Global business strategies and an ever-changing real estate and business marketplace demand a new breed of real estate leaders. A panel of experts at ULI’s 2011 Fall Meeting in Los Angeles late last month shared their thoughts on emerging real estate trends, leadership in a global real estate marketplace, and what they see for the future of the real estate industry. Moderated by Marilyn Taylor, dean and Paley Professor, School of Design, University of Pennsylvania, the panel focused on one market segment that seems to be on the rebound after a significant decline in 2008 and 2009: foreign investment opportunities.
Linda Law, chair of the Real Estate Academic Initiative at Harvard University, discussed the major factors to consider when investing in emerging markets. Demographic and income trends usually dominate discussions on foreign investment—the growing middle class and the accompanying disposable income in China, for example—but other things are just as important. Transparency of government, degree of corruption, market liquidity, and sophistication of infrastructure also are important elements that should be considered when assessing investment risk in foreign markets.
But above all, understanding your firm’s limitations and areas of expertise is central to success, explained Tinchuck Ng, executive vice president at EasternFlair Investment and Development. “Everyone loves retail development in China—and who wouldn’t, look at the demographics—but what it comes down to is execution.” A firm must have a certain threshold, a comfort level, which they will not go beyond, she said.
Two regions dominated the conversation: South America and China. Law explained that the perceived barriers to entry in foreign markets are not as daunting as one may think. “There is no difference between going into South American now and going into Fort Worth in the late 1970s.” Entry into the market requires careful assessment of risk and knowing people on the ground who are familiar with the process of deal-making. A way to mitigate risk may be indirect versus direct investment—using a local firm with intimate knowledge of and experience in the region as a conduit for your investment.
A major barrier that does require careful navigation, however, is culture. Ng explained that cultural differences that investors face in foreign markets can be baffling to some newcomers, particularly in negotiations and deal-making. “In the U.S., you get a prenup, and then you get married. In China, you get married and figure it out later.” Deals are often agreed upon in principle and then hammered out later on, a scenario that requires a great deal of loyalty and respect between parties—another reality to consider when doing business internationally.
As Law put it: “There is only one time in world history when investment is going global—and that time is now.” For newcomers looking to take advantage of this opportunity, establishing a track record is essential. “Get that first deal done,” implored Ng. “Deals are like street fights: pick the weakest one and take advantage.”