Federal
the District,
Government is
while services
other four counties. [133
dominant sector in the
is the
(See Figure
2-4.)
While not
of
"recession
jobs
government
employment
manufacturing
from national
economic
a slow
down in
has experienced
the area
While
during national
growth
of
and lack
to insulate the area
should continue
downturns.
proof", Washington's high concentration
recessions,
no
absolute losses
in
total employment have occurred in the postwar era, except for
a 0.4% decline in
1982 decline was met with a
And the
1982.
strong recovery in 1983.
(See Figure 2-5.)
[14]
expected to continue to grow
The Washington, D.C. economy is
faster than the nation's, albeit
the rate
of growth
factors.
First, the high
makes it
difficult for local employers
from out
of
the
cannot
be
rate
shifts
slow growth.
without
spending could
sectors.
economy.
employment growth
in-migration.
affect employment
Third,
has diversified, the area
the national
to attract employees
Washington's high
defense
and
ployment base
cost of housing and transportation
sustained
in Federal
government
to
area.
by several
adversely affected
could be
However,
at a slower rate.
because
in the
the
em-
is more susceptible
recession could
A
Second,
significantly
Notwithstanding the above, most experts predict
the Washington economy
will remain healthy for
come. E133
20
some time to
FIGURE 2-5.
EMPLOYMENT GROWTH RATES - WASHINGTON, D.C. versus THE UNITED STATES
D.C. METRO AREA vs. THE UNITED STATES
10%
9%
7%
5%
4%
3%
2%
1%
0%
-1%
-3%
-4%
-5%
67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87E88E
0
D.C. METRO AREA
X THE UNITED STATES
SOURCE: Salomon Brothers, Inc. [13]
21
THE REAL ESTATE MARKETS
in the Washington MSA has
The majority of foreign investment
been concentrated in office buildings located in the D.C. CBD
Smith Braedon Company, suggests
Sherburne, of
wide,
is foreign
"Golden Triangle"
in such
vestment
which have
as Los
U.S. cities
square
10.8 million
we believe
ownership of
foreign inChicago,
million
square
feet and 9.3
[183 &
In
[19)
footage basis,
a square
that on
Washington
Angeles and
feet, respectively, under foreign ownership.
fact,
million square
This exceeds
Figure 4-1.)
(See
City-
[173
of the total
feet, representing approximately 12%
office market.
owned.
own 15.9
that foreigners
we estimate
that at least
foreign ownership, while over 35% of
26% of the CBD is under
the famous
Mary
by
article
recent
A
District).
Business
(Central
foreign
market is second in the nation,
the D.C. office
only to New York City.
To
de-
purchased and/or
foreigners have
extent,
a lesser
veloped office and retail properties in Arlington and Fairfax
Little foreign
Counties.
counties
shown
little interest
in
Washington real
properties,
office
have
prop-
and residential
foreign investors are
Because
downtown
in industrial
our
the
noted in
foreigners
Also,
jurisdictions.
and
other
erties.
has been
activity
primarily interested
discussion
of
the
estate markets will be confined to this area.
The shift toward services employment in the 1970's, in tandem
with increased
1979,
created an
space.
absorbed
In
other government
defense and
explosive
spending after
demand for
increase in
office
Over the past five years, the metropolitan market has
(net) over
1986, the
50 million square feet
area led
response, developers
the
nation in
have added
feet over the same period.
net absorption.
close to 55
(See Figure 2-6.)
22
of office space.
In
million square
The area's
FIGURE 2-6.
ANNUAL ADDITIONS TO WASHINGTON. D.C. AREA OFFICE INVENTORY & NET ABSORPTION
ANNUAL ADDITIONS
D.C.
&
ABSORPTION
22
20
18
10
14
12
10
1979
1980
1 901
SUBURBAN
1982
ANNUAL
1984
1983
ADDITIONS
1 98
&
190
197E
ABSORPTION
22
20
18
1
6
1.4
12
I =
2
0
NASA
ANNUAL
ADDITIONS
&f- ABSORPTION
22
20
1 15
10
I
10
1979
1980
EO
1 901
1 982
1 983
1 94
1 988
02OAISORPTION
ADDITIONS
SOURCE: Salomon Brothers, Inc. [131 & Jones Lang Wootton Investment Research [14]
23
1
980
1 987E
to 125 million square
speculative office inventory increased
fourth in the nation behind
1986, ranking Washington
feet in
New York, Chicago, and Houston.
16.4%
The current vacancy rate of
suburbs) at the end of
[133
(11.7% in District, 20% in
1986 is high based on historical stan-
however, compared to the national vacancy rate of 21%,
the
in
the strongest markets
of
remains one
Washington
dards;
country.
Vacancy
years
eral
the next sev-
levels should increase over
continues
as supply
to
than
(more
expand
22
million square feet are currently under construction) and absorption moderates. [133
the MSA appreciated until
Real rents in
and building prices continue
Land
tinue.
over the
should con-
pressure on rents
years, downward
next several
and have been
1985,
levels rise
As vacancy
since.
down ever
flat to
(See Figure 2-7.)
to rise, however,
due to demand for investment properties.
the current
Despite
D.C.)
MIT's Center
For Real Estate
D.C. area, there
the
that in
velopable sites.
to
(especially
Washington
is supply constrained due to its stringent zoning laws.
A report by
mates
high vacancies,
Development esti-
demand will
increases in
de-
less susceptible
Accordingly, the city is
overbuilding and
only 120
remains
more readily
translate into increased rents. (15)
FUTURE PROSPECTS
Washington's
bility will
the
growth record,
continue to attract
most sought
Foreign
economic
after real
investors perceive
global attention as
estate markets
the presence
of
in the
the
ernment as a stabilizing factor and consider an
24
visi-
stability, and
one of
nation.
U.S.
gov-
investment in
the area safe from the political uncertainties of the rest of
the world.
The next section
discuss specific
real
eigners investing in
derstand
the nature
of
this paper will
estate transactions that
Washington in an attempt
of
foreign investment
identify and
involve forto better un-
and the
tunities it creates for U.S. real estate professionals.
25
oppor-
FIGURE 2-7,.
WASHINGTON. D.C. AREA TOTAL OCCUPANCY & VACANCY RATES
D.C.
OCCUPANCY
&
VACANCY
RATE
18o
1 4O
130
120
110
00
80
70
1 .7C
.0
12
1v
1 0. 00
~
12 2~
0.0w
00
10
1 0. _vM
0. 95P
20)
10
140
1 979
1
oa0
1 901
SUBURBAN
1 982
OCCUPANCY
&
1 900
1 95
1 904
1 90.3
VACANCY
1 987E
RATE
90
1 40
1 30
120
110
1 00
e~o
2 1..1M
20.0%
70
90
ds.1
.40
916.O0|:
013.9%
w
o
20
1 0
1 979
1 901
1 980
1 982
1 903
1 9404
1
90
1 906
1
907E
10
MSA OCCUPANCY
.MO
&
VACANCY
RATE
1 .40
1 20
110
1
.3.2
1 00
1 O.2
950
1 0. 6
00
a 30
40
30
20
1 0
03
1979
1
1 901
90
OCCLUPIEO
1
982
194
VACANT
SPACE
SOURCE: Salomon Brothers, Inc. [131
1993
190
SPACE
& Jones Lang Wootton Investment Research [141
26
190
97E
CHAPTER 3
FOREIGN INVESTMENT AND
THE WASHINGTON, D.C. REAL ESTATE MARKET
and cons of foreign investment
ongoing debate about the pros
in
They worry
citizens and creating national security problems.
about
the United
as the
recent emergence
States'
are
from American
taking jobs
country" thereby
up the
"buying
that foreigners
experts claim
Some
assets.
U.S.
in an
are involved
and financiers
Economists, politicians,
world's
largest debtor nation and argue that a reversal of this trend
Others
satiate
has
investment
for
partly responsible
been
that
and
capital
for
U.S. appetite
the
necessary
is
investment
foreign
that
believe
economic repercussions.
have severe
flight) could
(capital
to
such
U.S. economic
expansion and the decline in interest rates.
above predictions, it is
Notwithstanding the
an
understanding
flows,
and
how
of
effect
they
is because
This
investors
in Washington,
values
and
foreign
large
the
D.C. has a
development
addresses the issue of capital
a discussion
economics
international
country.
property
estate market have
of the Washington, D.C. real
the student
of foreign
and
investment
presence of
capital
in
This
this
foreign
significant impact
patterns.
on
chapter
flows, and then proceeds with
interest in
specifically, Washington, D.C. real
27
important that
real
estate.
estate
and, more
INTERNATIONAL CAPITAL FLOWS AND THE UNITED STATES
The decade of the 80's has seen a significant increase in international
capital flows.
attributes
the
tional capital
trend to
recent Salomon Brothers report
A
economies into a single worldwide
markets and
the prosperity of
As a result,
economy.
capital market and
na-
of separate
integration
the
the U.S. is heavily influenced by the rest of the world. [63
Several
world wide integration are important
aspects of this
First, international
to the U.S.
of risk.
for a
On this basis, certain U.S. investments
adjusted returns than similar in-
appear to have higher risk
Second, as this international
vestments in other countries.
arbitrage continues, real
disappear.
will flow into mar-
best real returns
which provide the
kets (countries)
given level
capital
differentials will begin to
return
Obviously, there are numerous factors which could
affect this equilibrium process including currency rate flucworld political
inflation rates,
tuations,
Nevertheless,
certain
exactly this reason.
participation.
stand that
it
declined
have
to
be
For ex-
grade office buildings in sev-
ample, yields on institutional
U.S. cities
seem
of U.S. assets
classes
attracting foreign capital for
eral
stability, etc.
a
as
result
of
foreign
(Note: It is important that the reader underadjusted real
is differences in risk
returns,
not nominal returns, that
would cause this international ar-
bitrage process to occur).
E133
flows continue, the U.S. will
As these international capital
capture
a
amount of
disproportionate
foreign
investment.
Attractive yields are only one reason; other reasons include:
*
The recent
trade deficit
U.S. balance of
has flooded
the world with dollars and resulted in a decline of the
U.S. dollar
in
the
world
28
currency
markets.
Accordingly,
market.
Also, the drop in
global
the
in
cheap
look
U.S. assets
value of the dollar reduces
the risk of further declines in the dollar's value.
the dollar relative to
Most significant is the value of
the Japanese
yen, attracting an onslaught
investment.
This
is
temporary,
prove
to
likely
of Japanese
however, as nations act to correct the imbalance.
*
The U.S. is
perceived to be politically
represent a "safe haven"
*
The
is
U.S. market
country
for foreign investment.
wealthy
large,
a
is
considered
with
Overseas
less
and
limited
seem
opportunities
investment
market
market".
a "growth
[203
Additionally, the
investment opportunities.
numerous
stable and to
desirable in this context.
*
The
investment.
encourages
system
enterprise
U.S. free
foreign
The market is accessible to foreigners and
places little regulation on private property.
*
The
U.S. market appears
relative
because
to
many
*
with
returns,
subject
inflation
rates.
provide superior
markets.
Additionally,
in some
are lower
returns
countries
leveraged yields on U.S. investments
foreign
financed
Some
foreign
borrowing costs
than in the U.S.,
to
to
foreign nations,
funds
might
exchange
especially
recently relaxed restrictions
rates
enhance
and
relative
the Japanese,
have
on foreign investment by
their institutions and other major investors.
allowed for greater participation in the U.S.
29
overall
This has
WHY REAL ESTATE?
Many
of the
similar
reasons foreigners
to those
vestors.
which
For one,
diversify the
invest in
real
estate
are
motivate American
real
estate
in-
real estate provides an
effective way to
investment portfolio against
inflation.
This
is especially appealing to the foreigner as many nations have
historically suffered much higher inflation rates than in the
their assets in real
to 3OX of
most U.S.
3% for
to less than
estate compared
funds.
for two
especially appealing
estate is
U.S. real
For
foreign pension funds to invest up
is common for
example, it
mandate.
and regulatory
investment policy
invest a
as a result
capital into real estate
significant portion of
of in-house
"predisposed" to
foreigners are
Also, many
U.S.
reasons.
First, it provides a greater degree of liquidity than foreign
real
estate.
tries occurs
Turnover
of real
infrequently.
estate in
some foreign counvery active,
The U.S. market is
however, making it fairly easy to buy or sell a property.
any time, there are numerous
vailable
for purchase.
tend to be higher than
pan and
6%-B%
high quality U.S. properties a-
Second, yields
on U.S.
properties
similar properties elsewhere.
Great Britain, for example,
quality investments
At
In Ja-
yields on institutional
are currently less than
3%, compared to
in the U.S. [213
WHY WASHINGTON, D.C. REAL ESTATE?
The
interest of
market was
foreign investors
once newsworthy,
but no
decade, foreigners have arrived
amounts
first
of prime
in the
longer.
Washington, D.C.
Over
the last
in force and purchased large
investment property.
The Europeans
were
(primarily Dutch and British pension funds) and, in the
30
late 70's and early 80's, began buying existing buildings and
land.
They were
cently, the
followed by
Japanese.
Also
Turkey, and
typically
entered
and, most
represented are
West Germany, the Mid-East,
Lebanon,
the Canadians
re-
investors from
Greece, Belgium, France, Cyprus,
other countries.
several
through
the market
the
Foreigners
purchase of
an
existing property or through a joint venture with an American
foreigners have
Recently, some
investor.
become more
ag-
developing property for their own
gressive and are currently
account.
investors regard Washington as
A wide range of international
their primary
According to one
target.
expert, Washington,
D.C. is the number one destination for the European investor,
and
number
three
and New
Angeles
for
the Japanese
York.
[223
Japanese insurance company
Why Washington, D.C.?
third largest
feet
has gone as far
One reason
space) in
Los
a
to claim "today,
[153
is that Washington has the
Central Business District
of office
behind
representative of
A senior
our next target."
Washington is
investor,
the country.
(in
terms of square
This provides
the
foreigner with numerous investment properties to select from.
More important, however,
Kong Factor":
is what one broker
the notion that the
is running out of developable
square feet of developable
feet
the
year,
exhausted in about
to the
supply of
11 years. [223
of 54 million square feet.
rate of 2.9
million square
developable
land
will
be
(See Figure 2-6.)
stability of the local
economy, along with
relatively low vacancy rates
are also attractive
The strength and
the area's
The CBD has 30 million
(floor area ratio) remaining,
FAR
the current absorption
per
central business district
space.
compared to an existing inventory
Based on
calls the "Hong
foreign
investor.
As
31
described in Chapter
2, Wash-
ington is experiencing rapid growth in employment, population
come.
Also,
the presence
stabilizing effect
from
a national
of the
federal
on the local economy
economic
Washington, D.C. area
time to
to continue for some
which is expected
and income,
downturn.
government
has a
insulating the city
Vacancy
rates in
are currently among the
the
lowest in the
country.
Another reason
appealing is
Washington is
is con-
of foreign
leased Class A downtown office
For example, fully
interest.
to other cities
expensive relative
sidered less
that it
space in Los Angeles, with comparable effective rents, is $20
to $70
per square
foot more
expensive than
the lower
cost of
in Washington,
D.C. [18]
Also
appealing is
presence in
acquiring an
D.C. compared to other cities.
buildings tend
deal
to be a good
bulk restrictions.
initial
This is because
smaller due to
height and
[233
Finally, Washington, D.C. is a city well
known to foreigners.
This is partly due to the City's international recognition as
the
Capitol
of
the United
States,
and partly
due to
the
"European look" of the city.
LOOKING TO THE FUTURE
Foreigners did
U.S. real estate market
high a few years ago.
near-term, foreign
when the dollar was
foreign
eigners are
from the
at its all-time
And most observers believe that in the
in U.S. real estate
investment
tinue, as the dollar remains
U.S. and
profits and retreat
not take their
markets
will con-
weak, and yield spreads between
remain substantial.
generally long-term investors, they
32
Since
for-
tend to use
exchange rates and yield differentials as "buy" signals only,
not
when
For example,
signals.
"sell"
early 1980's
almost
relation to
high in
was very
the U.S. dollar
during the
real estate sales
every other currency,
there were very few
by foreign investors.
Based on this, it would seem that for-
eign ownership of U.S. property will only increase in the future.
will be constrained only
Current investment
over soft
markets and
longer term,
Over the
good product.
scarcity of
the deregulation of the
and foreign institutional
by apprehension
global capital markets
investors will continue, resulting
in a further increase in U.S. real estate investment.
What effects will
foreign investment have on U.S. real estate
and, specifically, Washington, D.C. real estate?
are limited
these effects
foreign investment.
the hoopla, foreign investcomprises just over 1% of
ment in U.S. developed real estate
the total
market.
is significant that foreign
However,
it
focused
on a
very narrow
market; class
select cities, and
buildings in
resort properties.
investment has been
certain what "spill-over" effect,
It is not
activity will have in these
and
values have
with
U.S. markets,
if any, foreign
However, it would seem
markets.
investors gain increasing
market yields decline and
familiarity
hotel
certain types of
markets, property
In these
office
A downtown
of foreign activity.
risen as a result
that as
size of
relatively small
by the
Despite all
Nationally,
foreign capital
flow
will
spread into more cities and more property types.
The
impact
clear.
of
First,
foreign investment
in
Washington,
the Washington, D.C. market will
33
D.C. is
continue to
capture a
disproportionate amount of foreign
its strong underlying fundamentals.
for
downtown and
foreign activity.
ment objectives
American
Last,
certain suburban
Second, the market price
markets will
be set
by
The foreigner's somewhat different invest-
(see
chapter 5)
counterparts and
the foreign
capital due to
enable them
pay prices
to outbid their
that motivate
long-term investment
investor's
sales.
horizon
forces them to focus on high quality properties and intensive
increase values and
also
This will
management.
property
place competitive pressures on other property owners to raise
quality standards.
Now
that we
estate,
understand why
we will
take a
foreigners invest
closer
look at
who these
investors are, and what they are investing in.
34
in U.S. real
foreign
CHAPTER 4
PROFILES OF INVESTORS
So
far,
we
have
examined the
explored the reasons foreigners
of
identifying and
describing the
all
come in
investors
describing the
vides a useful
to the task
various foreigners
sizes, shapes
characteristics of
cur-
Obviously, foreign
the D.C. market.
represented in
rently
and
invest in U.S. and D.C. real
now ready to turn our attention
We are
estate.
Washington, D.C. market
However,
and forms.
players pro-
the various
understanding of their modus operandi.
Before proceeding, it is important that we reiterate the limitations of
from our
this study.
efforts to
foreign owned real
deavored
Data in
this chapter
was derived
identify and
describe the
universe of
estate in Washington.
accurate, our
to be
we have en-
While
data gathering
and interview
process is subject to bias and error of omission.
Appendix A
presents a summary of our findings.
WHO ARE THEY?
There
are
many
active in the
vestor
different categories
D.C. market.
is best divided
of
The typology of
foreign
investor
the foreign in-
into two classifications: nationality
and business activity.
35
Nationality:
the D.C. market.
are represented in
ten countries
At least
Canadians have been the most
Historically, the Europeans and
The British established a major presence in the late
active.
and
were
During
the
1980's,
Dutch
the
major
became
been involved in over
since 1985 have
Japanese who
Germans
and
Canadians.
the
into the market has been the
The most recent entry
players.
by
followed
immediately
1970's
a dozen
Also active have been Belgians, Germans,
major transactions.
Saudis, Scots, and Fins. [173
largest foreign
Currently, the
the
by the
British, followed
In
Figure 4-1)
real
U.S.
(See
Japanese have been
has mod-
favorable ex-
result of more
Japanese, relative to other foreigners.
change rates for the
denominated price
the yen
For example,
Canadians.
while European activity
is probably the
This
erated.
Japanese and
the last two years, the
active investors
the most
in D.C. are
property owners
foot of
per square
estate has declined by 41% since 1985.
[12)
Business Activity:
The majority of the British and Dutch money has been provided
by
existing properties or through
through outright purchases of
development
American
insurance
Other
while
and
nationalities are
investment
foreign
has
or
been
large Japanese life and construction
Canadian
industry
established
Japanese
developers. [213
placed primarily by the
companies,
with
ventures
joint
placed either
has been
This money
pension funds. [243
investment
development
from
the
companies. [9) &
[253
has
represented through
funds and individuals.
36
come
banks, pension
FIGURE 4-1.
FOREIGN INVESTOR INVOLVEMENT INTHE WASHINGTON, D.C. REAL ESTATE MARKET
NATIONALITY OF INVESTOR
CBD
Belgium
Canada
Finland
Germany
Great Britain
Japan
Netherland Antilles
Netherlands
Saudia Arabia
Scotland
Unknown
NUMBER OF
INVESTORS
NUMBER OF
PROPERTIES
SQUARE FEET
OF BUILDING
1
4
1
3
22
12
2
4
2
1
4
56
2
6
1
3
22
12
2
7
3
1
5
64
421,000
1,556,000
140,000
1,403,000
3,137,737
3,654,497
192,000
485,000
437,655
101,000
1,464,000
12,991,889
53,000,000
Spring 1987 total inventory --- >
SUBURBS
Belgium
Canada
Finland
Germany
Great Britain
Japan
Netherland Antilles
Netherlands
Saudia Arabia
Scotland
Unknown
TOTAL D.C. MSA
Belgium
Canada
Finland
Germany
Great Britain
Japan
Netherland Antilles
Netherlands
Saudia Arabia
Scotland
Unknown
E
E
E
E
E
0
0
1
1
0
0
1
1
4
2
0
0
0
0
4
2
1
1
0
0
0
0
11
7
Spring 1987 total inventory --- >
0
439,000
0
221,000 E
943,000
0
0
885,000
417,000
0
0
2,905,000 E
96,000,000
2
7
1
3
4
26
22
12
12
2
2
11
4
4
2
1
5
4
75
56
Spring 1987 total inventory
421,000
1,995,000
140,000
1,624,000
4,080,737
3,654,497
192,000
1,370,000
854,655
101,000
1,464,000
15,896,889
149,000,000
1
4
SOURCE: Blacks Office Leasing Guide [4] & Appendix A
37
---
)
(---
Foreign owned
(---
Foreign owned
E
E
E
E
E
E
(--- Foreign owned
E = Partially estimated
WHAT ARE THEY INVESTING IN?
ers/developers
of downtown
are buyThe
in D.C.
buildings
office
investment might be an
typical
foreign investors
majority of
The vast
similar.
been remarkably
preferences have
their investment
diverse,
been very
foreign investors have
profiles of the
While the
8 to 12 story office building
district, preferably, in the "Golden
in the central business
Triangle" area of the CBD. Little interest has been shown for
exception of a few retail and
other property types, with the
mixed-use projects. (See
to be
Purchases tend
Appendix A)
for all cash, and financial and ownership structures are typically
not complex.
To a lesser extent, the more aggressive foreigners have shown
some interest
close-in suburbs such
in office properties in
as Rosslyn and Alexandria.
These investments are located in
supply constrained markets and are typically developed by the
investor.
note that foreign
interesting to
It is
seem to
be changing over
foreigners prefer
to buy
time.
strategy, most
As an entry
with cash,
office buildings, either alone, or
fully leased,
and
building renovation,
and
also
Canadians,
to bear this behavior out.
British and
long histories in
like
to use
counterparts.
investors, but
they are
[273
have relatively
behave very much
Not only
also heavily
are they
ag-
involved in
development, and in some instances, suburban development.
38
more
For example, the
of whom
the D.C. market, tend to
their American
gressive
Dutch, all
and
the local
innovative financing and ownership structures. [263 &
The data seems
How-
involved in de-
more likely to become
U.S. market, they are
Class A
in a joint venture.
foreigners gain familiarity with
ever, as the
velopment
investment patterns
On
the other
have
to the market,
hand, the newcomers
invested
primarily
existing
in
the Japanese,
and
buildings
have
adopted a very cautious approach.
and their investments are very
In summary, foreign investors
diverse;
however, there
guide
most foreigners'
these
biases
in
the
certain biases
are
behavior.
context
strategy.
39
of
Chapter
the
which seem
5 will
foreign
to
discuss
investment
CHAPTER 5
THE FOREIGN INVESTOR'S STRATEGY
FOR INVESTING IN UNITED STATES REAL ESTATE
Describing
foreign
an investment
investors
strategy
trying
is like
question "How high is up?"
which characterizes
all
age
old
There are many answers, depending
in which the question
on the context
answer the
to
was asked.
Foreigners
differ across nationalities, investor profiles and individual
based on their experience and
preferences. They also differ
understanding of the U.S. market, and of the specific city in
which they desire
Where a
to invest.
Japanese life company
may be only interested in fully leased, triple-A buildings in
downtown Washington, a Japanese trading company might be developing a
speculative high-rise in Los
Angeles.
A British
pension fund, on the other hand, might adopt an entirely different strategy.
While these differences can be
similarities.
By studying these
to understand, and learn from,
investor relative
to his
numerous, there are also many
similarities, one can begin
the philosophy of the foreign
American counterpart.
Our inter-
views reveal several characteristics which are common to most
foreign
real estate
investment strategies,
nationality, preferences, and the like.
1.
Location preferences
2.
Property characteristics
3.
Holding period
4.
Relationship orientation
40
irrespective of
These include:
Location Preferences:
Foreign
investors,
market, are very
lack of
newcomers
aware of the importance
to the performance
their
especially
of a real estate
familiarity with
focus on a few select
to
of
the
American
"good" location
investment.
the country,
Because of
they tend
to
locations which can readily be studied
Their definition of good
location reflects
their preference for safe, stable markets;
they are less con-
and understood.
"home run" investments and,
cerned with
therefore, are less
adventurous than their American counterparts. [28)
As part of their strategy, foreigners tend to focus on supply
markets. E213
constrained
characterized
by size
Generally,
restrictions which
and zoning
competition and make growth
markets
these
are
limit
more predictable and structured.
The central business districts of Washington, Boston, and San
Francisco are
examples of
such markets are less
Foreigners believe
higher vacancies
omic downturn.
cities that meet
this criterion.
susceptible to the
and reduced rents associated
with an econ-
They view real estate investments under these
conditions as inflation protected annuities. C13)
Foreigners are also concerned
of a market.
and
with the economic fundamentals
They prefer cities with strong growth histories
good prospects
for future
prefer diversified markets which
cycles of
a single
industry.
tination for foreign capital in
lure in favor of the more
growth.
Additionally,
they
are less susceptible to the
The
sunbelt, a
popular des-
the 1970's, has lost its al-
stable markets in the Boston Wash-
ington corridor.
Finally, foreigner's
recognition.
prefer cities which
have international
One aspect of this is that it is easier to gain
41
the support of
ies.
to already have a large foreign
Also, such cities tend
foreign investor.
for the
information network
as an
which serves
contingent
in familiar cit-
the "home office" to invest
[213
Property Characteristics:
The few exceptions have been hotel,
buildings.
in office
investment has been
majority of foreign
The vast
and to a les-
ser extent, retail properties.
Office buildings are prefer-
First,
they are the predominant form
red for three reasons.
of real estate investment overseas;
greater
management.
Second,
type.
much greater attention
properties require
types of
investment
other
be less management intensive;
office buildings tend to
site
this
with
familiarity
thus, the foreigner has a
can be
lease terms
office tenant
Third,
and on-
more easily structured to match investment criteria.
Because foreigners
longer holding periods
tend to have much
than their American counterparts, they focus on high quality,
Emphasis is
efficient structures.
placed on quality of fin-
state-of-the-art technology and design.
ish and
investment, foreigners believe it is
may increase the initial
more than
While this
operating costs and
offset by reduced
added com-
petitive advantage in attracting tenants.
Holding Period:
Foreigners
American
haven"
tend to
have
investors.
This
estate.
Because
holding periods
is consistent
in chapter
philosophy discussed
also a function of a
real
much longer
cultural
3.
"capital
However,
it is
inclination to hold investment
developable
42
with the
than
land is
scarce in
many
countries, foreigners
emotional attachments
tend to develop
only if they have a problem.
to property and will sell
Relationship Orientation:
lack of proximity to the
Because of their
vestors often rely on
foreign in-
U.S. intermediaries for support.
This
U.S. real estate professionals
the form of hiring
can be in
U.S.,
on a fee or commission basis, or forming a joint venture with
Foreigners
a U.S. partner.
and reputation and they
have an
They
these relationships. [293
tablishing
demand that the intermediary/partner
by countrymen who
Equitable, or
real
by a
a Gerald Hines or an
already have a
presence in
market.
the greatest
estate
action
best met
criteria are
Typically, these
large, prestigious U.S. company such as
Probably
stress integrity
intimate understanding of their investment objectives
and culture.
the U.S.
cautious in es-
tend to be very
complaint of
that Americans are
professionals is
oriented;
relationships.
As
foreigners toward
U.S.
too trans-
spend enough
time developing
a result, many Americans
have little un-
they
do not
derstanding for the foreign investor and therefore do not always effectively serve their needs. [303
Now that
we have
provided a clear
profile of
the "who's",
"how's", and "why's" of foreign investment, it is time to focus on the ramifications of
marizes our
findings and
such investment.
Chapter 6 sum-
discusses the implications
foreign investor on the domestic real estate industry.
43
of the
CHAPTER 6
SIGNIFICANT FINDINGS AND IMPLICATIONS
foreseeable future, foreigners will
be
professionals.
said than
these relationships is easier
However, developing
they do
foreigners have an almost
"patient" capital.
unlimited supply of
Foreigners
access it,
For-
and intermediaries;
need advisors
continue to
also, for those who can
done.
continue to purchase and
available for U.S. real estate
eigners will
For the
As a result, numerous opportunities
develop U.S. properties.
will
fad.
U.S. real estate is not a
Foreign activity in
selective about who
are cautious and very
business with.
Accordingly, U.S. real
estate pro-
fessionals must understand the foreign mind-set and develop a
marketing
program which
We
among foreigners,
exist
as
as between Americans and foreigners.
believe
syncrasies
our research
of
foreign
chapter is dedicated to
and
and
the cultural
sensitive to
differences that
philosophical
well
is
explaining the
provides
investors.
insight
The
into the
remainder
of
idiothis
summarizing our significant findings
implications for
fessionals.
44
U.S. real estate
pro-
SIGNIFICANT FINDINGS
The following is
a summary of the
in this report.
viously described
ceptions to
each item; however,
significant findings prethere are ex-
Obviously,
these findings tend
to re-
flect the most likely behavior of the foreigner.
Foreigners view U.S. real
estate as a."capital
haven".
Safety may be the most compelling reason foreigners invest in
moil overseas
has made international
portant part of the
States is viewed
of free
diversification
foreign investment strategy.
in this
Private property rights
country, mitigating
an im-
The United
the last bastion
as politically stable and
enterprise.
sacrosanct
and economic tur-
A history of political
estate.
U.S. real
are considered
the fear
of expro-
priation.
Additionally, an
investment in real estate
in a tangible asset, as opposed to a paper
is an investment
(financial) asset.
This has an added emotional value to the foreigner.
Foreigners are long-term investors in U.S. real estate.
of the foreign investment strategy,
The capital
haven aspect
along with
the foreigner's
real
estate,
results in
cultural disinclination
long
holding
periods.
to sell
Where
an
American investor will typically hold real estate for 7 to 10
years, a foreign investor will
hold real estate for 25 years,
or longer.
Because of this long-term perspective, foreigners prefer high
quality, state-of-the-art technology and
45
design in the prop-
management of the physical
Foreign
Also, foreigners
invest.
which they
erties in
asset.
returns under
accept lower
investors will
stress good
certain
conditions.
for
First, foreigners
of reasons.
a variety
their attention on
made it
reduced
yields and
This is
analogous to
to participate.
is the
the "winner"
an auction where
to pay;
that is, the item
Since foreign in-
it the most.
goes to the party who values
market.
thin markets has
more expensive
party with the highest willingness
have focused
the U.S.
a very narrow slice of
intense competition in these
The resulting
higher prices)
(pay
returns
accept lower
Foreign investors
vestors place a higher value on certain downtown office properties, they
such
properties),
foreigners
that to
many foreigners,
atively
cheap.
will
overseas
even higher)
on U.S. investments
of
a function
is
This
other countries.
The belief
not compet-
favorable
are such
exchange
(making leveraged yields
competing in-
and lack of
safe haven aspect
Third, the
foreign investment strategy suggests
pay a premium for
(i.e.
U.S. looks rel-
investment in the
rates, low financing costs
of the
are generally
types
Second, global economic conditions
itive bidders.
vestments in
property
favored
less
On
properties.
suburban
American counterparts for
tend to outbid their
that foreigners
low risk, high quality properties.
that foreigners pay
too much for U.S. real estate
may not be true..
Relative to other real estate investments,
foreigners do pay
more;
however, in the
constrained markets foreigners prefer,
probably reasonable.
And when
very narrow, supply
yields and prices are
exchange rates
and overseas
financing are considered, returns for foreigners may even be
46
superior to those that can be achieved by American investors.
holding period, it is conceivable
Given the foreigner's long
that yields
may decline
for these
the appetite
further as
properties exceeds their availability.
Exchange
rates
important
are
in
foreign
the
investment
decision.
Favorable exchange rates allow the foreigner to buy more U.S.
product for
vest.
the money, thereby
into the
U.S.
of Japanese money
explain the recent flow
This helps
As exchange
rates change, however,
eigner does not show an inclination to sell
the purpose of capturing currency gains.
belief that
to in-
providing an impetus
foreigners are long term
the for-
U.S. property for
This reinforces the
investors, more inter-
ested in protecting their investment than maximizing gain-opportunities.
Foreign investors have strong location preferences.
Foreigners are
ognized cities.
primarily interested in
They
properties located
show a strong bias for
in the
central business
generally avoid suburban properties due
derstanding of the suburb;
suburbs.
internationally recClass A office
district.
They
to their lack of un-
most foreign countries do not have
They are also very market conscious and prefer sup-
ply constrained locations
fundamentals.
These
with excellent underlying economic
preferences are not surprising
probably no different than those
of an American investor go-
ing into an unfamiliar domestic market.
47
and are
Foreigners are "predisposed" to invest in real estate.
important component of
has historically been an
Real estate
investment portfolio.
the foreign
Many foreign pension funds
have up to a third of their assets in real estate compared to
3%
less than
Foreign investors
funds.
for American pension
understand the product and are considered to be excellent asset managers.
Foreign investors are relationship oriented.
Probably
are too transaction ori-
that U.S. real estate professionals
ented;
and
enough time developing relationships
they don't spend
seem
to have
little
to build
Foreigners prefer
investor is
the foreign
complaint of
the biggest
understanding
foreigner.
of the
relationships with
"name brand"
U.S. organizations or, alternatively, with countrymen who understand the U.S. market.
Foreign investors are cash buyers.
In general,
cash buyers.
foreign equity
estate are
Transactions and ownership structures
complicated deal
tend to
However, examples
were noted where more
structures were used.
It is not clear as to
be straightforward.
what
investors in D.C. real
extent U.S. cash
purchases
are
funded with
overseas
borrowings.
As
foreign
more
investors become
familiar
with the
U.S.
market, they act more like U.S. investors.
A review of
the above list reveals
48
many differences between
foreign
strongest differences
The
investors.
and American
Japanese.
market, most notably the
However, for foreign invery few differences
longer history in D.C.,
vestors with a
profiles become
Investment strategies and risk
were noted.
to the D.C.
that are relatively new
appear among foreigners
For example,
very similar to those of the American investor.
certain
is one exception:
There
icans.
area, behave very much
record in the
long track
cognizant of
investors, all
and Dutch
Canadian, British
their capital
foreigners
with a
like Amer-
remain extremely
and therefore
haven requirement
continue to be long-term investors.
As
gain
foreign investors
American
a greater
understanding of
how U.S. markets
culture and
operate, we
they begin to act more like American investors.
foreigners will
become more inclined to
property types, to make
lines
At
believe
Accordingly,
invest in different
greater use of U.S. capital markets,
diversify into other geographic
and to
the
markets and business
(i.e. brokerage, construction, mortgage banking, etc.).
the
extreme, the
foreign
investor
will become
indis-
tinguishable from the American investor.
IMPLICATIONS
Evidence suggests foreigners will continue to actively invest
in D.C. real
estate.
The annual
volume of such investment by
a particular country or investor will be affected by exchange
rates, economic conditions, and other exogenous factors; however, total ownership will continue
term commitment to the market.
will
to grow due to the long-
A strengthening of the dollar
not cause foreigners to sell U.S. real
Over time,
established foreign
activities
into
different
investors will
property types,
49
estate.
expand their
different
geo-
cess will
accelerated if yields in
be
the preferred markets
and other
to other properties
decline relative
continue to
This pro-
and into suburban development.-
graphical regions
Foreign investors will
become more and more "Ameri-
canized" in their behavior, even
to the extent of setting up
markets.
U.S. based real
or purchasing
staffed pri-
estate companies
marily by Americans.
The foreign newcomers
to the market will
the more conservative strategy of
continue to follow
investing in Class A down-
town office buildings; however, they may consider second tier
cities attractive if
Washington, New York, Los An-
yields in
geles, etc. are perceived to be too low.
turnover of
foreigners.
periods for
long holding
haven" will
"capital
for a
The desire
reduce the
This will
reduce long
properties which may
foreign owned
term commission
to motivate
continue
Also, it
opportunities for intermediaries.
will
strengthen the foreigner's
and
construction;
this
commitment to quality design
increase the
could
number of
for-
eigners who develop for their own account.
Finally, the foreign investor will continue to pay top dollar
for properties that meet
eigner's willingness
allow them
erties
their stringent criteria.
to accept
lower yields on
their American
to out-bid
The for-
these propcounterparts.
The implication of this is that certain U.S. real estate markets may
be undervalued.
markets before prices are
ities
those who can
For
identify these
bid-up, substantial gain opportun-
may exist.
In conclusion we believe
that an increasing foreign presence
in the U.S. marketplace will
present great opportunities for
all kinds of U.S. real estate players.
50
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
PROPERTY NAME & LOCATION
SELLER
page 1 of 9
SQ FT of
BUILDING
?
PRICE/COST
?
Belgium
Comafi Real Estate
?
Ferris Building
1720 Eye Street
Washington, D.C.
Belgium
Comofi Real Estate
?
Chanin Building
815 Connecticut Ave NW
Washington, D.C.
200,000
?
Canada
Cadillac Fairview
Land assembly
Fariview ParkFalls Church, VA
439,000
?
Canada
Cadillac Fairview
Unicorp-Land sale
One Franklin Square
1301 K Street NW
Washington, D.C.
600,000
?
Canada
Manufactures Life
Insurance Company
George Nolin
Local partnership
1850 M Street
Washington, D.C.
241,000
?
Canada
Manufactures Life
Insurance Company
Trammel Crow
Franklin Square
1350 Eye Street NW
Washington, D.C.
335,000
39,000,000
Canada
Manufactures Life
Insurance Company
Land assembly
750 17th Street NW
Washington, D.C.
130,000
?
Canada
Olympia & York
?
The Investment Building
1511 K Street NW
Washington, D.C.
250,000
?
Canada
Unicorp
?
Potomac Buildings
Washington, D.C.
*
?
This list is not all inclusive and no doubt some foreign owned property has been overlooked.
every attempt was made to be accurate, there may be some inaccuracies in the data.
51
?
While
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
SELLER
?
page 2 of 9
PRICE/COST
PROPERTY NAME & LOCATION
SQ FT of
BUILDING
Foxhall Square
3301 New Mexico Avenue
Washington, D.C.
140,000
?
Finland
Republic of Finland
Germany
Deutschbank with
Gerald Hines
Land assembly
Columbia Square
555 13th street NW
Washington, D.C.
530,000
?
Germany
KanAs with
Western Devlpmnt Co
Land assembly
Washington Harbour
3000 K Street NW
Washington, D.C.
564,000
?
Germany
Lehndorf Group &
Eupn Pn Fds
Ted Lerner
/ Gedelski
Tysons Corner Shpg Ctr
Vienna, VA
Germany
Lehndorf Group &
Eupn Pn Fds
Ted Gould
1333 New Hampshire Av NW
Washington, D.C.
Great
Britian
Virginia Corporation
?
Patrick Henry Building
601 D Street NW
Washington, D.C.
?
?
Great
Britian
British Coal Bd &
2nd Intercontinental
Properties
?
122 C Street NW
Washington, D.C.
?
?
Great
Britian
British Coal Bd &
PanAm Properties
Watergate
600 Virginia NW
Washington, D.C.
?
?
Great
Britian
British Petroleum
Pension Fund &
PanAs Properties
Mazza Galleria (Mall)
Wisconsin Avenue
MD - Bethesda
?
?
*
Manahoe
?
?
160,000,000
309,000
This list is not all inclusive and no doubt some foreign owned property has been overlooked.
every attempt was made to be accurate, there may be some inaccuracies in the data.
52
?
While
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
SELLER
Great
Britian
Deansbank
(Church of England)
Great
Britian
Eagle Star
Properties
Great
Britian
Viking Group
Eagle Star
Properties
(innegotiation)
Great
Britian
EBW Inc.
(Edward, Bennet
& Williams)
Great
Britian
ESN
Great
Britian
Farragate Associates
(Wingate/Divett)
6reat
Britian
page 3 of 9
PRICE/COST
PROPERTY NAME & LOCATION
SQ FT of
BUILDING
Prudential
(50% JV w/buyer)
McPherson Building
901 15th Street NW
Washington, D.C.
230,000
?
Land assembly
816 Connecticut Ave NW
Washington, D.C.
24,000
?
Desonet Building
1155 Connecticut Ave NW
Washington, D.C.
95,000
?
Otis Building
810 18th Street NW
Washington, D.C.
27,487
?
Land assembly
L'Enfant Plaza East
470-90 L'Enfant Plaza
Washington, D.C.
400,000
Army navy Club
Army Navy Club
1627 Eye Street NW
Washington, D.C.
103,000
?
Graycoat &
Grosvenor Trust
(Duke of Windsor)
Wilco Investments
Longfellow Building
1201 Connecticut Ave NW
Washington, D.C.
168,000
30,100,000
Great
Britian
Greycoat
K & K Properties
Colorado Building
1341 6 Street NW
Washington, D.C.
130,000
?
Great
Britian
Grosvenor Trust
(Duke of Windsor)
USLICO
(United States
Life Ins. Co.)
Olmsted Building
1701 Pennsylvania Ave NW
Washington, D.C.
175,000
52,500,000
?
* This list is not all inclusive and no doubt some foreign owned property has been overlooked.
every attempt was made to be accurate, there say be some inaccuracies inthe data.
While
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
PROPERTY NAME & LOCATION
SELLER
page 4 of 9
SQ FT of
BUILDING
PRICE/COST
1735 North Lynn Street
Rosslyn, VA
?
?
?
1850 North Lynn Street
Rosslyn, VA
?
?
London and Leeds
(Ladbroke Group)
?
Commonwealth Building
1300 Wilson Street
Rosslyn, VA
280,000
?
Great
Britian
Prudential of UK
?
Board of Trade Bldg
1129 20th Street NW
Washington, D.C.
122,000
?
Great
Britian
Rush & Tompkins
Local Partnership
1229 Wisconsin Ave NW
Washington, D.C.
15,000
7,000,000
Great
Britian
Solomon Freshwater
Albert Small
/ Chatalin Trust
801 North Capitol St NE
Washington, D.C.
Great
Britian
UK America Property/
Easley McCaleb et al
Great
Britian
Viking Group
Great
Britian
Viking Group &
Markborough
Great
Britian
London and Leeds
(Ladbroke Group)
Great
Britian
London and Leeds
(Ladbroke Group)
Great
Britian
*
Albert Ginsberg
?
?
Walker Building
735 15th Street NW
Washington, D.C.
72,000
?
Land assembly
1146 19th Street NW
Washington, D.C.
45,000
?
Land assembly
2001 L Street NW
Washington, D.C.
146,000
?
?
This list is not all inclusive and no doubt sose foreign owned property has been overlooked.
every attempt was made to be accurate, there may be some inaccuracies in the data.
54
While
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
SELLER
?
page 5 of 9
PRICE/COST
PROPERTY NAME & LOCATION
SQ FT of
BUILDING
Commonwealth Building
1625 K Street NW
Washington, D.C.
106,000
?
110,000
?
Great
Britian
Weir & Assoc
Great
Britian
Wimpey Holdings
Land assembly
1020 19th Street NW
Washington, D.C.
Great
Britian
?? / GLM Corp
Bruce Berger
Embassy Building
1424 16th Street NW
Washington, D.C.
50,000
2,000,000
Great
Britian
& Japan
London and Leeds &
Sumitomo Life
JBG Associates
The Brown Building
1200 19th Street NW
Washington, D.C.
235,250
37,000,000
Japan
Asahi Mutual Life
Prudential
(50y JV w/buyer)
One Thomas Circle
One Thomas Circle NW
Washington, D.C.
225,000
24,700,000
Japan
C. Itoh &
Shaw &
Rose Associates
Land assembly
Embassy Suites Hotel
1210 22nd Street NW
Washington, D.C.
Japan
Dai-Ichi
Seimei American
Equitable
(JV - kept 25Z)
2025 MStreet NW
Washington, D.C.
173,715
Japan
Individual investor
Blue, Frank
& Kaimons
The Esplanade Building
1990 K Street NW
Washington, D.C.
260,000
Japan
Kokusai Kogyo &
Epn Pn Fds(Lndrf)
Cadillac Fairview
(JV with Buyers)
1001 Pennsylvania Ave NW
Washington, D.C.
758,000
?
This list is not all inclusive and no doubt some foreign owned property has been overlooked.
every attempt was made to be accurate, there may be some inaccuracies in the data.
55
?
55,000,000
?
While
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
SELLER
page 6 of 9
-
PROPERTY NAME & LOCATION
SQ FT of
BUILDING
PRICE/COST
86,900,000
Japan
Kondo Bosekei
(Nagashami)
Hall Financial
(Dallas)
Juduciary Center
555 4th Street NW
Washington, D.C.
331,000
Japan
Meiji Mutual Life
(25% JV w/seller)
Equitable or
Jim Farragut
3 Lafayette Center
1155 21st Street NW
Washington, D.C.
226,000
Japan
Mitsubishi Bank &
Tower Constr.
(loan)
Development deal
Washington Square
1050 Connecticut Ave NW
Washington, D.C.
680,000
Japan
Mitsui
1401 New York Avenue NW
Washington, D.C.
164,553
?
Japan
Nissei Realty
(Nippon Life)
AMA Building
1101 Vermont Avenue NW
Washington, D.C.
164,229
35,750,000
Japan
Shuwa
U.S. News Complex
2300 N Street NW
Washington, D.C.
300,000
?
Japan
Sumitomo Realty &
Development Co.
(La Solana)
1750 K Street NW
Washington, D.C.
151,000
30,000,000
Netherland
Antilles
Lauriston Company NV
?
2555 M Street NW
Washington, D.C.
32,000
?
Netherland
Antilles
Marigold Properties
?
2021 K Street NW
Washington, D.C.
160,000
?
*
?
AMA
Boston Properties
(under negotiation)
Basilea, Inc.
?
200,000,000
This list is not all inclusive and no doubt some foreign owned property has been overlooked.
every attempt was made to be accurate, there may be some inaccuracies in the data.
56
While
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
Netherlands
Bexley Properties
Netherlands
Buverso Properties
Netherlands
Buvermo Properties
Netherlands
Buvermo Properties
Netherlands
Buverso Properties
(convertable mort.)
Netherlands
DIHC
(Dutch Institutional
Holding Co)
Netherlands
DIHC
/ Savage-Fogarty
Netherlands
DIHC
/ Savage-Fogarty
Netherlands
DIHC
/ Savage-Fogarty
*
PROPERTY NAME & LOCATION
SELLER
page 7 of 9
SQ FT of
BUILDING
PRICE/COST
?
2021 L Street NW
Washington, D.C.
54,000
The Jefferson Building
1225 19th Street NW
Washington, D.C.
72,000
1815 North Lyrtn Street
Rosslyn, VA
93,000
?
Raw
Land
?
1099 30th Street NW
Washington, D.C.
34,000
?
Land assembly
TransPotomac Plaza
North Fairfax Street
Alexandria, VA
304,000
50,000,000
Land assembly
1023 15th Street NW
Washington, D.C.
52,000
?
Flour Mill Building
1000 Potomac NW
Washington, D.C.
121,000
?
99 Canal Street
Alexandria, VA
488,000
?
George Nolin
Local partnership
?
14114 Lee Jackson Hiway
Chantilly, VA
Land assembly
?
?
Land assembly
12,000,000
125,000,000
This list is not all inclusive and no doubt some foreign owned property has been overlooked.
every attempt was made to be accurate, there say be some inaccuracies in the data.
57
While
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
SELLER
PROPERTY NAME & LOCATION
page 8 of 9
SO FT of
BUILDING
PRICE/COST
Netherlands
DIHC with
Western Devl &
Trammel Crow
Land assembly
Hay Market Square
Pennsylvania Avenue
Washington, D.C.
Raw
Land
200,000,000
Netherlands
Royal Dutch Shell
Dr. Gerber
Farragut Building
900 17th Street NW
Washington, D.C.
152,000
34,000,000
Saudia
Arabia
19 L Realty Company
1899 L Street NW
Washington, D.C.
137,655
?
Saudia
Arabia
Hadid Invstmt Group
Land assembly
1001 New York Avenue NW
Washington, D.C.
180,000
40,000,000
Saudia
Arabia
Hadid Invstat Group
Land assembly
1212 New York Avenue NW
Washington, D.C.
120,000
25,000,000
Saudia
Arabia
Hadid Inystat Group
?
Tysons Building
1300 North 17th Street
Rosslyn, VA
417,000
?
Scotland
Scottish Amicable
Life Assurance
Society
?
1015 18th Street
Washington, D.C.
101,000
?
Unknown
Banque Indosuez &
Wilco Investments
Prudential
1030 15th Street NW
Washington, D.C.
179,000
29,300,000
Unknown
CAG Associates
?
BAB Building
1019 19th Street NW
Washington, D.C.
93,000
?
*
?
This list is not all inclusive and no doubt some foreign owned property has been overlooked.
every attempt was made to be accurate, there may be some inaccuracies in the data.
58
While
APPENDIX A
WASHINGTON, D.C. PROPERTIES INVOLVING FOREIGN INVESTORS
NATIONALITY
of INVESTOR
INVESTOR / BUYER
page 9 of 9
SELLER
PROPERTY NAME & LOCATION
SQ FT of
BUILDING
PRICE/COST
Bank of
Nova Scotia
DAON Building
1300 New York Avenue NW
Washington, D.C.
750,000
145,000,000
Unknown
Inter-American
Development Bank
Unknown
Ivera Corporation
(offshore
tax shelter)
?
711 14th Street NW
Washington, D.C.
?
?
Unknown
Ivera Corporation
(offshore
tax shelter)
?
1331 6 Street
Washington, D.C,
?
?
* This list is not all inclusive and no doubt some foreign owned property has been overlooked.
every attempt was made to be accurate, there may be some inaccuracies in the data.
59
While
NOTES
1.
"Administration Blasts
June 24, 1987.
2.
"Real Estate Investment Outlook," Emerging Trends in Real
Estate: 1987,
Equitable Real Estate Investment
Man agement, Inc, November 1986.
3.
Position in
"Foreign Direct Investment
R. Peter DeWitt,
the
United
States 1980 1985,"
Real Estate Review,
Winter 1987.
4.
"Office Directory,"
Hill, Spring 1987.
5.
The
Estate,"
Real
U.S.
and
Institutions
"Foreign
Mortgage
and
Real
Estate
Executives
Report,
Warren,
Gorham & Lamont, Inc, June 15, 1987.
6.
in U.S. Real Estate MarAnthony Downs, "Foreign Capital
kets,"
Bond
Market
Research
Real
Estate,
Salomon
Brothers, Inc, April 1987.
7.
Investors Consider U.S. Property
Ronald Derven, "Foreign
Investment Is Expected To Be A Mega'Stable'; Japanese
trend," National Real Estate Investor, July 1986.
8.
Vice Preswith Lawrence J. White, Executive
Interview
in
Washington,
Companies,
Development
of
Hadid
ident
D.C. (June 24, 1987).
9.
L. Monahan, International Business
Interview with Edward
Massachusetts (June 11, 1987).
Cambridge,
Consultant, in
Trade Measure,"
Washington Post,
Blacks Office Leasing
Guide, McGraw
and the Small
Estate
Real
III, "American
Horton
10. Ted
Japanese Investor - Opportunities in a Growing Market," a
Harvard Business School,
for the
short
paper prepared
December, 1986.
11.
Shulman, "A Look Behind Office
David J. Kostin and David
Vacancy
Rates,"
Bond
Market Research
Real
Estate,
Salomon Brothers, Inc, June 25, 1987.
12.
Bond Market
Investment in
U.S. Real Estate,"
"Japanese
Research
- Real
Estate,
Salomon
Brothers, Inc,
March
1987.
13. Mari
Canton,
Adele
M.
Hayutin and
60
David
J.
Kostin,
"Washington, D.C. Real Estate
Market," Bond
Market Research - Real Estate, Salomon Brothers, Inc, April 1987.
14. Metropolitan Washington
Office Markets:
Bureaucracy and
Technocracy in the "Information
Age", Jones Lang Wootton
Investment Research, 1986.
15. Russell
C.
Lindner
and
Edward
L.
Monahan,
Japanese
Investments in U.S. Real Estate:
Status, Trends and outlook,
M.I.T. Center for
Real
Estate Development,
Cambridge, Mass, 1986.
16. Interview
with Dianne Schachner, Business
Development,
(June 23, 1987).
Daly, in Washington, D.C.
Leo A.
In the
WashL. Sherburne, "The Foreign Investor
17. Mary
ington,
D.C. Market,"
Pipeline, District
of
Columbia
Building Industry Association, August 1986.
in
"Foreign Investors
Smith and Kevin Whalen,
18. Michael
(A
United States Real Estate: Are They Really Different?
M.I.T.
Angles Area),"
The
Los
of
Activity in
Review
Center for Real Estate Development Thesis, July 31, 1987.
Chicago
Investment in
Nooney, "Foreign Direct
19. Deborah
From DoReal Estate - Are Foreign Investors Different
Real Estate Develfor
mestic Investors?," M.I.T. Center
opment Thesis, July 31, 1987.
20.
Buvermo PropJohn Gardner, President of
Interview with
erties, in Washington, D.C. (June 26, 1987).
21.
of
Julian
Josephs, President
with
Julian
Interview
Josephs Company, in Washington, D.C. (June 24, 1987).
of Investment
Warren Dahlstrom, Director
22. Interview with
Ellis, in
WashMcCall /
Grubb &
at Leggat
Brokerage
ington, D.C. (June 25, 1987).
Director of
Russell C. Lindner, Managing
23. Interview with
D.C. (June 24,
in Washington,
Saint
Properties,
Bear
1987).
24. Interview with Jeffery A. Scott, Investment Associate and
Lang
Analyst
with Jones
Andrew
McAllister, Investment
(June 22, 1987).
Wootton, in Washington, D.C.
25.
Manager, Washington
Bright III,
with J. Paul
Interview
Insurance ComManufactures Life
Office of
Real Estate
pany, in Washington, D.C. (June 23, 1987).
26.
Partner in Larson, Ball
Interview with M. Anthony Gould,
& Gould, in Washington, D.C. (June 23, 1987).
61
27.
U.S. Real Estate
in
Investment
of European
"Scope
Changing," WG&L Real Estate OUTLOOK, Summer 1987.
is
in
Partner
Donald A. Brown,
with
interview
28. Telephone
Washington, D.C. (June
& Gillidonhorn, in
Jacobs, Brown
23, 1987).
29.
President at
III, Vice
William B. Alsup
Interview with
(June -26,
D.C.
in Washington,
Gerald D. Hines Interests,
1987).
Chairman - Executive
Jul'ien G. Redele',
with
30. Interview
President with
Jeffery H. Riddel, Vice
and
Committee
in Washington, D.C. (June
Savage/Fogarty Companies, Inc,
25, 1987).
62