Chapter 3 | International Real Estate Investing

BRUCE KIRSCH: We recognize that a large percentage of investable real estate is outside of the US. And it’s a global business. But oftentimes, for whatever reason, we feel that if something is cross-border, it must be easier cross-border for us.

PETER LINNEMAN: I’ve been to this movie. And it’s doable. Obviously, there are plenty of non-US who are invested in the US. And there are plenty of US who are invested in other countries. And particularly in Europe, there’s a lot of company companies invested across borders within Europe and Asia, and so forth. But it’s hard. And it’s gotten easier if you will, in that the tenants have gotten more global.

Microsoft is everywhere around the globe. And E & Y is everywhere around the globe. And that helps. There’s no doubt that that’s helped. On the other hand, a lot of the tenants are still just local firms. Many of them don’t even speak your language, whatever your language is, which makes it hard to lease. If you don’t speak their language, it makes it hard to develop space for them if you don’t speak their language.

You add to that all the nuances of custom and culture and law. And real estate is a highly localized product. It may not look like it, but it is a highly localized product. And therefore, local market knowledge is critical. Local market understandings are critical. By the way, that’s true of selling Coca-Cola too. I mean it has differences across markets. You can learn those differences, but the admission price to learn those differences is high.

So it’s really hard to be a global company in anything unless you’re big enough with your sales, your footprint, to amortize those learning costs. Because the learning costs are high. And that’s why you tend to only see quite large firms in all businesses be global. Because otherwise, you just can’t amortize the learning cost. You’ve got to have a big enough footprint.

So, you see these big firms. It looks easy. But it’s not. And if you talk to any global firm, in real estate or not, everybody grinds it out. It’s hard. You have just simple things like when do we hold our weekly sales meeting, or when do we hold or update. Well, it’s midnight for me, if it’s 12:00 in the afternoon for you in Japan. And it doesn’t sound like much, but it’s difficult. It just adds to everything’s complexities.

So it’s gotten better. But it’s hard. It’s just hard. And the reason it looks easier is very simple. That which you’re not trying to do always look simpler than that which you are doing. It’s kind of a rule in life. And I think it applies here.

BRUCE KIRSCH: I remember in class, Professor Nakahara said he had gotten an email or a letter from a student saying, Oh what do you think about investing in XYZ country? And essentially, his response was, what there’s not enough risk here in the US?

PETER LINNEMAN: Yeah, one of the best lines I ever heard was from a major, major real estate investor, who’s been in the business a really, really long time. And his comment was– a US investor. And he says you know, I’ve invested in something like 15 countries around the world over my career. And I found I don’t have to go that far away to lose my money. It captures the difficulty that everybody faces. Now by the way, if you can overcome it, there are some real advantages. But, it’s difficult.