How REPE and RE firms invest in international markets?
In order to make good RE investments (either equity or debt), it requires a deep knowledge about the market, or even a particular asset class in a particular market, and a strong network for deals sourcing and property turnaround. So I am wondering how REPE and RE firms invest in international markets. Especially REPE firms, which do opportunistic investments, I do not really understand how they can do that (mostly because of the size of the investment size ~ $50M - $200M and they have to invest in many different markets/countries because in a single market, there are not many opportunities to generate 25% IRR for a period of 4-5 years).
I usually hear an explanation that they hire experts in the markets they would like to invest in. But the economics doesn't make sense (it is not cheap to hire a person who can generate 25% IRR so I don't think it make sense to hire one expert and do only 1-2 deals in that market).
Just as examples take Blackstone RE and Lone Star. They built up massively in the US then had the ability to raise large amounts of money generally and domestically. The key is raising money. They then saw opportunity in other markets, I don't know which was their first offshore but probably UK/Europe. So they decided to poach a few top local guys, at a P&L loss, for a few years concurrently with raising those dollars to invest in that market. They had success there. Then they branched out and maybe raised an emerging market fund.
Only the big boys can really succeed in foreign markets, be it RE or PE and they too sometimes get burned. The key is having the ability to raise money because you have the track record and the machine to raise it. Although there are always exceptions it's tough to be a multi national RE firm (especially US to somewhere else) and be able to do it.
Just as examples take Blackstone RE and Lone Star. They built up massively in the US then had the ability to raise large amounts of money generally and domestically. The key is raising money. They then saw opportunity in other markets, I don't know which was their first offshore but probably UK/Europe. So they decided to poach a few top local guys, at a P&L loss, for a few years concurrently with raising those dollars to invest in that market. They had success there. Then they branched out and maybe raised an emerging market fund.
Only the big boys can really succeed in foreign markets, be it RE or PE and they too sometimes get burned. The key is having the ability to raise money because you have the track record and the machine to raise it. Although there are always exceptions it's tough to be a multi national RE firm (especially US to somewhere else) and be able to do it.
I think it really depends on what sort of international we're talking about. Obviously, investing in an office tower in canary wharf is a lot different than a condo tower in Rio. More conservative REPE shops would be more likely to get into London, or other established markets, because it would be easier to locate a partner with verifiable credentials, or potentially go at it alone because most of their brokers/consultants who they have existing relationships with will have a presence in those markets. For emerging or developing markets, there is obviously more risk involved and the investor would really have to rely on a good local partner. In these cases, the firm is likely making a speculative bet on a certain market's future and think the high degree of risk/uncertainty is worth the potential return.
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