The foreign money race: Will Dallas catch Houston?

Seldom does a week go by in Dallas when some sort of foreign investor isn’t eyeing a local apartment, warehouse, shopping center or office building. Although foreign money hasn’t poured into Dallas as it has into Houston, people making the deals in both cities think it is only a matter of time until foreigners begin looking harder at Dallas.

The starting gun sounded one Saturday nearly two years ago when German bank director Gerhard Koenig landed at D-FW Airport. He was met by a helicopter and flown to the top of Southland Life Building. Inside, he watched a short film about life in Dallas, before being whisked off to look at local real estate. Koenig was representing many millions in German investment, from the same investors who later plunked down more than $100 million to buy 90 percent of Houston’s famed angular towers, Pennzoil Place.

Koenig was given the royal treatment in Dallas: meetings with officers of Republic and First National, with the real estate staffs of Henry S. Miller Companies and Trammell Crow. He was given the key to the city, was wined and dined at Lamar Hunt’s house and later at Henry S. Miller’s, before buzzing off to Houston in Crow’s private airplane. Later he inquired about purchasing Dallas’ tallest structure, the 56-story First International Building, but the price quoted by First International was so high that it boiled down to a statement that the building wasn’t for sale. Since then, foreigners have purchased several major downtown buildings in Houston, but not in Dallas.

Houston is drawing more foreign money than Dallas for two reasons. First, it is far better known internationally. Second, while some major downtown Houston buildings are owned by developers Gerald Hines and Kenneth Schnitzer, who are willing to sell, downtown Dallas skyscrapers are owned by banks and insurance companies, which aren’t willing to sell.

Nevertheless, foreign money in Dallas will be increasing. Henry S. Miller says 20 percent of his commercial business involves foreign money, and that given the right properties, foreigners are quite willing to buy into Dallas. “If Ray Nasher would sell NorthPark,” Miller says, “it could have been sold to foreigners 12 times over by now.” Emerson Kailey, a European-based American who made the fabulous Pennzoil Place deal, points out that once the best deals are made in Houston, foreigners will begin looking harder in Dallas. “But there has to be something for sale,” he says.

In recent months, foreigners have been buying shopping centers, warehouses and apartments in Dallas, plus one major building complex, the Twin Towers on Stemmons Freeway. Perhaps typical of the deals are two shopping centers sold to Belgians, one in Carrollton and one in Garland. Miller senior vice president Ken Shulman, who made the deals, says foreigners have two major motives for investing here: Their investment opportunities at home are limited by small economies and they are worried about European political situations. The Belgians, for instance, haven’t forgotten being overrun by the Nazis. If political disaster struck again, at least they could attempt to flee to America, where the foreigners would have an investment to support themselves.

Generally, Europeans are buying U.S. real estate through corporations chartered in the Netherlands Antilles, islands just north of Venezuela. By doing so, they are usually able to avoid U.S. gift, estate, and capital gains taxes when disposing of their real estate – an excellent incentive.

Although to Americans local real estate prices seem rather high, European investors are delighted with them. Not only can they buy property for one-half or one-third of what it would cost them at home, Europeans can get sizable mortgages as well – a virtual impossibility at home.

So far most of the foreign money invested in Dallas has been either European or Canadian. Despite all of the publicity about Arab and Japanese money pouring into Texas, there is little evidence of either in Dallas real estate. The Arabs don’t seem to own any important real estate here, and the Japanese, despite rumors that they own much of the land around D-FW Airport, aren’t significant local investors.

For the moment at least, Houston willcontinue to have the edge, simply because there is more development thereand more willing sellers. Houston is muchmore of a wheeler-dealer city than Dallas, nurturing the sorts of characters whomove in and out of major investments.Although Gerald Hines really had no prior intention of selling Pennzoil Place, hecouldn’t resist a good deal. But whenFirst International indicates it isn’t willing to sell, the Europeans know theymean it.


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