The Beat Report

Germans ready to spend $1 billion+ in U.S. Bradley Olsen, one of our intreped correspondents and president of Atlantic Partners Ltd. in Cary, N.C., writes about his recent experiences with German investors and the flow of capital into U.S. real estate:

* The interest of German investors in the U.S. real estate market is broader and deeper than at any time in my nearly 20 years of working with foreign investors. Those players that have been here for years - like TMW and Jamestown - have expanded their investment activities dramatically in 1999. Jamestown reportedly is raising $400 million in equity in Germany to complete its acquisition of a major interest in 125 High Street in Boston from Tishman-Speyer Travelers. TMW is active on behalf of a number of clients, including its second institutional fund, the open-end fund Despa and private syndication clients. I expect they will invest well over $500 million in the United States this year.

* Most of the open-ended funds that are permitted to invest in the United States are expanding their presence here. These include Despa which has just acquired an office building in downtown San Francisco through CB Richard Ellis Advisors, BfG ImmoInvest which has bought an office building in downtown Chicago and DIFA which is looking to add to its portfolio in Washington, D.C. and Atlanta. Currently, I am working with one of the other open-end funds on its first acquisition in the U.S.

* One of the principal reasons that the open-ended funds are so active is that they have taken in considerable new funds from investors in 1999. Under the regulations governing these funds, they are supposed to have no less than 50% of their total assets invested in properties. Several of the funds are at or below this level, meaning that they have extra incentive to invest. Faced with increased difficulty in finding suitable properties in Germany, these funds are looking to other markets and the United States appears particularly attractive given yields here as compared with the principal European cities.

* The biggest news from Germany, in terms of the U.S. market, probably is the surge in interest from the sponsors of closed-end funds who previously had not invested here. Their interest is driven by recent changes in German tax laws which have eliminated or greatly reduced tax subsidies for other forms of investment, including property investment in the former East Germany, ships and other capital equipment. These fund sponsors are turning to U.S. real estate as their new focus, and I expect these new funds will invest more than $500 million in the United States over the next 12 months.

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