Other U.S. companies are setting their sights on Central and South America, as well as the Caribbean. GoldenTree InSite Partners, a New York City-based private equity firm, is developing three condo towers and one office project in Brazil with local partners. Buyers of the luxury condos, which range in size from 3,000 square feet to 5,000 square feet and cost up to $1 million, include local executives who want a secure downtown environment with full recreational amenities. But GoldenTree executives also plan to develop more moderately priced properties.
“Brazil is not without its risks,” notes Tom Shapiro, president of GoldenTree. “But we are very bullish about its prospects. The country is in its sixth year of growth, and inflation is tame.” He adds that while there has been a dearth of capital, the situation will improve as mortgage financing become available. His condo buyers typically pay 50 percent of the cost of the unit within eight months of signing the sales contract.
In Atlanta, two veteran multifamily developers, both frustrated by overbuilt markets at home, are seeking sunnier climates for development. Paul D’Agnese of Executive Enterprises is building a 17-story luxury condo in Grogona, Panama, about 45 minutes from Panama City. Meanwhile, Keith Poimboeuf of Pelican Properties is pulling the string on a longstanding dream to build villa-style condos on Eleuthera in the Bahamas.
“When the market is soft, you need to look for another niche,” says D’Agnese, who was pleasantly surprised at the cost effectiveness of building in Panama, which, like Costa Rica, has become a low-cost haven for U.S., Canadian, and European retirees. His land and construction costs amount to about $120 per square foot, and he expects to get $180 to $200 per square foot from buyers.
Poimboeuf is also targeting aging baby boomers for his 48-unit project in the northern sector of Eleuthera. The developer believes most buyers will use their homes seasonally, and his firm will handle maintenance and rental of the units while owners are away.
RULES OF ENGAGEMENT Still, these examples, though substantial, hardly constitute a stampede for foreign multifamily forays—and for good reason.
“If you’re a multifamily developer, you just don’t parachute into Germany and set up shop, as you would if you were a California builder looking to expand into Texas,” observes Stephen Blank, a ULI senior fellow specializing in capital markets. Blank points to a number of concerns, including each country’s distinct ownership and rental patterns, as well as the dominance of local real estate interests in many nations. Cultural differences must also be taken into account. In Europe, for instance, young adults tend to save their money and live with their parents, rather then rent a place of their own.
Bellman of ING cites a litany of factors that his company scrutinizes before deciding to acquire or develop multifamily properties in any global market. They include government policies such as rent control and restrictions on foreign ownership; economic conditions, including interest rates and job and wage growth; and demographic trends. And that’s just for starters.
Unfortunately, many American companies simply aren’t prepared to tackle these daunting issues. Says Shekar Narasimhan, manager partner of Beekman Advisors in McLean, Va.: “If I’m the CEO of a U.S. multifamily REIT, how can I assure my board, the analysts, and my shareholders that there’s enough of a premium on overseas activity to justify all the risk? Without compelling facts, foreign expansion will just be viewed as a distraction from more promising activities.”
Still, Narasimhan thinks enough of global prospects to start his own real estate finance and development management firms in India. Among India’s most attractive opportunities: amenity-rich, extended-stay apartments in urban business centers. He adds that emerging countries also need the assistance of U.S. developers with proven experience in large, master-planned projects.
In short, interest by the U.S. multifamily industry in overseas opportunities is growing, Narasimhan says. “[It’s not yet a] wave … but there is a lot of sniffing ’round.”