Ten years from now, economists and investors may no longer be talking about “cross-border” investments, predicts Georgetown instructor and real estate executive Dietmar Georg. That’s not because cross-border transactions are going away, of course; it’s that the phrase itself will be obsolete.
“I think we’re moving toward a world where we don’t distinguish between domestic and foreign,” said Georg, who teaches Global Fund Management for the Master of Professional Studies in Master's in Real Estate (RE) program at Georgetown University’s School of Continuing Studies (SCS). “The whole world will be one investment arena.”
A Surge in Foreign Investments
By many indicators, that world is already here. Between 2009 and the first quarter of this year, global cross-border investments increased from 24 percent of total transaction volume to nearly 50 percent, Georg said. For the U.S., cross-border volume has risen for “inbound” capital (foreign investment in U.S. real estate), but even more dramatically for “outbound” capital (U.S. investment in foreign countries).
Take U.S. investment in Germany: “Basically, U.S. capital outflows were next to zero until 2005, and then surged,” said Georg, who has been immersed in global investments for more than 30 years and is a frequent speaker at real estate conferences in Germany and the United States. “Today, about twice as much capital is going from the U.S. to Germany than the other way around. It’s a stunning reversal which—during my first 25 years in the industry—I could never have predicted.”
What’s behind the shift to global real estate? George cited several factors. For many years, he said, initial yields favored U.S. investments (about 8 percent) over foreign ones (about 5 percent), so U.S. institutional investors had little incentive to invest overseas. But today, both the top U.S. and European markets provide initial returns of about 5 percent, and 20 percent of U.S. pension funds are invested outside the country.
The creation of the Euro also reduced the risk of investing overseas. “You could now invest in many markets in Europe and only have one currency to deal with—not 10 or 15 currencies,” Georg said.
Lastly, Georg said: “A number of the largest U.S. real estate managers of pension fund capital—the so-called “tax-exempt advisory” firms—were bought by big, globally operating financial institutions. All of a sudden, these U.S. fund managers had gained ‘operating platforms’ outside the U.S., enabling them to confidently invest U.S. pension fund money outside the U.S.”
This globalization is still going on—but in a different direction, Georg said, with more U.S. pension management firms, such as Cornerstone, Mass Mutual’s real estate subsidiary, and TIAA-CREF, buying European operating platforms. Others are rumored to follow.
In addition to teaching in the master’s in Real Estate program at Georgetown, Georg is the cofounder and principal of GLL Real Estate Partners GmbH, an investment management firm based in Munich, Germany. Consistently ranked as one of the top three German-based institutional real estate managers, GLL has assets under management of approximately $7 billion, 40 percent of which is invested in the U.S. in markets such as Boston, New York, D.C., Chicago, San Francisco, and other second-tier markets. He has invited several industry experts to his class to help explain a phenomenon that is very real, but not widely studied.
GLL Investments, a Germany-based real estate fund management firm co-founded by Mr. Georg, currently manages a global portfolio spanning the E.U. and Eastern Europe, Central and South America, and the U.S.
“There is no textbook that adequately covers the globalization of real estate investment management,” said Georg, who is now based in Orlando and commutes to D.C. for classes. “I had to develop the course myself.”
Nonetheless, “We need to prepare the students in our program for a global real estate market that has expanded beyond the United States,” Georg said. “In my view, Georgetown has a pioneering role in helping students develop a skill set that employers will be looking for.”