Week of December 20, 1999
  Snapshot from the Field

NYC Ranked 1999's Top Location for
Foreign Real Estate Investment

A prominent association of foreign investors has named New York City as the No. 1-ranked U.S. site for real estate investment.

New York's No. 1 placement comes courtesy of the latest rankings released by the Washington, D.C.-based Assn. of Foreign Investors in Real Estate (AFIRE at www.afire.org). The other cities on AFIRE's top 5 list for 1999 include the Washington, D.C., metro at No. 2; San Francisco at No. 3; Boston at No. 4 and Chicago at No. 5.

Garnering AFIRE's No. 1 ranking marks another comeback for a city that many investors once considered less than business-friendly. In fact, New York in 1996 didn't even make AFIRE's annual top 5 list for foreign real estate investment. By 1997, New York had barely made it into AFIRE's list at No. 5. And in 1998, although New York moved up to No. 2, it still ranked a distant second to the Washington, D.C., metro.

In 1999, though, as AFIRE puckishly noted in a press release, "For the first time since the Dutch shelled out US$24 in beads and trinkets for Manhattan, foreign real estate investors have named New York City as the best city for their investment dollars."

Actually, it's a more accurate to say that this is the first time that New York has ranked No. 1 in the eight years of member polling by AFIRE, which was established in 1988 for non-U.S. investors in the U.S. real estate market. AFIRE bills itself as "the official voice of the foreign institutional real estate industry in the United States" and its ranks include institutional and pension fund investors that have more than $44.4 billion invested in U.S. real estate. Here's a more detailed look at AFIRE's latest rankings:

Strong Economy, Decreased REITs
Competition Spur New York's Rise

New York's rise to its No. 1 ranking was spurred in part by the city's strong economy, commented AFIRE member Hans-Christian Ritter, executive vice president of real estate finance for Landesbank Hessen Thuringen (Helaba), which is headquartered in Frankfurt, Germany.

"New York has always been interesting to European investors simply by virtue of geography, and it has always been a magnet for foreign investors trying to get a foothold in the U.S.," Ritter said. "However, certain current conditions are enhancing the value of New York's real estate as an investment opportunity. Right now, the economic momentum of the city is very strong. There's been a continuous job growth rate of more than 2 percent a year for the last several years, and we expect to see that continue at least through 2001.

"Although the manufacturing sector is lagging, this is being more than made up for by the growth in high-tech and media firms," Ritter continued. "This allows for the re-positioning of many Class B buildings, where a situation of rising rents can create a significant opportunity."

Another factor that's played a role in elevating New York's 1999 ranking, said Ritter has been the downturn in competition from real estate investment trusts (REITs). That, in turn, has opened the market, he asserted.

"Just a year ago, the voracious appetites of the REITS priced many European investors out of the market," Ritter explained.

"Now lower prices, paired with low vacancy rates, higher asking rates and non-existent speculative construction have created substantial enthusiasm for New York City real estate."

During 1999, Landesbank Hessen Thuringen (Helaba) financed nearly $1 billion in U.S. real estate acquisitions. In New York, these included Lever House on Park Avenue; 33 Whitehall Street, also known as Broad Financial Center, and 2 Federal Reserve Plaza.

Washington 'Feels Very . . . European'

Second-ranked Washington, D.C. has been a perennial favorite among foreign investors, AFIRE's survey suggests. The city has appeared in either the No. 1 or No. 2 slot for the eight years in which the association's survey has been conducted.

Although the city fell to No. 2 for 1999, its foreign investment allure remains strong, according to AFIRE member John Gardner, president and CEO of Buvermo Properties.

"There are several important reasons why Washington should always remain attractive to foreign investors," Gardner said.

"Foreign investors can relate to the size and scale of Washington. It feels very much like a European city, and it is, of course, a world capital.

"The economy of Washington has also changed," Gardner continued. "In the last several years it has really become a much deeper, broader market, owing to industries such as high technology, telecommunications and biotechnology. Finally, Washington attracts a population that is well educated and has a high average income, which leads to uses which can support retail and office rents."

San Francisco: High-Tech Cluster
Boosts Investment Appeal

1999 marked the third year straight in which San Francisco has been foreign investors' No. 3 pick for their real estate investment dollars. Although San Francisco appeared on investors' radar in 1992 (again ranked No. 3), and in 1993 (as No. 5), it fell from favor among AFIRE members in 1994, 1995 and 1996.

According to Noel Nellis, chairman of the Real Estate Dept. at the San Francisco-based international law firm of Orrick, Herrington & Sutcliffe and general counsel to AFIRE, the San Francisco area's fabled high-tech location cluster is a major factor driving its investment appeal.

"The entire Northern California Market has been booming in the past two or three years, driven in large part by the high technology and Internet boom that is centered in the Silicon Valley and other parts of the Bay Area," Nellis said.

"San Francisco's 'multimedia gulch' is itself the leading center for multimedia technology companies in the United States," Nellis continued. "The steadily improving economic conditions in Japan and Southeast Asia will further fuel the California economy, with the San Francisco Bay Area and Los Angeles continuing to serve as the gateway to Pacific trade."

Quality of Life Boosts Boston

No. 4 ranked Boston first made AFIRE's "Top Cities" list in 1995 when it appeared at No. 3. In 1997 it moved into No. 1, but in 1998 dropped into the No. 4 slot it retains in the 1999 rankings.

Boston's high quality of life - and the cluster of brainpower that it attracts - are major forces behind the area's investment allure, according to Steven Zoukis, a partner with Jamestown, a German investment firm.

"Cities like Boston have a great long-term potential because they have the qualities that can attract a population of well-educated, bright, energetic people who are driving the economy and will continue to do so in the future," Zoukis explained.

"Boston has great educational institutions, is reasonably human-scaled and provides a 24-hour environment where young people can work, live, and play downtown," Zoukis added. Jamestown recently purchased 125 High Street in New York.

Chicago Repeats at No. 5,
Atlanta Drops Out

No. 5 Chicago's has now ranked three times among AFIRE's top locations for foreign real estate investment.

The "city of big shoulders" first appeared in AFIRE's rankings in 1996, but was replaced by New York in 1997. Last year, Chicago tied with Atlanta for the final spot. In 1999, though, Chicago had AFIRE's No. 5 slot all to itself.

AFIRE's current 140 members are drawn from 17 countries. AFIRE members have a common interest in preserving and promoting investment in cross-border real estate.

In 1998, recognizing the increasing globalization of real estate, AFIRE expanded its scope to include institutional-grade investors with cross-border real estate investments around the world.



©1999 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.