Foreign Investment Plans for U.S. Real Estate Thwarted
U.K., Australia and Western Europe Absorb Some Investment Dollars

Washington, D.C. - (January 15, 2003) Amid strong confidence in U.S. real estate as an investment conduit, foreign investors in U.S. real estate fell short of their 2002 investment goals according to the results of a survey released today by the Association of Foreign Investors in Real Estate (AFIRE).

In the 2001 survey, members said they planned to invest an average of $282 million in U.S. real estate in 2002; the average actual investment was $242 million, reducing the global allocation of members' investment in U.S. real estate in 2002 by 7.3% compared to 2001 levels. At the same time, average portfolio allocations increased by 4.1% for UK properties, 2.5% for properties in Australia and New Zealand, and 2.4% for properties in Western Europe.

North American holdings still represent the lion's share of foreign investors' real estate portfolios with a 47.8% allocation, followed by Western Europe with a 33.1% share. Kingsley Associates, a San Francisco real estate research and consulting firm, conducted the 11th annual survey among AFIRE members who collectively have more than $226 billion invested globally including $70 billion invested in the U.S.

"The decline in U.S. real estate's share of global allocations can be explained by several factors," said Robert D. McSween, chairman of AFIRE and senior managing director, ING Realty Partners. "Seventy-nine percent (79%) of respondents said it was either 'somewhat' or 'very difficult' to find attractive real estate opportunities in the U.S.A today, and 30% said that finding attractive opportunities was the greatest challenge to investing in U.S. real estate today.

"In addition, as the value of investors' portfolios declined over the last two years, due to the dramatic drop in equity prices, a given amount of real estate within a portfolio became a larger percentage of the total," added McSween. "The percentage allocation to real estate actually increased in many cases above the target allocation. This 'denominator' effect has become a curb on new real estate investment for a number of investors."

"Part of the decrease in portfolio allocation to North America may also be explained by lower asset valuations in 2002 resulting from higher vacancies in existing properties," added James Fetgatter, chief executive of the organization. "It is also interesting to note that, for the first time in the 11 years of the survey, respondents have expressed interest in four out of five asset classes. The foreign investor is no longer just a buyer of large office buildings."

Respondents remain extremely positive about U.S. real estate as a strong investment opportunity. U.S. real estate was ranked first in terms of: offering the most stable and secure real estate investments; the best opportunity for capital appreciation; and the best risk-adjusted potential return. Sixty-six percent (66%) of respondents indicate that their firm's appetite for U.S. commercial real estate investment is somewhat or much stronger relative to opportunities in other countries. Respondents intend to increase their volume of U.S. real estate acquisitions in 2003 to an average of $308 million per investor, an increase of 27%. Investors' planned U.S. acquisitions represent 46% of total global real estate acquisition dollars targeted for 2003, compared to a 36% share in 2002.

Global and National Preferences
Washington, D.C. rose from the third best global city for foreign real estate investment in 2001 to claim the number one global spot in 2002. It was followed by London, Paris, New York, and Milan. The members' top-ranked U.S. cities were Washington, D.C., New York, Los Angeles, Chicago, and San Francisco.

Preferred Property Types
Although multi-family was ranked as the most attractive property type for investors' dollars in 2002, its attractiveness rating declined by 15%. Office buildings, which ranked as the number one property type for investors' money between 1995 and 2000 and the second in 2001, fell to third position, behind industrial properties. The hotel/ leisure category, which has consistently ranked as one of the least attractive property types for investment, earned a 26% higher attractiveness rating in 2002, a greater improvement than any other property type. Retail also showed a significant gain in attractiveness among survey respondents.

REIT Report
AFIRE members cite the public REIT sector as the second most attractive U.S. real estate opportunity for their firm, after direct equity investment. Respondents indicated dividend yield (38%), liquidity (24%), and diversification (19%) as the primary reasons for investing in U.S. public REITs. AFIRE members indicate a 21% average allocation to public real estate equity in their U.S. portfolios and a 15% global allocation.

AFIRE members have a common interest in preserving and promoting investment in cross-border real estate. Founded in 1988 AFIRE currently has157 members representing 17 different countries.