Developing trust keys international realty success

The Internet, video conferencing, fax machines and many other advances in communication technology may have made the world a smaller place but, as many American real estate firms are now discovering, in the business world nothing, not even technology, can take the place of "being there" when it comes time to close a deal in other parts of the world.

Many domestically based full-service real estate firms are attempting to increase the amount of business they do overseas. "American corporations are becoming more sharply focused on expanding their business outside the United States, and they see real estate as less and less of a core business that they should be handling themselves," says Mark Burkhart, president and CEO of Colliers Turley Martin, a St. Louis-based full-service real estate firm.

So the opportunities for full-service real estate firms in foreign countries and with foreign companies are ripe.

"Not every real estate firm has to be international, but if they are going to be doing business with Fortune 500 firms, it is a necessity," says John Coppedge, executive managing director of New York-based Cushman & Wakefield Worldwide.

"American companies continue to expand their international activities and thus they need office space, distribution and warehouse space, plant facilities and other buildings," says Terry Rees, managing director, corporate services for Colliers Cauble & Co., Atlanta.

Others feel the days of nationalist labels for firms may be over. "Chrysler is now a German car company," says David Binswanger, president of The Binswanger Cos., Philadelphia. "The concept of an American firm isn't the same. So where your company is headquartered is becoming irrelevant."

But the need for real estate services remains very relevant. This is particularly true in Europe, due to corporate philosophy that pervades many firms there. "The management model of many foreign companies is extremely thin in the real estate area," points out Richard Gatto, senior vice president with The Alter Group, Chicago. "They have very small staffs often with as few as two or three people handling all of their global real estate needs, so they need the help and we can be their eyes and ears."

In the case of The Alter Group, this international expansion has been on the fast track. Less than a decade ago the firm was basically limited to the midwestern United States, while today they are doing business with firms from France, Germany, Japan and Scandinavia.

These firms are looking to increase their international business by expanding existing domestic relationships, following their American clients overseas, through network affiliations, acquiring foreign firms or just aligning themselves with foreign firms.

Atlanta-based Compass Management and Leasing is operating on five continents with an overseas portfolio of 50 million sq. ft., says Bruce Ficke, the company's president. Compass has used a combination of aligning itself with local firms and founding independent offices to fuel its growth in foreign markets. "In the United Kingdom, we opened a new office based on the strength of the client we were following there," he says. "While in Brazil, we entered the market through a joint venture."

Compass joined forces with the Biermann Organization, a Sao Paulo, Brazil-based real estate firm which focuses on development. "We took over the management of their 1 million sq. ft. management portfolio, and in two and a half years we have increased it to almost 8 million sq. ft.," explains Ficke.

The decision to joint venture is based on the market and the companies working there. "We have a partner in Canada, but not in Australia," he adds. "Every market is different."

But the one constant is the need for local market knowledge. "We have experienced people on the ground in these foreign markets," says Coppedge. "Because you can't serve your clients properly without local expertise."

Cushman & Wakefield began its European operations through a joint venture with London-based Healey & Baker, a 130-year-old real estate firm. More recently, the relationship expanded to Asia. Cushman & Wakefield is also doing work in South America and Canada.

But whatever the method they use, success for these real estate firms often depends on being a face recognized in the local market.

"In order to effectively serve clients in a foreign market, there has to be a level of knowledge and trust in your firm among the business people within the country you are working," says Steven Podolsky, chairman of Westchester, Ill.-based Podolsky Northstar Realty Partners LLC.

The foundation on which this trust is built must be a firm understanding of how business is done in these countries.

"Our challenge, globally, as a provider of real estate services, is to gain an understanding of the customs and laws of each international market we serve and discover the best ways to smooth out the rough parts of the transition and bring uniform service to our customers," says Bill Concannon, president and CEO of Stamford, Conn.-based Trammell Crow Corporate Services Inc., which has increased its international presence to meet the global real estate needs of many of its 400 institutional clients.

"The differences in language, culture and monetary units are sometimes so great that the more familiar the local business people are with you, on a personal basis, the more comfortable they are working with your company," adds Podolsky.

"When you are talking about a transaction involving co-investing, the personal relationship is very important," adds Coppedge, "particularly in Asia."

This familiarity can be attained in a variety of ways, however, none of them from long distance. "There is a tremendous amount of travel involved," admits Podolsky, who has attended trade shows, accepted the chairmanships of committees, conducted seminars and made speaking engagements throughout the world, including Europe where Podolsky Northstar is currently focusing its international efforts. "The hard sell is convincing a firm that you can represent them in Prague with the same level of expertise that you can in Chicago," explains Podolsky. "And it is your level of participation in those foreign markets and the relationships you can demonstrate that will convince them."

"Overseas, particularly in Latin American and Asia, who you know and how you do things is often more important than the outcome," says Colliers Cauble & Co.'s Rees. Over his career, Rees has experience doing business in 35 countries worldwide.

It is also important to maintain a presence in a variety of real estate areas. "If the local business leaders see you in several different venues, then they will begin to view you as a player in the market," explains Podolsky.

As a result, Podolsky Northstar belongs to a number of international real estate networks and organizations, rather than just one. These include FIABCI, the international real estate federation; CORFAC International, an organization of corporate facility advisors; and SIOR, the Society of Industrial and Office Realtors, to name a few.

The more organizations the company is affiliated with the more contacts that could potentially help a client.

Currently, the international stage these organizations can offer through their conferences, trade shows and other functions can be excellent marketing tools for American firms.

Earlier this year, Podolsky along with two other SIOR members held a seminar on construction, finance and leasing for the Columbia Association of Real Estate in Bogota, Columbia. The program was so successful that they have been invited to hold a similar seminar in Caracas, Venezuela, next year. Thus, this effort has further extended the firm's business relationships and contacts.

An international heritage helps While some firms have to build their relationships with foreign firms from the ground up. Others have some built-in advantages such as foreign-based parent or sister firms.

For instance, while Trammell Crow Corporate Services Inc. is a 1,200-employee division of the Trammell Crow organization and makes most of its international contacts on its own, it does have the advantage of using the resources of its sister firm, Trammell Crow International, for data on particular international markets. The working relationship between these two divisions is so interconnected the boundary lines are beginning to blur.

"My belief is that in the future the company's divisions will become so integrated that the names Trammell Crow Co. and Trammell Crow International will be used interchangeably," he says.

Dallas-based Landauer Associates Inc. has been in existence for more than 50 years and, at various times during that period, a significant portion of the company has been owned by overseas firms. This foreign ownership made some inroads into foreign market for the firm, says Steve Kaplan, CEO and president of the company.

Currently the firm is owned entirely by Aegon Realty USA, a subsidiary of Aegon N.V., one of the largest insurance holding companies in the world, based in The Hague, Netherlands. Despite the significant international presence its parent firm offers, Kaplan says, to this point, most of the firm's international business has been achieved on its own.

However, says Kaplan, "We see Aegon as a terrific platform for developing our interest in Europe in the future."

At any rate, Landauer has already done a great deal of valuation and market study work for firms in the Netherlands, as well as the United Kingdom, Germany and Japan. Also the company has completed portfolio acquisition due diligence work in Mexico, Canada and the United Kingdom. Landauer's work in the United Kingdom has been through an alliance with London-based real estate firm Fuller-Peiser.

In Australia, the firm has focused on retail and office evaluations through another alliance partner, Grant Samuel. In fact, the two firms formed a Sidney-based joint venture named Landauer Grant Samuel three years ago.

Kaplan says forming alliances with local firms is a good way of entering foreign markets. "It is important to have local knowledge of the market," says Kaplan. "And because we are consultants and not owners of real estate it is important that we establish relationships with other service providers."

Some believe alliances are the only way to succeed overseas. "Going into a foreign country and setting up your own office is suicide," says Binswanger. "You need locals to help you understand the culture and the idiosyncrasies of the market."

The Binswanger Cos. forms alliances in foreign markets such as it has in Mexico with Groupo Bermudez, one of that country's largest real estate firms.

Binswanger says he wants to align the company with the strongest players in the market, so they have as much market level knowledge as possible. Through these alliances the firm has more than 160 international offices throughout Europe, Asia, South America and Israel. The alliances are handled through Chesterton Binswanger International, a joint venture with London-based real estate firm Chesterton Blumenauer.

Although Chesterton Binswanger International begins these relationships with foreign firms as nonownership alliances, the trend and the goal of the firm is to develop ownership positions with the various partners.

But, some real estate companies feel initial ownership is the best way to serve the interest of the client.

"We do not feel alliance relationships have enough teeth to work," says Trammell Crow's Concannon. "We just don't believe you can be sure that the full-service capabilities that are being sold to the client will be followed through as efficiently as possible. Sometimes the limitations of the partnership alliance can get in the way of servicing the customer."

As a result, Trammell Crow is looking for ownership in its foreign markets. "We have a specific growth strategy to acquire companies that have the same culture as our own because we want to put our own people on the ground in each market - people that understand our philosophy and the needs of our client," he says. "We are looking at our work as a global line of business where we use best practices throughout the organization. We don't think you can achieve that through alliance relationships. And accounting and reporting is where it shows up first."

So, Concannon continues, if Trammell Crow is in total control of the operation, then accounting, reporting and all other aspects of the client's service needs can more easily be held to a specific standard.

Growing with your clients While some real estate firms have been more proactive in their search for international business, others prefer to follow the lead of their existing clients.

Colliers Turley Martin, for example, has worked with St. Louis-based Edward Jones Co., opening 100 offices a month domestically for the stock brokerage.

In January, the relationship expanded as Colliers Turley Martin, with assistance from its Colliers affiliate in the city, opened Edward Jones' London headquarters, the firm's jumping off point for entering the European market.

And while Burkhart sees the move as one of his clients expanding, he also realizes his firm is expanding as well, since Colliers Turley Martin also will be opening Edward Jones' other European offices.

He sees the relationship with Edward Jones Co. as a perfect match of needs and services. "We will combine our knowledge of Edward Jones' needs with the local market expertise of our Colliers affiliate," says Burkhart. "We know Edward Jones' strategy and have input at the beginning and the end of the planning process. We are really a partner with them rather than a vendor."

But as real estate firms build their capability to service one client in a particular part of the world, the firm also opens up its ability to service other clients in the area as well.

"If we create a service resource for a client, then those same resources also can be used to service other clients," says Concannon. "We have a proactive strategy to grow with our largest corporate customers, and this is one advantage."

For instance, in 1994 Trammell Crow made its first foray into Canada as part of a contract with computer giant IBM. Since then they have expanded the operation to include servicing the Canadian operations of Shell Oil and Nova Chemical. "If we have 50 professionals on the ground in Canada to serve one client, it only makes sense to expand the number of clients we serve," stresses Concannon.

Trammell Crow Corporate Services has a similar opportunity in Germany, which began with United Parcel Service and is currently being expanded to service additional clients.

Compass believes in expanding its client base as well. "We work for our existing clients, but we supplement that with calls on local firms we feel will appreciate our approach to real estate," explains Ficke.

For example, Compass had no prior business relationship with Uni Banco, a Brazilian bank, prior to their arrival in the market. However, Ficke reports, "We contacted them, they saw the work we were doing, and now we are managing a number of their office buildings."

While Concannon says that his firm does have a strategy for procuring business from the local firms in these countries, he points out that its current roster of 14,000 tenants and 400 institutional customers already provides the company with an abundance of sources for overseas business.

Business works both ways Many of these international relationships begin in the United States with foreign firms seeking plants or office locations in American markets. And from these relationships, both domestic and international business can grow.

The Alter Group is hoping for just such a relationship with Sourdillon Inc. The French company was looking to open a gas-burner manufacturing plant in the United States to eliminate overseas shipping costs and delays. Sourdillon officials chose the Chattanooga, Tenn., area as the site for the 20,000 sq. ft. plant because of its proximity to vendors and then left the specifics of the project to The Alter Group.

A site was found in Ringgold, Ga., just south of Chattanooga. The local economic development authority was eager to help to attract the new jobs, and The Alter Group used this to its client's advantage to secure free land and a favorable overall deal structure.

"We did everything as if we were going to own the project ourselves, but we did it on a consultant basis and negotiated for them a much lower rental rate than we could have given them if we had owned the project," explains Gatto.

The success of the project has created a good relationship between the real estate firm and its French client. "It was a small deal, but it has created the relationship with Sourdillon and opportunities for use elsewhere," he adds.

So by demonstrating its skills at home, some real estate firms are able to convince clients to give them an opportunity internationally. "We have worked hard to develop these relationships, particularly with Japanese institutions working in the United States," says Kaplan.

The methods of developing international real estate relationships are almost as varied as the markets they hope to someday reach. But the philosophy of real estate outsourcing is continuing to expand around the globe, as even companies in third-world nations are becoming more sophisticated in their business practices.

American full-service real estate firms have a great opportunity to be the leaders in filling this niche if they are willing to invest the time needed to become a presence in these markets. However, these relationships require time to develop, and the investment of this resource should begin as soon as possible.

Although it is occurring more slowly than in the rest of the corporate world, the health care industry is also beginning to see the advantages of outsourcing its corporate real estate needs.

"As the whole cost-cutting aspect continues to grow, hospitals are looking to go off balance sheet with their real estate, as well as at other more sophisticated real estate strategies that they can benefit from," says Richard Gatto, senior vice president with The Alter Group, Chicago.

"We are seeing a lot of medical facilities turn to third-party vendors," adds Bill Schmitz, president of Des Plaines, Ill.-based Arthur J. Rogers & Co.

Many of these real estate service providers are moving into health care out of necessity because their business opportunities are dwindling in other areas. "Our main stream of business has always been property management and facilities management," says Schmitz. "However, because of the growing number of REITs which manage their own properties, third-party opportunities are limited. So we needed to look at other opportunities, and we decided medical facilities was a good option."

Because of the high-tech requirements and other unique needs involved in the medical field, experience will be a key factor in providing successful service for health care companies. Therefore, the firms that get involved early will be those that learn the ropes and develop the most successful health care real estate strategies.

The potential for growth in this area of real estate is enormous due to the fact that outsourcing in this area is in its infancy and because of the growing demand in the health care field due to the aging baby-boomer population. The industry is already one of the largest in terms of employees. "One of every 11 jobs in the United States is connected with the health care/medical business," says Mark Burkhart, president and CEO of St. Louis-based Colliers Turley Martin.

Burkhart says his firm first considered getting involved with health care real estate about five years ago after it was approached by B.J.C. Health Systems, based in St. Louis. Initially, Colliers Turley Martin did due diligence on the properties that were part of the growing medical company's numerous acquisitions. This experience was a good place for the firm to start and build a base of knowledge about the industry, says Burkhart.

As a real estate firm's knowledge and experience in health care increases it can translate into work in other related industries. Trammell Crow Corporate Services Inc., Chicago, has found a niche working with the major hospital supply companies, says Bill Concannon, president and CEO.

As a sign of this market's potential, The Alter Group hired John Driscoll to head up ALTER+CARE, its health care operation. Driscoll is the former head of real estate at St. Luke's Hospital in St. Louis. "John's experience in both health care and real estate has made moving into this field much easier for us," adds Gatto.

Another type of medical facility of a similar size that is showing up in increasing numbers is the hospital satellite office.

These offices are a way for hospitals to reach patients and serve their less serious medical needs as well as to attract more patients to the main hospital campus for times when more serious treatment is needed.

In the Chicago area, locally based Hiffman Shaffer Associates Inc. is working on a number of these facilities for Loyola University Health Systems and Advocate Health Care, both of which run area hospitals. Several of these satellite offices are opening each year in the area, says Dan Griebel, vice president with Hiffman Shaffer Associates.

"We are basically looking for areas that are remote from existing hospitals and not being served by other doctors," he explains, "anywhere there is a need."

Griebel says finding locations for medical facilities requires a knowledge of the unique factors that often come into play in such deals.

For instance "Class-A office buildings usually do not want to attract young children because of the safety issues," he says. "So doctors' offices may not fit in these projects. Class-B may be a better fit."

But he adds that Class-B properties bring with them other issues such as how to deal with older, more obsolete structures.

Another fast-growing area in health care is assisted living facilities for the elderly. "We are looking at how we can expand our business into assisted living facilities through our hospitality division," says Steve Kaplan, CEO and president of Dallas-based Landauer Associates Inc.

Gatto points out that Medicare does not yet provide for assisted living costs. But if it is included in the future, he believes, the interest in these facilities will grow even faster.

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