Most of the investors that have put money into those funds are institutional investors, large funds of funds, and are now under pressure from their investors to pay the money back. Because most of the money is in real estate assets and there is not that much liquidity left in the funds to repay the investors, management has decided to close the funds, collecting fresh money from new investors or selling some buildings to meet the request from investors who want to get out.

Now, because the expectation by the management is that many more investors will call their money back, caused by the loss of confidence in the performance of those funds, they have taken the decision to close the funds.

DEGI Europe has a current value of €1.3 billion and P2 Value about €852 million (coming from €1.7 billion in September 2005).

They now have a three year period to sell the properties to avoid the need to sell for dumping prices. Every six months they will look at how much money they can pay back.

This provides some interesting opportunities and probably will be the start of many more products coming to the market place.

Demand for quality products exists, and it may be that the proceeds reached might be better than expected.

The German economy in general is recovering surprisingly well. In spring 2010 the growth of the gross national product was at 2.2%. This growth rate was surprisingly high and broke the mold by far. Primarily responsible for the growth were Germany’s export and building investments. Consumption and equipment investment gave strong impulses for increased economic activity as well.

The unemployment rate has started to fall slowly but constantly due to the fact that companies are engaging more people again. Only the inflation rate which was close to zero in fall 2009 increased and is currently at 1%.

The future prognoses stay optimistic. Experts expect a stable economic growth of about 2% for the upcoming year 2011.

Until the end of the third quarter in 2010, there were 1.34 billion SM rented in Germany’s top office market centres. Vacancy slightly increased since the last year. While the average vacancy rate of the German office market centres was 8.9% in 2009, it lies at almost 10% in the third quarter of 2010. Because of the increased willingness of the companies to recruit personnel and invest, the markets for office space and industrial sites are reacting positively over the next 8-12 months.

-Andreas Krone

Andreas Krone is the CEO of NAI apollo, NAI Global’s exclusive Member firm for the Frankfurt, Berlin, Dusseldorf, Cologne, Stuttgart and Muelheim an der Ruhr markets in Germany.

Many salient topics were highlighted and during one of the more intimate sessions, a round table exchanging challenges and problems, those with assets in Mexico expressed grave concern.  ALL were in unison that the ownership and/or occupancy of assets in Mexico pose a significant risk and anxiety for corporate leadership. The security of personnel to the threat to operations to energy supply is all under review.  Not only are the above components a major concern but cartel thugs are highjacking the tractor trailers soon after they leave the distribution centers or manufacturing plants.  Short of deployed armed guards to ride “shotgun” with the truck drivers, little can be done. 

One of the participants, a pharma CRE director shared with us that his efforts include equipping his trucks with “automatic shut- offs” that cut the engine if the authorized driver is displaced. 

But ALL agreed that remains a terrible situation and little can be done to secure asset and fleet operations in Mexican territories.

So what’s the prognosis?  I think they’re will be a pull-back into Texas…border towns and further north.  I think they’ll operate in a “limp-along” mode until current leases expire and/or conditions improve or worsen.  Maybe the Mexican government will consider providing enhanced security to these assets as Mexico cannot afford to lose(possibly for good) large US companies and factories doing business in their country.

-Paul A. Waters, SIOR, CCIM, CRE, FRICS

Based in New York City, Paul Waters, SIOR, CCIM, CRE, FRICS, is Executive Vice President-The Americas at NAI Global, where he is responsible for business development and client relationships among major corporate end users of office and industrial space.

Since the market shut down and financing became unavailable, many parcels have sat vacant looking for new buyers. The case is different in the area close to the United Nations, however, as many governments are in the market for parcels on which to build missions and residential projects for themselves. Since governments are exempt from paying New York City real estate taxes and always pay cash, this area has become an active marketplace. 

Parcels have been sold recently to the Governments of Senegal, Singapore and United Arab Emirates, and several others are under active negotiations. The International Advisory Group of NAI Global of New York City is involved in these transactions including the sale to the Government of Singapore at 318 East 48^th Street for $29.5 million. This division of NAI Global also has exclusive agencies on other parcels such as 843 Second Avenue, 844 Second Avenue, 231 East 43^rd Street and 303-305 East 44^th Street totaling approximately 200,000 square feet of development opportunities. 

Although the general office leasing market in New York continues to be weak and is directly connected to the slow recovery of the U.S. economy, the UN marketplace has been extremely strong and the International Advisory Group is participating in the success of this activity. 

The recent ruling by the U.S. Court of Appeals allows foreign governments to continue to enjoy an exemption from New York City real estate taxes. For the past several years, New York City has tried to change this exemption and it restrained several governments from moving forward with their real estate decisions to acquire property. This ruling should now accelerate decisions to purchase property in this area.

-Gil Robinov

Gil Robinov is an Executive Managing Director at NAI Global New York City. New York is home to more than 185 member governments of the United Nations. Robinov is recognized as the industry leader in this marketplace and has represented over 25% of these organizations.

The new entity, NAI Harcourts Brock Commercial will launch this week as the first office of a planned national network to be rolled out during the remainder of 2010, with offices expected to open in Western Australia, Victoria, and Queensland over the next few months. Negotiations are also under way with potential partners in New South Wales, Tasmania, ACT and the Northern Territory.

NAI Harcourts was launched in New Zealand in July and will be the exclusive Australia/New Zealand member of the NAI Global network. NAI Global is the world’s premier managed network of commercial real estate firms and one of the largest real estate services providers worldwide. The NAI Global network comprises more than 5,000 professionals in 325 offices in 55 countries and is responsible for over $45 billion in transactions in a typical year. NAI affiliates also manage over 250 million square feet of commercial properties worldwide. Harcourts is Australasia’s fastest growing real estate organization, and currently has more than 600 offices internationally.

Brock Commercial Director Terry Goodwin said Brock Real Estate was a significant equity partner in the Australia New Zealand network, bringing its experience in commercial property of more than 30 years to the group.

“This is a unique opportunity for us to take our expertise and experience in the commercial property sector in South Australia across the country and into New Zealand,” Goodwin said. “The link with Harcourts and NAI also provides our vendors with links to a massive global resource of professionals and potential purchasers and we believe this will have significant benefits in terms of the results we will be able to achieve on their behalf.”

Goodwin said Brock Real Estate’s residential link with Harcourts International, established in 2004, had been extremely successful with more than 40 offices now operating across South Australia and the Northern Territory.

“That model has worked extremely well and we are now using the same approach to roll out our commercial property expertise throughout the Harcourts network, with the backing of NAI Global,” he added.

The NAI Harcourts operations are led by Christopher Nicholl, Chief Executive Officer. Nicholl has more than 20 years of experience in the commercial property sector, including senior international roles with Jones Lang LaSalle and Colliers.

Nicholl said the launch of the company in New Zealand and the roll-out of its Australian operations through Brock Commercial were the first steps in a five-year plan to establish NAI Harcourts in the top tier of the Australian commercial property sector.

“With the support of NAI Global we will significantly expand the existing commercial property businesses of Harcourts and Brock Commercial over the next few years,” Nicholl said. “Following the roll-out of the new brand, key systems and procedures, we’ll be building teams of commercial specialists in key metropolitan and regional centers and introducing industry-leading tools and training that will allow us to grow and operate at the highest level.”

“Alongside this we plan to increase the range of services we offer sellers, buyers and tenants active in this important sector of the property market,” he added. “There is clearly an appetite for another major player in this space and from the enquiries we’ve had from clients, potential clients and people interested in joining the team, we know the value of the intellectual property, brand recognition and international market access this new joint venture provides is extremely significant.”

The dramatic evolution of the retail landscape over the past 20 years has been driven by a number of factors such as education, the shift in the age composition of the population, and the emergence of the middle class. The main catalyst behind the emergence of the Mexican retail landscape has been the significant growth of the middle class, with a substantial demographic shift from a “have and have not” socio-economic composition to a more socially tiered structure. The middle class continues to grow both in numbers and in disposable income due primarily to a stable financial industry that has reintroduced the availability of credit (car loans, Visa/Master Card and now mortgages).

Second, the population base has become better educated and is much younger.   This has created a significant retail paradigm shift from a largely local informal retail industry to one that is formal, and is structured increasingly toward power centers and enclosed shopping centers comprising of large anchor tenants, food courts, cinemas and the standard assortment of adjacent in-line retailers.

Mexico’s young and growing population base is consumption minded.  The population growth is projected to continue to occur until the year 2040 when it is expected to begin to level off at 140 million people.  The majority of this growth over the next 40 years is expected to occur in the middle class.

For years the number of new retail franchises entering Mexico was largely limited to a handful of U.S. based retailers.  Even then, their geographic distribution in Mexico was largely concentrated on Mexico City, Guadalajara and Monterrey. As the country has stabilized economically together with the emergence of a strong middle class, retail chains (particularly U.S. based) have been expanding their store counts into secondary and even tertiary level cities.  The QSR and Casual Dining sectors have taken the lead in expansion of their brands across the country.

The current economic climate has significantly reduced the rate of expansion within and to Mexico, largely due to the poor value of the Peso. However, the country does maintain a stable financial sector and a better, younger educated population base, which will yield the country stronger returns on investment, development and retail expansion as the country rebounds out of the recession.

From a logistical, manufacturing and distribution perspective, Mexico has the infrastructure in place (centrally) to all major and secondary cities for the quick distribution of goods and services.

The free trade zones or maquiladora offer tax incentives for companies to establish presence and manufacture products.  Mexico’s large and growing manufacturing sector, together with established logistic hubs has opened up a gateway of trade with Asia.

To coincide with the most recent downturn in the economy, there has been significant upturn in the drug cartel violence across the country over the past three years.  An issue which was once confined to the border cities, the crime as it relates to the drug cartels has spread across all parts of the country.

To compound the “safety issue“and negative perception/concerns of Mexico, the tourist areas are also being hit hard with violence (killings, assaults) against tourists.  Mexico is the 8^th largest tourist destination place in the world and has felt a significant slowdown in the tourism industry due to the current global economic crisis, but perhaps more importantly the escalation in tourist focused violence.

-George Anderson

Based in Toronto, Ontario, George Anderson is Vice President of Market Analytics for NAI Global, and works closely with retailers and financial institutions using geodemographic analyses to identify and evaluate markets for expansion around the globe.

The news hit the press just before the weekend so there has not yet been any recorded public reaction. However, in light of the booming agricultural industry and its investment (Brazil enjoyed a US$60 billion positive trade balance in 2008) and the large proportion of FDI in Brazil dedicated to the agricultural sector, I know that many global businesses and experts will react negatively to this effort and I can guess what they will say. First, they will no doubt state that this is just an excuse to practice another form of protectionism and that it is another example of Brazil’s chauvinistic economic and bureaucratic policies that have plagued the country and its development for decades, just like the Daedalian bureaucracy that the government refuses to straighten out and streamline. They will add that Brazil has a larger land surface area than the continental USA, has generally more fertile soil and it does not have the vast stretches of deserts and mountains where agricultural exploitation is limited. Thus, the feeling will be that the current Brazilian administration’s claim that they need to protect the natural patrimony of their fellow citizens is a nationalistic reaction to Brazil’s entrance into the global market (much like how some US citizens reacted in the 1980’s when many Japanese investors acquired several landmark properties). The comment will be that Brazil’s government wants to reap the benefits of a globally connected economy, but that it does not wish to play on an open or a fully accessible playing field. 

Is Minister Cassel’s initiative a cry of agricultural jingoism or a legitimate concern to protect their resources for future generations? Probably a lot of the former and a little of the latter. First, one needs to understand that there is a passionate sentiment of territorial autonomy that has run strong in Brazil for over 100 years, and that there exists a strong cultural concern and anxiety for “protecting” the country’s assets from foreign invaders. (Mexico shares this characteristic. The best example is the strong public resistance to any form of privatisation of the oil sector which the Mexican government, under then socialist President Lazaro Cardenas, expropriated in 1938 to the resounding approval of Mexicans.) One just needs to reflect on the Brazilian oil sector; only five years ago it was quasi-privatised and the government still retains the ultimate authority, above private interests. This latest “incursion” of foreigners into Brazilian land ownership is a sign to some Brazilians that they could lose control of their own destiny. However, it is important to note that a law already exists in Brazil that states that only residents and citizens of Brazil may own rural tracts of agricultural land. And many foreign companies and individuals have side-stepped this edict by setting up Brazilian shell companies and using that legal and fiscal status to acquire large swathes of farm land. The current government has cried foul and now wishes to stem the tide of the illegal invasion. Of course, in the industrialised countries these land ownership restrictions do not exist an open and free market reigns.

The new statute, or amendment apparently, that is being prepared would further define and restrict the rights of “fiscal shell residents” from further acquisition and ownership of the agronomical land parcels.  The amendment may even revoke title of land already purchased by foreigners.

How may this affect agricultural investment in Brazil? My perception is that it will have very little negative effect; investment and growth will continue due not only to domestic demand, but international demand as well. However, I will speak to our Cracker Jack team of agro-industrial experts in Brazil and get back to you with their insights for another blog post.

By the way, in Costa Rica a law exists that restricts foreign ownership of beachfront property, however, foreigners sidestep this law also by setting up Costa Rican trusts held by their Costa Rican fiduciaries. The government realises that this is occurring and they openly allow it. And, as such, Costa Rica has been able to enjoy a rich and promising economic boom that has helped out most of its citizens. At least I hope the Costa Rican government fully allows it; I may have just let the cat out of the bag and made enemies of thousands of people.

-David Berger

Based in Miami, David Berger is Managing Director for Latin America & The Caribbean region at NAI Global.

Spain has also introduced new measures to promote youth employment and cut the cost of firing workers. Spending cuts were introduced last month in a bid to cut the large budget deficit.

Other EU countries have also introduced pay cuts and freezes to the public sector in their economies to deal with the budget deficits.

The UK chancellor also stated that there would be a tax introduced on the banking system – the details not yet announced. Germany and France have also indicated that they will do the same and this shows that the EU is working together to achieve a common playing field.

We will now have to wait and see if the economies are stimulated and the deficits cut across Europe.

-Patricia LeMarechal, BSc, MRICS, SIOR

Based in the UK, Patricia LeMarechal is Vice President of International Client Development for NAI Global and a member of the International Advisory Council of The Society of Industrial and Office Realtors (SIOR).

FDI during 2009 in Latin America was US$77 billion, 58% of and down from the amount of US$132 billion received in 2008. As mentioned, this drop in almost 50% amazed me. However, it is not such shocking news. First, one has to consider the depth of the economic crisis; there certainly is no lack of that within the U.S. and Europe. But also consider how hard the U.S. was hit. And then take into consideration that the U.S. is overwhelmingly the single largest source of FDI in Latin America (unlike what you may hear about Spain or China or maybe even Canada investing heavily in the region, the U.S. is by far the single largest country to invest in Latin America – a whopping 37% compared to its closest competitor, Spain, that accounts only for 9% of FDI, followed by Canada at 7%). If the U.S. is the single-largest investor in Latin America, but it goes through a traumatic and chaotic financial and economic crisis wherein most financing dries up and capital investing retrenches, then one can imagine the effect on FDI from that single source alone. However, if that U.S.-based crisis reverberates through its major financial trading partners and hits an economy already beset with its own woes due to overheating and over speculation, namely Spain – the number 2 name on that list – then we really begin to see the recipe for a steep drop in FDI. Add to that the fact that much of the FDI in 2008 was due to the expansion of mining and mineral extraction (a sector hit hard in 2009 by weakened demand and much lower commodity prices), the picture begins to get even clearer. And, voila, FDI cut off at the bolero belt. This speaks very well of the region since in most markets not tied solely to tourism and U.S. remittances, the country has fared fairly well with no deep pain.

The other fact that surprised me was that the U.S. was still the clear leader by a mile in FDI. Over the last couple of years I had not seen the figures for FDI broken out by country, and I kept hearing and reading how much Spain, Canada and China are advancing in the region, so I thought that the percentage share amounts would be closer. Not so, apparently.

It was also interesting to see that investor confidence and opportunities in Brazil abound. As the new regional doyenne, Brazil was atop the FDI list of recipients having corralled US$25.0 billion or 33.8% of all FDI for the region. Talk about a money magnet. Chile emerged, for the first time, as the second most preferred FDI destination with US$12.7 billion, surprisingly overtaking Mexico that attracted US$1.3 billion less – just US$11.4 billion total. As an indication of Colombia’s growing economic prowess and the growing investor confidence (and perhaps due to the Kirchner fright factor), it attracted more FDI than Argentina, the third largest market of the region. Peru, as the largest attractive destination for mining exploration investment in Latin America and the third largest in the world, also was able to attract significant FDI. As would be expected, due to the controversial macroeconomic, microeconomic and political decisions of the Chavez administration, Venezuela was the least attractive destination for FDI. It scored even below Haïti, Bolivia, Ecuador and Paraguay, countries that in years past would not have even been seen in Venezuela’s rear view mirror.  

If you have not seen it, below is the FDI Table for Latin America, in billions of US$.

-David Berger

Based in Miami, David Berger is Managing Director for Latin America & The Caribbean region at NAI Global.

As a result, with the exception of health and education, government departments will see their budgets cut by 25%, VAT will be increased from 17.50% to 20%, Capital Gains Tax will be increased from 18% to 28%, 700,000 people face higher income tax, public sector pay has been frozen for two years. Interestingly, a new levy of £2 billion was imposed on banks and this announcement coincided with similar announcements in France and Germany.  On the positive side, Corporation Tax is to be reduced by 1% per year for the next four years which will reduce the level from 28% to 24%. This will mean that the UK will have the lowest rate of any major Western economy, one of the lowest rates in the G20 and the lowest rate the UK has ever known.

The reduction in Corporation Tax should attract international companies to the UK which, ultimately, should be good for property. Commentators expect UK interest rates to remain very low for the foreseeable future which, again, should boost business. The great British public however, particularly those in the public sector, are likely to experience considerable pain when details emerge of exactly how the 25% cuts in the different government departments will be achieved.

-David Perry

David Perry is Vice President and Regional Director of the EMEA Region at NAI Global.

Tapping into a market analysis can assist these retailers in identifying which markets are ripe for expansion, how to select a location, and how to decide how large/small a presence to create in the market.

Retail Process

The Retail Delivery Process is divided into three distinct phases. The first phase is Market Discovery, which involves understanding the client, how many potential clients exist in a market, and determining the competitive nature of the market. This phase answers two very important questions: market capacity and store capacity. This process helps the retailer understand its market share and how many locations it can realistically open. Understanding who the client is today, and more importantly, who the client will be in the future, is critical to the successful expansion plans of any retailer, large or small.

Phase Two is the Strategic Blueprint. Once there is a clear understanding of the customer and the size of the network opportunity, the next step is to develop a three year real estate blueprint that speaks to market opportunity. Which new locations will garner the greatest return in the short run? Sequencing the expansion of the network based on sound analytics reduces risk and provides a “real estate insurance policy.”

Once the blueprint has been established, the final phase is Site Selection. New locations are targeted and selected based on the market understanding of the client, the size of the market, and share of wallet.

Tools and Technology

For any retailer, access to information and data is a commodity. However, it is what you do with the data that is important. Purchasing data can be costly, particularly on the international side. Retailers today need to focus on their core competencies and not try to be real estate or analytics experts.

Retail Targets

Franchise development in the U.S. represents a large part of retail growth in the country, while larger chains are seeking new sources of revenue in other countries. For franchise-based companies, the key is to leverage real estate expertise and technologies.

For larger retailers seeking international expansion, it is crucial to know which markets and countries hold the most upside growth potential for future expansion. Finding a way to model the target consumer in each country and understand their retail habits will help large retailers get a grasp on store and market capacity.

Retailers of all size should identify a commercial real estate partner with the tools and programs available to properly approach new markets and expand with reduced risk.

-George Anderson

Based in Toronto, Ontario, George Anderson is Vice President of Market Analytics for NAI Global, and works closely with retailers and financial institutions using geodemographic analyses to identify and evaluate markets for expansion around the globe.