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"We think the REIT concept will catch on in the U.K. The U.S. REIT market is the dominant investment market, but other markets are opening as well. The U.S. market has legitimized itself to foreign investors with its strong returns. There is no doubt we are going global." --Stephen Whyte, managing director with Morgan Stanley.

REITs Get Global Look-See
For Wealthy Dreamers, Some Projects Border on Spectacular

Mid-Sized European Cities Compete for Commercial Investment Funds

DealMaker of the Week

MBA, BOMA Form Online Commercial Training Partnership
MBA Hosts CMF Asset Admin/Technology Conference May 12-14
Loan Origination Committee Hosts Informational Conference Call on MERS

MISMO Announces New Compatibility Certification Initiative

With Historic Partnership, New City Takes Shape

MBA's MISMO Becomes Independent 501(c)6 Corporation

"I look with great anticipation of a similar type of structure in the United Kingdom," said Stephen Whyte, a managing director with Morgan Stanley in New York City. "Back in the late 80s and early 90s, Canada and the U.S. and Australia really were the only countries that could accommodate REITs. Now we've seen Japan and Korea and France and we expect the U.K. to open up soon."

Speaking here at MIPIM, the largest commercial real estate conference in Europe, Whyte and other panelists said that REITs would appear to have great practicality in other countries--as well as investment opportunities.

"We're already seeing a lot of U.S. companies branch out into other countries," said Thomas Toomey, president and CEO of United Dominion, Richmond, Va. "REITs are a very homogenous product--it's as easy to understand an office lease in London as it is New York."

Whyte agreed. "We think the REIT concept will catch on in the U.K.," he said. "The U.S. REIT market is the dominant investment market, but other markets are opening as well. The U.S. market has legitimized itself to foreign investors with its strong returns. There is no doubt we are going global."

Toomey's company is involved with 76,000 apartments across the U.S., and its REIT has delivered an annual return of 17 percent, with dividend growth for 28 consecutive years. Its success and the success of other U.S. REITs have attracted a number of foreign investors eager to tap the U.S. market.

"We have moved up our foreign investments to more than 55 percent over the past several years," said Willi Alda, chairman of DEKA Immobilien Investment GMBH in Germany.

But DEKA's foreign investment has been driven, in part, by a less-than-solid performance record of investment properties back home, and a market elsewhere that requires selectivity.

"Germany lags behind other markets, which is one of the driving forces for us to put our money outside of Germany," Alda said. "More or less, all the markets are in a little depressive phase. Nevertheless, we are able to identify markets where it is timely to invest--smaller markets such as Brussels, or countries such as Poland and South Korea."

Alda said he expects the capital markets to improve beginning in 2005, with some recovery by the property investment sector by late 2005 and into 2006. "I see no shortage of companies willing to invest capital. The problem is that there aren't a lot of quality properties out there in which to invest," he said. "We'll go back to Germany as soon as the property markets improve. Meanwhile, we continue to invest in the European markets and in the U.S."

We are still, in our diversifying trips, discovering little markets where we can invest.

Mohamed Ali Al-Abbar, CEO of EMAAR Properties PSJC, United Arab Emirates, said the Middle East could emerge as a bigger investment opportunity, despite tensions in Israel, Palestine, Iran and Iraq and government policies that tend to discourage foreign investment.

"There are restrictive policies but they are changing and revising upward," Al-Abbar said. "After September 11 a lot of Arabs were not comfortable keeping their money in foreign real estate. That openness, in countries such as Dubai, is becoming more apparent. Five years ago it was very difficult to buy property; today, it's much better. Government fine-tuning of the rules has helped. The whole region looks very promising."

Back in the U.S., Whyte said that REIT investment fundamentals appear sound. "Three years ago when we were coming out of a poor equity market, there was a significant move toward more conservative securities that had a yield on them. Now it's being driven back," he said. "REITs under-performed in the equity market for several years, but in the past couple of years we've seen phenomenal growth in REITS. They've outperformed the S&P average."

Rising interest rates, Whyte said, shouldn't have an effect on the REIT market because most investors have already locked into rates. The concern, he said, was on the stock side, which could see greater volatility.

Toomey suggested that multifamily REITs could show improvement in the next couple of years. "There are 45 million renters in America, and in the past several years we've lost 10 percent of them to homeownership," he said. "So it's probably been harder to come out of that period. We lost a lot of production, but we're seeing more activity."

Some markets, such as hotel, are already global in nature, and that has attracted foreign investment, Toomey said. "Hotels are up--we're just now starting to see the pre-9/11 levels of activity," he said. "Commercial is also starting to push up past 9/11 levels, and in 2005 we expect to see some strong numbers."
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For Wealthy Dreamers, Some Projects Border on Spectacular
MBA (3/18/2004) Sorohan, Mike

CANNES, France- -Do you have an extra $2.5 billion lying around? If you do, Jean-Philippe Zoppini has an investment opportunity for you.

Imagine, if you will, a cruise ship that is not so much a ship but more of a portable island. It is so big—500,000 square meters of space, measuring nearly 1,500 feet long, 1,000 feet wide and rising more than 100 feet above the water—that half a dozen aircraft carriers could fit comfortably within its confines. Included is a hotel complex that can accommodate up to 14,000 "passengers." For entertainment and diversions, plans call for sports arenas, shopping complexes, a skating rink, a multiplex cinema and several theaters.

It's a cruise ship so big that other cruise ships could dock in its "harbor" and drop passengers off. It's a cruise ship so big that no existing port in the world could accommodate it--or ever hope to.

But to hear Zoppini talk here at MIPIM, Europe's largest commercial real estate conference, the dream project needs only a few more "sponsors," albeit some rather generous ones. Zoppini not only has the cooperation of the Chantiers Naval de l'Atlantique, a company that in its recent projects lists the deepening of the shipping channel in Saint Nazaire, France, but claims to have lined up several investors from the United Arab Emirates, under which the enormous ship, known as "AZ.2," would sail.

And yet, Zoppini's project is not the only one that borders on the spectacular. In Dubai, United Arab Emirates, plans call for the world's largest shopping mall--a complex that would have 1 million more square feet of retail space than the reigning champion, the Mall of America in suburban Minneapolis.

Such projects, of course, beg the question "why?" For Zoppini, the answer is simple. "The idea is to meet the growing demand for hotels and cruises," Zoppini told Le Figaro . He said that demand for cruise ships and hotels has steadily increased following the September 11, 2001 terrorist attacks, which could result in a shortage of cruise lines by 2008.

Fair enough. Zoppini also believes the project would capture the imagination of the public much in the way a new theme casino attracts visitors to Las Vegas. Customers, he said, are looking for new and unusual destinations-why not an island with no permanent address?

The proposed mall in Dubai has a more practical design, said Mohamed Ali Alabbar of EMAAR Properties PJSC. In a country where leisure pursuits such as sports and entertainment are less common-and where daytime temperatures can easily reach above 100 degrees Fahrenheit--a vast indoor mall serves not only a retail market, but also provides a social opportunity.

"Why are we building the largest mall in the world? It's what our people do," Alabbar said. "We don't have baseball stadiums or other sporting events for our people to attend. We have 1.2 million people, and they like going to the mall."

The proposed mall would also have a neighbor-the Burj Dubai, reputedly the world's tallest office tower. Currently under construction, Alabbar would not reveal the tower's finished height.

"But you will be able to look down on the Freedom Tower," Alabbar said, referring to the proposed 1,776-foot skyscraper designed to replace the World Trade Center in New York.
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For one thing, "older" is a relative phrase. Compared to relatively new U.S. urban centers such as New York, Washington, D.C. and San Francisco, many European urban centers are downright ancient. Rome's urban center, for example, has existed for more than 2,000 years.

And unlike the wide-open spaces of America, European urban centers are compact. A strong regard for history, along with a nearly non-existent consideration for zoning and in many cases government indifference, has made many cities difficult to rebuild or recreate.

But with the 1999 emergence of the European Union (EU), a 15-country confederation that shares a common currency and economy, the competition for commercial investment dollars is intense. It's giving many European cities the motivation to rejuvenate themselves.

Witness Warsaw, Poland, the capital of one of 10 nations poised to join the EU this spring. Tadeusz Deszkiewicz, director of the city's promotion agency, said here at MIPIM, Europe's largest commercial real estate convention, that he'd be happy to attract investors--any investors--for a proposed revised city center. Such a project, he said, would give definition to a city that has seen little commercial investment since being destroyed in World War II and followed by a cash-strapped Communist regime that had little regard for capitalism.

"We are the only city in Europe--perhaps the world--with no proper city center," Deszkiewicz said. "It's my dream to see this center built."

Warsaw, like many mid-sized cities in Europe, faces stiff competition for investment dollars, not only with each other but also against larger urban centers such as London and Paris. According to CityMayors, a European group not unlike the U.S. Conference of Mayors, 497 European cities have a population of 150,000 or more; 36 cities top 1 million in population and another four have populations of 900,000-plus.

To that mix add a European economy that is only now starting to show signs of life following a recession that hit much harder than the relatively mild U.S. recession of 2001-2002. According to an Urban Land Institute/PricewaterhouseCoopers report, nearly every EU office market saw a decline in rents and a rise in vacancies. ULI and other analyses see growth in 2004, but in most cases, it will be slow, picking up only in 2005. Nevertheless, ULI/PWC predicts a robust 2005.

"There appear to be underlying supports in European real estate markets that are less ephemeral than refugee capital from volatile equity markets," the report said. "Many institutional investors are looking to increase their exposure on a long-term strategic basis."

Thus, to attract such investment, mid-sized European cities have stepped up their efforts--and, in some cases, banded together. In England, seven cities that comprise the Yorkshire Forward have pooled marketing efforts in a kind of brand identity aimed at attracting investment funds on a regional basis.

Jean Dent, director of development with the Leeds, England city council, said cities such as Leeds and regions such as Yorkshire must compete on the European stage rather than just at the national level.

"We believe we are ahead of Manchester and Birmingham [other mid-England cities]," Dent told Estates Gazette. "We have won a lot of awards this year…as the U.K.'s favorite city. I think we need to look at physical development to compete with places like Munich or Stuttgart [Germany]."

But other English cities don't intend to let Leeds off easily. England attracted nearly 19 percent of commercial real estate investment funds in 2002, much of it in the London area, which itself accounted for 7 percent of all commercial/multifamily investment projects in Europe.

And London has continued to step up its efforts, recently announcing the largest "regeneration opportunity" in Europe for East London, a multi-use project that would eventually reclaim abandoned and underused land in the Royal Docks, the Lower Lea Valley, Greenwich Peninsula and other Thames River gateway sites. The Thames Gateway London section alone lists 1,000 hectares of land available for development. And London has sweetened the pot a bit as well, with financial incentives offered by both the city and the national government.

"There is no city quite like London," said Honor Chapman, chair of the London Development Agency. "With an economy worth [more than] 69 billion Euro and with fantastic international accessibility, the opportunities for investors has never been better."
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The loan consisted of two tranches. Tranche A included a $47.9 million loan under Arbor’s Bridge product line; Tranche B consisted of an $11.4 million mezzanine loan. Both loans are interest only and carry a 12-month term with one 12-month extension. Tranche A’s note rate is LIBOR plus 500 basis points with a LIBOR floor of 1.10 percent; Tranche B’s note rate is LIBOR plus 600 basis points with a LIBOR floor of 1.10 percent.

The borrower’s sponsors are Africa Israel Investments Ltd., an Israel-based holding and investment company; and Boymelgreen Developers LLC, a New York-based company that since 1996 has completed 15 real estate projects in New York City and Toronto.

Fred Weber, executive vice president and managing director of Arbor’s structured finance and principal transactions, originated the loan, which was underwritten in Arbor’s Uniondale lending office. Weber described it as a “complicated transaction—which, in this case, involved both bridge and mezzanine financing—in an extremely tight timeframe.”

Arbor Realty Trust, Inc., a real estate investment trust (REIT), was formed to invest in real estate related bridge and mezzanine loans, preferred equity investments and in limited cases, discounted mortgage notes and other real estate related assets.
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The partnership provides commercial real estate and commercial real estate finance professionals additional opportunities to expand their knowledge of relevant and timely industry topics.

Through CampusMBA, the educational arm of MBA, both associations will offer Web-based courses on topics such as mold and its impact on commercial buildings, tenant retention strategies, security and emergency preparedness, property and corporate facilities management, asset and portfolio management, and building operations.

"BOMA International is pleased to have developed this partnership with MBA," said Patricia Areno, CAE, senior vice president and head of BOMA's education programs. "Our partnership will provide our members with the best of BOMA's and MBA's expertise. Together, we'll offer unmatched education programs, which our members can access directly on their desktops or laptops, 24 hours a day, 7 days a week."

"We are very excited about this relationship with BOMA," said Dan Thoms, MBA's vice president of education and business development. "By working together, we can increase member value and provide additional educational opportunities to our commercial real estate and multifamily finance members."

For more information on CampusMBA, visit http://www.campusmba.org/ or call (800) 348-8653.
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MBA Hosts CMF Asset Admin/Technology Conference May 12-14
MBA (3/18/2004) Schwarting, Katie

The Mortgage Bankers Association’s Commercial/Multifamily Asset Administration Workshop and the Asset Administration and Technology Conference will take place May 12-14 at the Sheraton Music City Hall in Nashville, Tenn.

Jeff Fisher, coach of the National Football League Tennessee Titans, will be the keynote speaker.

This year the two events—the Asset Administration Workshop and Asset Administration and Technology Conference—have merged into a single 2-1/2 half day event. There is now only one registration fee for this conference.

Early Registration:
MBA Member fee: $675
Nonmember fee: $775

Included in the conference fee is an opening reception, Exhibit Hall reception, luncheon, exhibition and multiple correspondent meetings, which allow MBA member companies the opportunity to network with their clients.

For more information, contact Katie Schwarting, kschwarting@mortgagebankers.org, or visit http://www.mortgagebankers.org/conferences/2004/2402020_reg.pdf.
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Loan Origination Committee Hosts Informational Conference Call on MERS
MBA (3/18/2004) Schwarting, Katie

The Mortgage Bankers Association’s Loan Origination Committee Leadership announced a series of conference calls open to MBA members to increase awareness and promote information sharing. The first call will take place on Wednesday, March 24 at 3:00 p.m. EDT.

Each call will feature speakers on a discussion topic of interest and offer time for questions. Members can participate in a discussion around a designated topic of interest in the industry. At the end of each call, the Loan Origination Committee Leadership will solicit feedback—your opportunity to suggest other topics that interest your business.

The first call (March 24) will discuss MERS. Join an interactive discussion on the process to incorporate MERS in your business. In a roundtable format, industry experts talk about the steps they have taken to set up MERS and offer their suggestions on how to get involved. The call offers an opportunity to ask questions of actual MERS participants.

Panelists will include:
Mary Anne Ashmore, vice president with LaSalle Bank
Susan Sagouspe, vice president with Wells Fargo Capital Markets
Patrick Sargent, a partner with Andrews & Kurth, LLP
Deborah Schiavo, managing director with Bear, Stearns & Co. Inc.   
MERS representatives Dan McLaughlin, Bill Hultman and Doug Danko

The conference number for the March 24 session is 401/694-1602. The access code is 1071640#.
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The announcement took place at the Mortgage Bankers Association's 2004 National Technology in Mortgage Banking Conference & Expo in Phoenix.

"The development of an independent certification process is both timely and very, very important for the current users of MISMO-based solutions," said Regina Lowrie, MBA's vice chairwoman and chair of MBA's Board of Directors Technology Steering Committee. "This new service will protect the investment of current users by ensuring that any products they choose to purchase in the future will be MISMO compliant and/or compatible.”

The first phase of the compliance service will cover extensible markup language (XML) data compliance and will consist of the following:

• Compliance to the exact published (http://www.mismo.org/) v2.x or higher XML data standards.
• Compliance to an "extended" version of a published v2.x or higher XML data standard.

The second phase of the compliance service, to be launched later this year, will validate SMARTDoc eMortgage files. All organizations meeting the requirements would receive a "MISMO compliant" logo to designate their compliance.

"The MISMO Compliant logo will also signify a company that is helping reduce industry costs which will ultimately benefit consumers," Lowrie said. “This lowers costs not just to consumers, but also lowers transaction costs across the real estate finance community.”
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The first phase, including a 300,000 square-foot convention center, a 1 million square-foot retail complex, a 1,000-room hotel, a 65-story Trade Center and 2,300 homes—begins this year. When the fifth and final phase finishes in 2014, New Songdo City will encompass more than 72 million square feet of commercial and residential development at a cost of more than $20 billion and will become, in the eyes of its developers and the Korean government, the city of the future and the business “hub” of Northeast Asia

“Nothing has been done like this—ever,” said John Hynes III, managing partner and principal with The Gale Co.’s real estate investment and services division.

Hynes does not exaggerate. New Songdo City represents the single largest private development project ever. It is the largest land reclamation project outside of the Zuider Zee in the Netherlands. And through the 70/30 partnership with Posco E&C, The Gale Co. becomes the first legal foreign owner of Korean soil.

The latter achievement, said Hak Bong Ko, president and CEO of Posco E&C, is by design. The Korean government’s goal for New Songdo City—located within a three-hour flight to more than 30 percent of the world’s population—is to make it the business center of Northeast Asia. To achieve that goal, the Korean government established New Songdo City as a “Free Economic Zone,” designed to attract not only foreign capital, but foreign residents as well.

“The Korean government is very keen to attract foreign business,” said Moon-Pyu Lee, Posco E&C’s senior vice president and leader of the New Songdo City project team. “That is why it established the Free Enterprise Zone. It is designed to attract as much foreign investment as possible. We want to make this a global investment town, where people of all nationalities can work and live. It is an international project, not just a national project.”

The historic partnership came about through unusual circumstances. In 1999, The Gale Co. began developing a 36-story high-rise on spec in Boston. At the time, Hynes said, the high-rise was one of the largest spec commercial projects in the country. But when it opened in May 2001, the building was fully leased.

The success of the Boston transaction captured the attention of Posco E&C, which had become heavily involved in the New Songdo concept and had received the go-ahead to pursue a foreign partnership. An initial meeting turned into a June 2001 trip to Korea, where Hynes and Gale Co. officials left with a handshake deal.

Hynes said the handshake deal caused a “holy [cow]” ripple throughout the company. “We’d told [Posco E&C] that we could help them design it, assign a development team, implement objectives and attract capital,” he said. “We came back and said, ‘now what?’ We’d made this great pitch and we hit the home run. What do we do now?”

What The Gale Co. did was obtain investors. Three primary financial investors stepped forward—Morgan Stanley, ABN-AMRO and Woori Bank, which formed a consortium to purchase the first 94-acre plot of land at the New Songdo site. The Gale Co. also created a development team, including a design firm/master architect, Kohn, Peterson, Fox, which had already designed projects in 35 countries. Nearly a year later, in March 2002, The Gale Co. presented a master plan and began a six-month feasibility study, engaging a number of companies in Korea and the U.S., to test-drive the plan.

What happened next, Hynes said, was an “upside-down” turn of the business plan. “Eighteen months into the project we found that we had corporations that were willing to locate in New Songdo City, but they weren’t going to come without a quality of life for people to live and work in a first-class way. So we had to make the amenities more attractive."

The result was a more aggressive approach to attract infrastructure. The Korean government threw in some tax incentives and committed to a six-mile long, six-lane bridge connecting New Songdo City to the new Incheon International Airport, as well as roads making access easier to Seoul, 40 miles away. And The Gale Co. secured agreements to develop an international school (K-12) through the Harvard Advisory Group and added a 20-acre site for a hospital/teaching facility developed through Harvard Medical International.

Hynes said the cooperation The Gale Co. has received from Posco E&G and the Korean government has been “fantastic.”

“Prior to 1997 you could not invest in Korean real estate as a foreign entity. But post the International Monetary Fund bailout of Asia in 1997 Korea made a decisive decision to take the country to the next level,” Hynes said. “The concern in Korea is that they’re becoming a servicing and high tech economy, and less the manufacturing economy that made them great. What they saw was a population that has become talented and literate, highly educated and highly skilled, who were essentially working themselves out of that marketplace, just as Europe did 100 years ago. Those jobs were getting lost to China. So future-looking, Korea looked at how they could grow. So they created an international business format, taking into account their advantages.”

A groundbreaking ceremony takes place in May, with full work on Phase I beginning in October. The $2.65 billion Phase II (2005-2008) will include a 100-acre “Central Park,” additional hotel and retail, a golf course, 3,250 more residences and a school. The $2.5 billion Phase III (2006-2010) adds 5 million additional square feet of office, 3,000 homes, a third hotel, an aquarium, retail and a convention center expansion. The $3.9 billion Phase IV (2008-2012) and the $3.5 billion Phase V (2010-2014) adds another 39 million square feet of office, hotel, residential and retail.

Hynes noted that creating a brand new city had its appeal, noting that it would be hard to create such a city elsewhere. “What we found, which was unusual for a U.S firm, is not only New Songdo City a great piece of land, but the government is supporting us,” he said. “Unlike the U.S., where you can run into barriers, here the Korean government is pulling us along.”

The stakes are enormous, Hynes readily acknowledged. And he concurred that the project has a number of skeptics who are taking a wait-and-see attitude. But he also said that there is no going back.

“It was probably too big a project for most companies to sink their teeth into in 2001,” Hynes said. “And at the time the U.S. was at the peak of its commercial real estate cycle. So why would anyone travel 14 hours to look at a piece of land in 2001? But the fact is, we bought the land, we’re getting approvals. And we’ve had a tremendous amount of interest from multi-national corporations.

“What’s made this relationship work is the joint venture. The fact that we’ve partnered with one of the best Korean companies—a real blue chip corporation—has been very helpful. New Songdo City is too big, too powerful, and has too many implications that go beyond bricks and mortar. For us to get involved in that geopolitical landscape has been fascinating.”
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MBA established MISMO to develop, promote, support the implementation of and maintain voluntary electronic commerce (eCommerce) standards for the mortgage industry. As the organization has grown (it has more than doubled in size since 2002), its mission increased in scope and now includes new industry support efforts such as a compliance testing service and intellectual property rights protection.

"When MBA established MISMO, we hoped to provide a very important service to the mortgage industry," said MBA Vice-Chairwoman Regina Lowrie. "This move, which is a product of the organization's growth, is a sign that the industry is responding to MISMO and that we are providing a much needed benefit to the industry. We are very pleased that MISMO is now ready to stand as an independent entity."

The new MISMO organization will be a 501(c)6 corporation, a non-profit entity that, by definition, must be “devoted to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons.” While the current Governance Committee will continue in its current function, MISMO will elect a new Board of Directors and officers.

"This completes the first step of MISMO's development," Lowrie said. "The next step in MISMO's development will be to drive adoption of its standards to the next level. Failure on that front would mean the failure to lower costs to consumers that the standards are uniquely positioned to do. This lowering of costs is critical to the advancement of homeownership."
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