[Note: To follow is an excerpt of an interview with Manfred Chemek, CCIM, CEO of Manhelm International, LLC an international real estate investment and consulting firm with offices in the United States and Europe. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/031109.]

Mosca: It's always a great pleasure to have a CCIM Institute instructor on our program. I know you've been around the world conducting business for your company, Manhelm International and for the Institute itself. Where you were most recently and what lessons did you glean from being in those particular countries?

Chemek: I've been in Korea, China, Germany, the UK, and Russia talking to investors there, as well as the Middle East, the UAE countries, Dubai, and Abu Dhabi, places where the investors are coming into the U.S. at this current time. What I found is that 'cash is king' right now and those who have cash available see the U.S. as the most attractive market. As a matter of fact, AFIRE, the Association of Foreign Investors In Real Estate, does an annual survey at the beginning of the year and this year they found that their investment group which controls the largest amount of money in the world -- they have all of the largest pension funds and investments and they control over $1 trillion – that one-third of their investments is here in the U.S. In fact, AFIRE members said that international investments into the U.S. were going to increase by over 70 percent in 2009. Even with the downturn, the U.S. is seen as the most safe and secure investment around the world. Of course, returns have improved dramatically because people who are looking to sell their properties realize that they've got to generate cash and in order to do that they have lowered their prices, increased the yield on the properties, and that has made them very attractive for the international investor.

Mosca: America continues to be the place to invest. That said, what role, if any, does safety have in the mind of the international investor?

Chemek: Traditionally, safety has been what we sell in the U.S. For example, in the classes that I teach we talk about the Bush/Gore election not in terms of the hanging chads and that sort of controversy but how it served as a reinforcement around the world of the security in the U.S.; the political stability, the disagreement and the fact that one party had more of the popular vote and yet the other party was put in power. In many countries around the world if you had that type of circumstance, people would be going in the streets and taking up arms. That again was reinforcement around the world of the orderly changeover in power in the United States and how for 200 years we have this stability. That's what investors are looking for and over the long term they see the U.S. as the best for capital appreciation.

Mosca: What about the currency exchange rate. Is that impacting international investors?

Chemek: In May of 2008 the dollar was at its weakest point, the euro was 1.58 and the pound, $2.04. As a result, more investors were looking to invest in the U.S. so they had to buy dollars and the dollar rose dramatically from that standpoint. People are investing now because they see that prices have dropped and that their currencies' values and exchange rates are eroding versus U.S. the dollar.

Mosca: That's a good sign then, right?

Chemek: This first quarter of 2009 we've seen quite a bit of interest and buying activity by international investors coming to the U.S. Often they see the picture much better than people do in the U.S. because of being further away. If we look at the last two crises, the late 80s and in the late 90s, the same thing happened: the international investor saw before the domestic investor that the U.S. market was on the upswing or that the U.S. market was the most favorable in the world. That is positive, good news that we do have is that people are bullish on the U.S. when it comes to real estate.

Mosca: The New York Times ran an article couple of weeks ago about the suburban housing landscape here in my neck of the woods, the tri-state New Jersey, New York, Connecticut area. In every single county highlighted in the tri-state area, the median price of real estate was higher in 2008 than in 2004. Does that shock you at all?

Chemek: No. Sometimes we overlook that real estate has continued to be the best investment vehicle. Real estate in the tri-state area is doing well and that's true in other parts of the country as well. Even if you look at foreclosures, etc., almost 85 percent of all mortgages are being paid on time or people own their property outright. The media concentrates on the 15 percent and this often confuses investors or the general public.

Mosca: This past Sunday (March 8, 2009) the World Bank for the first time since World War II predicted that the global economy and the volume of global trade would both shrink this year. Can give U.S. a proper perspective on what that means as it relates to commercial real estate investing and the commercial real estate investor?

Chemek: Again, they are harping on the negative. There reports, like Goldman Sachs for example, where they've looked at the BRIC countries -- Brazil, Russia, India, and China -- where domestic consumption has been up. For example, in the last quarter of 2008 domestic consumption in China increased by 22 percent. Emerging markets like India and China have a growing middle-class and there is still demand for consumer products. That said, we are all interconnected these days. The Chinese and Indian markets are affected because much of their income comes from selling goods and services to the U.S. If the U.S. market is down, they don't have international increase as much as they would like but they certainly have the domestic market increasing and that is generating capital. Hence, we have a group of wealthy people in those areas investing back in the U.S. market.

Mosca: Can you further define or characterize the international investor?

Chemek: You have to treat each investor as an individual or an individual group. The U.S. investor traditionally is looking for a much shorter hold period than an international investor. This is why in the CCIM courses you are looking at the five-year hold and then selling based on the NOI of the sixth year investment. The international investor traditionally is looking for a much longer period of a 10-, 15-, or 20-year hold. The other aspect is that they are also traditionally a group that believes in having a higher equity stake. They don't like to leverage as much as a U.S. investor would. Look at their histories for the answer. Most of the countries of the world have experienced wars where they've lost all of their currency value or where the currency was revalued. In Germany, for example, where I was born, my parents went through the First World War, Second World War, three currency changes and valuations and they lost everything. That is true for many people around the world. As an investor selling property in the U.S. we always tend to be more optimistic and like to sell the 'sizzle' or the upside of the investment. In terms of attracting international investors, they are less interested in that. They want to know the downside: “What's my exposure, what's the negative, and can I survive the worst aspect?”

Mosca: For my REALTOR friends interested in working with international real estate investors, how do you get out front of them?

Chemek: We are now getting properties with a nine cap and trophy properties that used to be a 4 1/2 or 3 1/2 have now gone to 6 1/2 to seven making the market even more attractive for international investors. Remember, they also want to see the downside so that's a different way of marketing to them. The major areas we are seeing investment interest from is in the Asian market from China at the top of the list, then Korea, then Japan and India. The Middle East, even though the UAE has experienced a downturn, is still generating a lot of money out of their oil revenue. There is money available in Germany and in Russia even with its stock market, which has seen an even worse downturn than in the U.S. There are a few groups left in the UK, not as many as the pound is eroding more so than the euro. Ireland used to be a strong investor and had become the wealthiest country. Right now investment out of Ireland has practically stopped.

Mosca: Where are they looking to invest?

Chemek: What's interesting is in the early part of this decade and the last decade, the international investors traditionally went to the top tier markets -- New York, Washington, Chicago, L. A. Now, they've gotten more comfortable looking at second and third tier markets. The main reason why the international investor is looking at the U.S. is again the security first, the yields are usually better, and the transparency is usually better than what you have internationally.

Mosca: Our radio show is on Facebook and a user named Svetlana who has signed on as a “fan” of the show wanted me to ask you about the Bulgarian market. How is that market doing?

Chemek: We've had a number of investors, especially from the UK and Germany who've invested in Bulgaria looking at the possibilities to retire. Bulgaria is especially attractive because it has both mountains for skiing on the western side and the Black Sea on the eastern side with resort and beachfront properties. As a matter of fact, we had one major investor from the UK who bought properties in both the mountains and resort rpoeprties and got special deals from the developers properties. He had positive cash flow from the moment we started.

Mosca: What is your golden nugget for our listeners today?

Chemek: Look to attract investors to your local areas. There is money to be made for all of U.S. Good luck to you and your investors.

Published: April 16, 2009

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Peter L. Mosca is president and founder of BAK Communications, Inc. He has over 22 years of communications and media consulting experience, serving a variety of nonprofit organizations, including the CCIM Institute and the REALTOR Association on all three levels – national, state and local. He is the Spokesperson Trainer for the CCIM's Jay Levine Academy and trains hundreds of residential REALTORS nationwide to be effective industry spokespeople. He is consistently ranked as "excellent" by about 90% of those who attend his presentations. While his principal consulting focuses are public speaking and media relations development and content delivery and management, Peter is also the host of the Voice America Network's weekly radio program, "Income Property Investment Talk," a one-hour program that brings the powerhouses of commercial and residential real estate to property investors every Wednesday at 11 a.m. EST. Peter is married 17 years to his wife Barbara. They have two children: Ashley, 15 and Kelli, 12. Hence, the name BAK Communications, Inc.