REAL ESTATE ADVISORY SERVICES

367 Pages·2014·10.93 MB·English

REAL ESTATE ADVISORY SERVICES:
GROWTH AND COMPETITION IN
JAPAN, EUROPE, AND THE UNITED STATES, 1960-1990
by
Terrence Walter LaPier
A Thesis
submitted for the degree of
Doctor of Philosophy
The London School of Economics and Political Science
University of London
Lent Term, 1995
UMI Number: U087133
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ABSTRACT
This thesis examines the international growth and diversification of real estate
advisory services in the United States, the United Kingdom, Germany, and Japan from
over a 30-year period, 1960-1990. These four countries were selected because they were
the most active in cross-border direct investment during this period, and intricate
economic interdependencies among them prompted the greatest advancements in
innovative real estate advisory services.
Economic and cultural differences and similarities among the four focal countries
and their respective service professions provide the bases for evaluating the primary
hypothesis: the internationalization of real estate advisory services were most efficiently
and effectively achieved by firms that first built solid reputations in their home nations,
and subsequently expanded into multiregional organizations by responding to the cross-
border investment activities of existing and prospective multinational clients.
If leading firms in the focal countries expanded in domestic markets to capitalize
on the national economy’s maturing real estate markets, then moved into foreign markets
to capitalize on rising cross-border investment flows over the 1960-1990 period, the
primary thesis raises a question about the relative significance of cross-border real estate
investment to national economic conditions, generally, and to the growth of commercial
real estate markets and sectoral employment in the focal countries, specifically. A
secondary hypothesis, therefore, is tested to identify the relative impact of total cross-
border real estate investment flows on employment levels in the commercial real estate
sector in the U.S., U.K., Germany, and Japan.
This thesis also examines the several dimensions of the economy and financial
system affected by domestic and foreign investment in commercial real estate assets after
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1960. For example, rising worldwide commercial property investment appeared to be
an important factor in the escalation of corporate real estate values, in the growth of
construction industries and related services sectors, in the changes in the net worth of
major financial institutions, and in the asset diversification of insurance and pension fund
portfolios. As part of this trend, the growth of international business and the rise in
mergers and acquisitions also elevated cross-border direct investment activity in real
estate as companies expanded into foreign markets.
This thesis explores the process by which property advisory services
internationalized and gained an important role in the global service economy by
counseling investors on the location and volume of investment activities, and thereby
influencing the international flow of real estate investment funds. It also examines
whether real estate advisory firms in the focal countries gained competitive advantage
over the 30-year period due to the presence of two basic conditions: an international
network of property professionals; and a diversified services practice—brokerage,
property management, finance, facilities planning and development, and real estate sales
and purchases.
By reviewing national fluctuations in cross-border direct investment in real estate,
and periodic changes and major episodes in the foreign expansion of real estate advisory
services in the focal countries, this thesis seeks to examine specific national factors that
influenced effective internationalization in domestic property services. Basic principles
in economic history provide the theoretical framework concerning competitive and
comparative advantages among nations and particular organizations.
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TABLE OF CONTENTS
^ Page
ABSTRACT .................................................................................................................................. 2
LIST OF TABLES .......................................................................................................................... 7
LIST OF FIGURES .......................................................................................V ............................ 9
ACKNOWLEDGMENTS..................................................................................................................... 10
CHAPTER 1 INTRODUCTION
1.1 Purpose of the Thesis................................................................................................... 12
1.2 Analytical Framework ................................................................................................. 21
1.3 Determinants of International Expansion and Innovation.......................................... 28
1.4 Scope, Sources, and Methodology .............................................................................. 32
CHAPTER 2 CROSS-BORDER DIRECT INVESTMENT OF THE FOCAL COUNTRIES
2.1 Introduction and Definitions......................................................................................... 40
2.2 Review of Recent Trends in Cross-Border Direct Investment .................... 43
2.3 International Real Estate Investment in the Focal Countries ..................................... 58
2.4 Cycles of Cross-Border Direct Investment by the Focal Countries.......................... 70
CHAPTER 3 THE INTERNATIONALIZATION OF REAL ESTATE ADVISORY SERVICES
3.1 Introduction.................................................................................................................... 74
3.2 International Services Trade Theory ........................................................................... 76
3.3 Factor Advantages of International Real Estate Advisory Services.......................... 78
3.4 The Domestic Economy and Real Estate Market ..................................................... 81
3.5 Skilled Labor ................................................................................................................. 90
3.6 International Policy and Investment Perspective ........................................................ 98
3.7 International Trade and Multinational Corporations.................................................. 108
3.8 Internationalization of Financial Markets and Investment Vehicles.......................... 116
3.9 Industry and Organizational Structure ........................................................................ 123
3.10 Conclusions.................................................................................................................... 131
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CHAPTER 4 HISTORICAL PROFILE OF 40 REAL ESTATE ADVISORY SERVICE FIRMS
IN THE FOCAL COUNTRIES
4.1 Introduction.................................................................................................................. 133
4.2 Growing Markets, Changing Client Demands, Service Innovation.......................... 136
4.3 Patterns of Geographic Expansion and International Growth .................................. 146
4.4 Organizational Structure and Management of Growth . . . ................................... 157
4.5 Failure: Markets and Management .......................................................................... 160
4.6 Conclusions , J.6$
CHAPTER 5 INNOVATIONS IN INTERNATIONAL REAL ESTATE ADVISORY SERVICES
5.1 Introduction.................................................................................................................. 167
5.2 Indicators of Innovation in Real Estate Advisory Services....................................... 167
5.3 International Pension and Insurance Fund Management .......................................... 178
5.4 International Corporate Real Estate Services ............................................................. 187
5.5 International Financial and Investment Banking Services............................................ 194
5.6 Public Capital and Securitized Investment Services .................................................. 204
5.7 Competitive Advantage in Innovation ....................................................................... 209
CHAPTER 6 FOUR CASE STUDIES: REAL ESTATE ADVISORY SERVICE FIRMS
FROM THE FOCAL COUNTRIES
6.1 Introduction.................................................................................................................. 212
6.2 Cushman & Wakefield, Inc., United States............................................................... 217
6.3 Jones Lang Wootton .................................................................................................. 235
6.4 Mueller International Immobilien GmbH..................................................................... 252
6.5 Orix Corporation ........................................................................................................ 264
6.6 Conclusions.................................................................................................................. 276
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CHAPTER 7 CONCLUSIONS
r.i Introduction.................................................................................................................. 288
7.2 Rising Cross-Border Real Estate Investment and
Growth in Real Estate Employment .......................................................................... 288
7.3 Skilled Personnel and Market Knowledge *. : ........................... 292
7.4 National Trade Policies and Practices and
International Real Estate Services ............................................................................ 293
7.5 Competition and Innovation ............................ , 295
7.6 Client Demand and Foreign Expansion ..................................................................... 296
7.7 Expansion Strategy and Organizational Structure 299
7.8 Real Estate Advisory Services in the 1990s:A Forecast .......................................... 303
APPENDIX A Data Limitations ............................................................................................... 305
APPENDIX B A Brief History of Restrictions on International Investment
by the Focal Countries ............................................. 314
APPENDIX C Survey Form - Company History and Profile............................. 327
APPENDIX D Historical Rates of Return Investment, National Annual
Averages Yields, Focal Countries.................................................................... 330
BIBLIOGRAPHY .......................................................................................................................... 334
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LIST OF TABLES
-w. Page
CHAPTER 1 INTRODUCTION
1 World Stock of Outward Direct Investment by the Ten Largest Source Countries, 20
1990 Rank Order - (1960, 1973, 1980, 1990)
2 Stock of Outward Direct Investment in Real Estate by the Major-Source Countries,
1990 Rank Order, (Millions of U.S. Dollars) - (1966, 1975, 1980, 1985, 1990) 21
CHAPTER 2 CROSS-BORDER DIRECT INVESTMENT OF THE FOCAL COUNTRIES
3 Stock of Total and Real Estate Outward Direct Investment by the Focal Countries, ,
(Millions of U.S. Dollars) - (1950-1990) 48
4 Stock of Total and Real Estate Inward Direct Investment in the Focal Countries
(Millions of U.S. Dollars) - (1950-1990) 50
5 Real Estate as a Share of Total Outward and Inward Direct Investment in the Focal
Countries - (1960-1990) 52
CHAPTER 3 THE INTERNATIONALIZATION OF REAL ESTATE ADVISORY
SERVICES
6 Gross Domestic Product, Billions of Nominal U.S. Dollars -- (Germany, Japan,
United Kingdom, United States, 1960-1991) 84
7 Total Nonresidential Fixed Investment - Structures Only, Millions of Nominal U.S.
Dollars -- (Germany, Japan, United Kingdom, United States, 1960-1990) 85
8 Long-Term Employment Trends in Real Estate and Related Industries In the Focal
Countries (Thousands of Employees) -- (1960, 1965, 1970, 1975, 1980, 1985, 93
1990)
CHAPTER 4 HISTORICAL PROFILE OF 40 REAL ESTATE ADVISORY SERVICE
FIRMS IN THE FOCAL COUNTRIES
9 Summary Profile of Ten Leading Real Estate Advisory Service Firms in each of the
Focal Countries 139
10 Size of Firms Before (1960) and After (1990) Internationalization of Real Estate
Advisory Services 140
11 Client Profile of Fee Revenues, Percentages for Fee Revenue by Category for Real
Estate Advisory Service Firms 1960-1990 — (Average of ten leading firms in each 144
focal country)
12 Service Diversification of Real Estate Advisory Firms, 1960-1990 -- (United
Kingdom, United States, Germany, Japan) 145
13 Domestic and Foreign Personnel, Ten Leading Real Estate Advisory Service Firms
in the Focal Countries, 1960-1990 151
14 Average Annual Staff Growth of Real Estate Advisory Service Firms in the Focal
Countries, 1960-1990 153
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Page
45 Domestic vs. Foreign Sources of Fee Revenue, Ten Leading Real Estate Advisory
Service Firms in the Focal Countries, 1960-1990 155
CHAPTER 5 INNOVATIONS IN INTERNATIONAL REAL ESTATE ADVISORY
SERVICES
16 Innovations in Real Estate Advisory Services: United States, United Kingdom,
Germany, and Japan 177
CHAPTER 6 FOUR CASE STUDIES: REAL ESTATE ADVISORY FIRMS FROM THE
FOCAL COUNTRIES
17 Size of Firms Before and After Implementation of International Strategy 214
18 Corporate Profile, Cushman & Wakefield, United States, 1960-1990 220
19 Competitive Scope, Service Diversification, and Geographic Expansion, Cushman
& Wakefield, 1960-1990 221
20 Sources of Revenue, 1960-1990, Cushman & Wakefield 222
21 Corporate Profile, Jones Lang Wootton, United Kingdom, 1960-1990 242
22 Competitive Scope, Service Diversification, and Geographic Expansion, Jones Lang
Wootton, United Kingdom, 1960-1990 243
23 Sources of Revenue, 1960-1990, Jones Lang Wootton 246
24 Corporate Profile, Mueller International Immobilien GmbH, 1960-1990 254
25 Competitive Scope, Service Diversification, and Geographic Expansion, Mueller
GmbH, Germany 255
26 Sources of Revenue, 1960-1990, Mueller International Immobilien GmbH 257
27 Corporate Profile, Orix Corporation, 1960-1990 265
28 Sources of Revenue, 1960-1990, Orix Corporation, Japan 273
APPENDIX B A BRIEF HISTORY OF RESTRICTIONS ON INTERNATIONAL
INVESTMENT BY THE FOCAL COUNTRIES
29 Foreign Investment Restrictions in Main Sectors in Focal Countries, 1992 318
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