Tax changes spur global

Steve Roth, chairman and chief executive of Vornado Realty Trust Research, said his company considering plans to invest abroad, while keeping an eye on tax implications.

A number of countries — including Japan, the United Kingdom, Hong Kong, France and Australia — have adopted tax codes similar to those in the US that exempt trusts from most income taxes if they distribute 90 % of taxable income to shareholders.

“In order to be a great real estate company, these companies will be global,” said Roth. “There will be huge, not as large as the mega banks, but there will be multibillion dollar property companies, in about ten years out, who will have global investment expertise and global investments.”

Roth, at a REIT symposium sponsored by New York University, noted that “capital flows are clearly and distinctly moving abroad.” Vornado real estate investment trust has office, hotel and retail properties in key US cities. Its stock rose by 39 % in the past 12 months.

So far, however, Vornado’s US$25 million investment in India is its only investment abroad.

“If we’re going to go abroad, we’re going to go with our muscle,” he said. “But we’re going to do that very slowly and very cautiously.”

One barrier holding back foreign investments, executives say, is the prospect of losing its favourable tax treatment when a US REIT goes abroad.

That’s a vital competitive edge, said Sam Zell, chairman and founder of Equity Office Properties Trust, the largest owner of US office space besides the federal government, and Equity Residential, the largest publicly traded apartment landlord.

But if countries adopt reciprocal tax treaties, “then it’s fair game,” Roth said.

For now, investment money is flowing into direct property ownership.

General Electric Co, GE Capital Real Estate, will likely invest about US$16 billion to US$18 billion in equity capital this year, said Michael Pralle, president and chief executive.

“As we continue to look for investment opportunities, we anticipate more than half will come from abroad,” he said. GE Capital Real Estate has or is looking to beef up investments in Japan, Sweden and other Nordic countries, the United Kingdom, France, Germany and Italy and China.