Copyright: David Lawson 1996
The film star Paul Newman was once asked how he managed to remain married for decades when other Hollywood couples could rarely keep from straying. 'Why go out for hamburger when you have steak at home,' he replied. Many US investors would use the same analogy to explain why the long-promised tidal wave of money has not swept across the Atlantic to engulf European property markets. 'We have enough to handle on our doorstep without going to find more in countries we don't understand,' says one Chicago-based fund manager.
Not everyone agrees, however. Trizec Hahn, one of the world's largest property companies has just linked with Dieter Bock, the German businessman. He is stepping down from his leading role in Lonrho, the UK international trading company to become president of Trizec Hahn Europe. The company has paid $147m in new shares for developments by Bock's Advanta management company in Germany and the UK including the landmark No 1 Poultry next to the Bank of England in London.
Trizec Hahn has previously been more focused on central Europe. This is partly because of the effective takeover by late last year by Horsham, run from Canada by Hungarian emigre Peter Munk. He had already set up Brandenburg Park, an industrial site on the outskirts of Berlin where Coca-Cola is about to create a new European bottling centre.
But European managing director Philip Jones sees the moves as a logical linking of US financial muscle and local entrepreneurs in emerging markets like Hungary, where the group has just set up a partnership with Polus Investments on Hungary's first modern shopping centre, in Budapest. Hungarian goulash obviously makes an appetising alternative to steak.
But so can nouvelle cuisine. Property consultants Healey & Baker estimate that North American funds contributed 3.2bn dollars of inward investment last year, some 46 per cent of the total. So are these an early warning of the tidal wave? Probably not. The picture has been distorted by a surge of interest in France, where banks are finally being forced to write down and sell massive portfolios of bad debts hanging over from the recession. This has attracted some of the world's financial giants.
GE Capital, for instance, recently completed a deal to buy 1bn francs worth of loans from Consortium de Realisation, a body set up to hold the bad debts of Credit Lyonnais. At the end of last year the Whitehall Fund, led by Goldman Sachs, was picked to take on 4bn francs worth of property and loans from Groupe Suez. This is the third - and largest - deal by the fund, following an 875m franc purchase from Sues just over a year ago and a similar deal for a portfolio worth more than 3bn francs from insurance group UAP last summer.
Five big portfolios have been shifted since the beginning of last year and the bidding is always between big US syndicates. They are the only ones with the skill and courage to manage such messy assets, which horrify the big German and Dutch funds.
There are ripples of more conventional investment, however. Teachers Pension Fund has begun buying property in the UK and is looking for other possibilities in rising markets like Brussels offices and Dutch industry. Funding for portfolio purchases has also been coming from GE Capital, which has helped assemble a 1bn portfolio in the UK and is showing interest in France. Philip Morris Capital has already made its move there, putting up more than 3bn dollars for an 118,000m2 office tower in La Defense.It is in good company, as Hines is planning a 40-storey tower there. The legendary private development group is one of the few North Americans with a long history in Europe. It has just strengthened this has with a stake in a string of French and Spanish shopping centres worth around 3bn francs.
The steak-and-hamburger effect means Europe will always play a minor role compared with back home. For instance, Trizec Hahn's investment of several million dollars in the Polus Centre compares with more than 200 million dollars spent in a single deal for a share in three Manhattan office blocks. But even minor expeditions are significant in a moribund market, and as any weather forecaster would admit, a series of gentle waves is far more attractive than a tidal deluge.