Hunt for Real-Estate Profits Takes Investors to New Frontiers

Article By Steve Levine and Christine Haughney Via RealEstate Journal

When David Mitzner went to Poland in the late 1980s, he saw a developer's dream: a chessboard of empty lots and little-used offices, warehouses and factories, and scant competition from other investors. Yet when he sought financial backing in the U.S., he felt as though he were promoting property "on the moon," he recalls.

Today, the Polish real-estate market is so awash in foreign capital that it has gotten hard for Mr. Mitzner to find high returns. Last year, foreign investment in Polish property doubled from 2004 to about $3.5 billion, according to the New York real-estate firm Cushman & Wakefield Inc. New property investors are settling for annual returns below 7%, not much better than yields available in Western markets, and far below the double-digits Mr. Mitzner collected early on.

In the 1990s, global investors hunting for high returns flocked to stock markets. When those markets plunged, capital poured into commercial real estate, pushing up prices and reducing investment returns in top U.S. and Western European markets. Now, a wave of capital from American and European pension and investment funds is flowing into once-fringe markets such as Poland, the Czech Republic, Mexico and China. As prices in those markets rise, yield-hungry investors have begun venturing into even dicier markets, such as Russia and Bosnia, driving up prices, and pushing down profits, there, too.

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