Real-estate developers from Hines of the US to Italy's Pirelli say they aim to raise more than US$4 billion to invest in Europe, even as economic growth slows.
Houston-based Hines is seeking 2 billion euros (US$2.3 billion) to build and renovate offices. Pirelli & C Real Estate SpA of Milan plans to get as much as 1.9 billion euros by 2005 to invest in office buildings and hotels. London's Pillar Property Plc is raising 150 million euros to buy European warehouses.
Investors have been drawn to real estate after three years of slumping stock markets. While property prices may have peaked in many cities, developers say they can generate returns of as much as 15 percent by choosing buildings in areas left behind by the boom.
The euro region's economy expanded 0.7 percent this year, the slowest pace in nine years, and office vacancies in cities from London to Berlin increased.
"You have to be careful where the markets are," said John Kukral, a partner at Blackstone Group, which manages the world's biggest buyout fund. "Rents are still dropping."
In the early 1990s, a glut of offices pushed landlords, including Canary Wharf Group Plc, the builder of London's tallest office tower, toward bankruptcy. As economic growth and stock markets soared later in the decade, the industry's fortunes turned and rents soared.
"Most people know us as a developer, but we switch at the peak of the cycle" to where the bargains are, said Jurgen Herre, managing director of Hines Europe.
Hines is seeking well-located office buildings that require overhaul in Milan, Paris and Madrid for its Value-Added Fund, Herre said. The properties will be improved over eight years to suit tenants, including perhaps some of Hines' clients in the US.
The company, owned by the developer Gerald Hines and his son Jeff, built Pennzoil Place in Houston and Diagonal Mar Centre in Barcelona, a 32-hectare development with 1,400 apartments and shopping center totaling 93,000m2.
Real-estate investments by UK pension funds last year appreciated 8.7 percent, compared with a median 23 percent drop for their stock holdings, according to Russell Mellon/CAPS.
About 32.7 billion euros flowed across European borders into property last year, up 18 percent from 2001, according to Jones Lang LaSalle, a real-estate agent.
For developers, a real-estate fund provides management fees to offset the cost of buying or constructing buildings. Investors can reduce their risks by entering a foreign market with a firm that knows the business.