Editor-in-chief Suzann D. Silverman spoke with Howard Hallengren, chairman of Falcon Real Estate Investment Co., about his company’s business. Hallengren co-founded the company in 1991 to represent foreign investors in U.S. real estate after providing similar services through Chase Manhattan Bank’s international private banking group in the 1980s. For more on how Hallengren sees foreign investment changing, see the May issue of CPN or search for key words “Howard Hallengren” in quotation marks.CPN: A lot of your clients are from Europe and the Middle East. Do you anticipate expanding your client base further? Hallengren: We are currently working with a consultant in Tokyo. We are about to announce the opening of an office in Beijing, which will be an asset management office. We’re not going to be acquiring properties there; we’re going to be managing for a fairly large Chinese group out of Hong Kong that’s investing in China. And at the same time, right now I have two partners in Latin America, in Brazil, because we’re looking for opportunities there. CPN: Are you working with investors buying elsewhere in the world as well as in the United States? Hallengren: We’re seeing that so many of the institutions that are international investors today are really what I’d call global investors, and they’re saying, “Where can we get the best returns?” The United States has certain things going for it in terms of political and economic—well, usually, economic—stability. There are people that want to invest in the U.S., but more and more, we’re seeing investors saying, “We like to invest around the world. We’ve seen such a tremendous flow of money to China, to a country like Brazil,” and so we feel we need to develop partnerships in other countries so that we can work with our clients that want to invest in other countries. (But) our focus will remain predominantly on the U.S. because that’s where our expertise is. CPN: How has the breakdown of your business, by origin of investors, changed? Hallengren: Originally, it was very much European and Middle Eastern (investors), European being very much German. Today—and I think it’s due to the weakness of the dollar, with the dollar being 1.5 to the euro—we’re actually seeing investors from Germany, from Ireland, from Spain, from Switzerland, from Austria, from Israel. It’s a much broader array of countries than we had ever seen before. And there has also been a good deal of wealth creation in countries like Ireland or like Spain. After Spain entered the European Union, their economy took off. CPN: And has there been any change between institutional and private investment? Hallengren: Certainly, we are seeing more institutional investors, particularly coming out of Germany, where there are a lot of very large insurance companies, but also the Middle East. Some of those institutions have grown very, very large. And at the same time, in the Middle East as those economies have taken off … the individuals are now more apt to look to their own countries first or their neighboring countries, because now they have opportunities that they didn’t have back in the ’80s or ’90s to invest at home.CPN: What is your company’s competitive advantage? Hallengren: Our competitive advantage that we have had over the years and we learned back at Chase Private Banking is that you’re building a relationship. You’re not out selling real estate. You’re trying to build relationships with the investors, and you can’t do that by going and calling on them once a year or once every other year. You have to keep coming back, and it might take two or three years of calling on people, getting to know them, showing them properties during that period of time, finding out what it is exactly that they want, and eventually they make up their mind that they want to do something. And they feel that they know you and have confidence in you. The individual investors, if they’re going to commit millions of dollars to a property, want to have a pretty high level of confidence that the person that they’re selecting to be their advisor takes time. And institutions, perhaps because we have a 15- or 16-year record, can look at us and feel that we’ve been around long enough and they can have confidence in what we’re doing. So many of the big banks and big investment banking outfits go around once a year and put on a big show and then disappear. They just don’t want to make the effort to keep coming back and doing the hard slogging that it takes, to just keep calling on these people repeatedly and getting to know them. That’s why we don’t have too many competitors: because you have to feel that you are going to invest in a country, in the people of that country for a considerable period of time before you’re likely to see any results.CPN: It looks like you’ve invested a lot in development opportunities. Do you see that being a big area or less so as the economy deteriorates? Hallengren: We went into development for investors who were not happy with the returns we were able to get in 2006 and 2007 because cap rates had gotten so low. So we started doing a few development deals. One in Tysons Corner (Va.), one in Jersey City (N.J.). But now, going forward, I don’t see doing any development because we’re back to a point where you don’t want to take the risks of development in a recessionary economy, and, too, we’ll be able to get better returns by buying what we’ve been talking about. So unless something extraordinary comes along, I don’t see us into any development opportunities for the foreseeable future.CPN: You’ve historically achieved very attractive returns. Do you anticipate continuing to be able to achieve those returns? Have your clients’ expectations changed? Hallengren: One of the things we’re always trying to do is to manage our clients’ expectations. We don’t want them to expect that they’re going to get a 25 percent IRR and we turn in a 13 or 14 percent IRR and they’re disappointed. We try to be very realistic going into a deal to point out what the range of IRRs will be. Today (what we) would really look for in a developed property is a 12 to 15 percent range with a fair degree of security over a three- to five-year holding period. Our general holding period has been more often five.