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Éamonn D’Arcy School of Real Estate and Planning, University of Reading Stephen Lee

Activity Internationalisation in the Real Estate Market: Some Evidence on the Internationalisation of the Real Estate Involvements of Listed Firms. Éamonn D’Arcy School of Real Estate and Planning, University of Reading Stephen Lee Cass Business School, City University. Introduction.

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Éamonn D’Arcy School of Real Estate and Planning, University of Reading Stephen Lee

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  1. Activity Internationalisation in the Real Estate Market: Some Evidence on the Internationalisation of the Real Estate Involvements of Listed Firms Éamonn D’Arcy School of Real Estate and Planning, University of Reading Stephen Lee Cass Business School, City University

  2. Introduction • Real estate in common with many other business sectors has experienced significant levels of internationalisation in its market activities over the last decade. • Real Estate Services, Investors Groups, Funds, Users • Listed real estate firms - evidence so far available of their activity internationalisation suggests that it has more been limited and highly sector specific as compared to other groups of market actors

  3. Introduction • This research sets out to systematically examine the internationalisation of the real estate involvements of this group as a means of identifying the key drivers of this process in the listed real estate universe • Focus in presentation on the potential drivers of internationalisation and the stylised facts of the activity internationalisation of a range of key listed firms

  4. Explaining Internationalisation Transfer of intangible assets or capital across national boundaries Push Market Saturation, New Entry New Technologies Pull Client Following, Competitor Following Market Seeking Opportunities Performance differences, timing, diversification

  5. Explaining Internationalisation Barriers Formal Regulation Foreign ownership restrictions Controls on information and capital flows Informal Language and culture Local Real Estate Cultures Implications in terms of significant information costs and requirements (transactions costs)

  6. Explaining Internationalisation The OLI Paradigm Ownership Advantages – Characteristics of Intangible Assets – reputation- clients- exploit proprietary methodologies (Know-how) – Capital – growth/return possibilities Locational Advantages – Which markets present opportunities – tradability of the activity concerned – host country market environment Internalisation Advantages – What mode to use – direct, partnership, indirect

  7. Investment/Development Activities Return Opportunities Small home market size Differences in economic performance Relative capital scarcity Emerging markets Demographics Market timing Post – bubble, crash, re-pricing

  8. Investment/Development Activities Diversification International correlations Modern portfolio theory The rationale behind international diversification is simply an extension of basic portfolio theory Most assets are heavily influenced by their domestic economy In an international setting fewer common factors, and greater divergence leads to lower correlations and thus enhanced diversification opportunities Given that real estate is an non-exchange traded asset and more tied to underlying economic driving forces are there additional international diversification opportunities ?

  9. Investment/Development Activities Ownership Advantages Intangible assets Proprietary methodologies (Know-how) Access to debt – ability to raise capital Locational Advantages Proximity Market Structure Similarities Increased accessibility of viable investment markets Information, liquidity, transparency Internalisation Advantages Direct Potential acquisition possibilities

  10. Barriers Transactions costs Information costs and requirements Regulation Political Risk, Economic Risk Currency risk and hedging requirements Additional risk that currency movements add to the asset Transaction Exposure Translation Exposure Economic Exposure

  11. Barriers Liquidity Issues – market size Real estate is a relatively small investment market and the limited number of ‘liquid’ investment markets further exacerbates impacts resulting in a concentration of investment in the larger more liquid markets Limits to diversification potential Common economic driving forces Many of the key office investment markets are major financial services centres: Common tenants – linked to capital markets Common investors – linked to capital markets - Competition The potential implication is limited economic diversification Local Real Estate Culture Institutional differences in the structure of real estate markets Considerable differences in ‘the rules of the game’

  12. Key Observations • Firm Size • Sector Specialists – Retail and Industrial • Ownership Advantage • Client Following (?) • Proximity • Small Home Market Size • Return Opportunities • Accident rather Design

  13. Going Forward • Why Sector Specialists are International? • Considerable expansion of data set • Investigation of Return Opportunities and Performance • Timing of Activity Internationalisation

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