GlobeSt.com: In recent years, overseas acquisitions have accounted for an increasing percentage of Carey's business; in 2008 almost half of the investments made on behalf of the CPA REITs were international. Does the company expect a similar ratio of domestic vs. overseas activity for 2009 and beyond?

LaPuma: In 2007 it was more than half, in '06 it was about half and in '05 it was more than half. In the first years we were doing 10% or less of the firm's business, and now we've moved to a level of about parity. Our business as a deal business is a very unpredictable business. I listened to the earnings call that we had recently and CEO Gordon DuGan was right about that. It's hard to say anything is certain until it's closed and the money has crossed the wire and the documents are sent and the title is exchanged. I would say in my personal opinion there will be years when we do more than half the business as in the past several years, and years when we do less. But from a global perspective, I don't think a 50-50 split is unreasonable going forward.

GlobeSt.com: I believe your last overseas sale-leaseback was the Tesco deal in Hungary. I would imagine that is a prized tenant. What kind of competition did you come up against for that deal, and in general how is the competitive landscape in European markets?

LaPuma: It's interesting, because the market there is a very different market than in the US. There are very few global players, and not to pat ourselves on the back, but Carey and W.P. Carey International have really made themselves stand out as probably one of the most, if not the most, global players. We have an office in London, an office in Amsterdam and an office in Shanghai. We've done deals in Asia, we've done deals in Europe, we've done deals throughout North America. And so from that standpoint we are an unusual beast.

We find the majority of our competition is more local or regional players--local meaning country specific or regional meaning, as an example, in the case of Tesco in Hungary, groups that specialize in Eastern European countries. The competition on that particular deal was from a couple of different sources, one being regional players. From a certain standpoint, we were lucky because that was at a period when there was some bad press, when we originally signed up the deal, about Hungary. Having Larry Klein on our board was a very important part of our process; we had some great advice from both him and Dick Marston, who is also involved in giving us advice. Both of them are world class international finance people. There was a lot of discussion as to the continued viability and economic vibrance and growth of Eastern Europe, because there had been a tremendous upswing over the last five, 10 years.

The second thing that we had going for us was that we had capital available and we were willing to invest on an all-equity basis to give surety to Tesco. That was something we needed to do in order to give them some comfort as a result of the constantly changing marketplace. One thing that I think is interesting is that for virtually all the deals that we're looking at or have looked at recently in Europe--whether or not we decided to proceed on them or whether or not we won or lost them--we have found banks that are willing to lend. And so from the standpoint, there is a tremendous amount of mortgage financing out there, which is a surprise. Gordon mentioned that in the earnings call, and I certainly am very cautiously optimistic. But that was something else that played to our advantage.

The other form of competition that we had to deal with, with regard to Tesco, was alternative sources of capital. Tesco is one of the world's largest retailers and one of the most financially stable companies in the world right now, so they're looking at things at a different level than a lot of companies who we might transact with. They're specifically thinking, here are all our capital opportunities, how do we maximize capital efficiency? And so our competition, from my perspective, was their alternative sources of capital, not necessarily only sale-leaseback principals.

GlobeSt.com: How large of a deal was that with Tesco, and did you ultimately close all cash?

LaPuma: That was over $90 million, and that's a sizeable transaction in today's environment. We didn't end up closing all cash, we did close with mortgage debt in place. To my surprise and maybe to other people's surprise, there are many banks out there who are willing to lend, and although we made that commitment to Tesco, we in fact had mortgage interest from several lenders from the get go. That was a commitment we were willing to make, because we were talking about timing risk. On all the transactions we are currently looking at, we have term sheets from more than one lender. From that standpoint, it may be a slightly better market than the US, but that's just as likely to change tomorrow as anything else is.

GlobeSt.com: What does the pipeline look for deals in Europe? And how are yields holding up in today's market?

LaPuma: The pipeline is quite attractive. We have several deals that have been approved by our investment committee. One thing to note is that doing deals outside the US is a substantially more cumbersome, time-consuming effort. It varies by country to country. Doing deals in Finland is actually, in my opinion, easier than doing a deal in the United States; the legal system and the way it is set up, it can be done very quickly. But in other places, it takes substantially more time, and there are some places where in fact you have to register publically that you're going to close on the transaction so that if there is a municipality or other entity that wants to intercede, they have the right to do that. From that perspective, deals take a lot longer in Europe than they do in the US. The same is true in Asia. We have a deal right now that we have investment committee approval on for a property in Malaysia. But whether or not it closes will depend on how much time it takes to get all the right approvals and other things done. So I think the pipeline itself is very strong, but I think it's also important to note that deals aren't closed until they're closed, and there is more risk in closing as a result of time. Having been with the company since 1994 and doing our first deal in Europe and doing a lot of the deals that we did domestically, I can tell you from my perspective one of the only things that really kills deals is time.

With regard to yields, I think the yields are lower in Europe. But Tesco is a perfect example; we bought a class A, new warehouse-distribution facility within a short distance of the Budapest CBD with a Tesco credit. So I would imagine it would make sense for that to have a lower yield. On a risk-adjusted basis, I think the deals are as attractive as the deals in the US, but they do have the tendency to have a lower yield. And that's not just a question of the real estate and the credit; it's also a market issue. By example, Switzerland is an environment which historically has very low yields. The Swiss franc bond yields are among the lowest in the world. It's Japanese-type interest rates. So in that market, having a yield that's lower really may say nothing, because if you can borrow money at 3% and put money to work at 7%, you're getting more than a 100% spread. Where in Europe if you're doing a deal at 8% or 9% and borrowing at 5% or 6%, you're getting less spread. And the same is true in the US; you might need to do deals as 10% or 11%, because the spreads on the debt are higher. And so I would say that the yields are lower abroad, and even in Asia, but on a risk-adjusted basis I think they're very attractive deals. If I can do a deal at a 7% or 8% yield, I might not be able to justify that in my own mind in the United States if I have to borrow and have to pay 5% or 6%. But if I can do something different outside the US, there may be a very just cause and an attractive reason for making that investment.

And to come full circle to where I started, with property and credit, one thing that we have done in Europe, with a few exceptions, is our portfolio there is typically very large, well-known credits and higher quality real estate. We're dealing with the likes of Carrefour, OBI, Tesco, Pohjola--very large, multinational companies have a very solid balance sheet and critical real estate in central locations. Those assets and the location of those assets justify a higher price and lower return.

GlobeSt.com: Much of Carey's overseas activity has been focused on Europe. Will that continue to be the case? How much are you looking outside of North America and Europe?

LaPuma: I personally think there's a lot of opportunity. Bill Carey was one of the pioneers in utilizing the sale-leaseback of corporate real estate as an alternative financing solution, and when you look across the globe, the United States has something on the order of 30% of its commercial real estate is owner-occupied; Europe has on the order of 65% or 70% of its commercial real estate is owner-occupied; and Asia has numbers that are more like 90% of its commercial real estate is owner-occupied. And so my argument would be that us making the investment, and W.P. Carey International pushing forward with growing the business outside of the United States, has been very good for W.P. Carey.

There's a lot of long-term potential just as a result of the numbers. It doesn't take a rocket scientist to figure out that when you're looking for the best markets for people who are trying to help monetize real estate for corporations, those markets where corporations own the most real estate would be good markets. So I think there's a lot of growth. But again, all deals have to be measured on a risk-adjusted basis, and I think that's the real measuring stick.

GlobeSt.com: You mentioned a particular deal in Malaysia. Would that be the company's first Asian investment? Are you interested in China?

LaPuma: No. We have already closed transactions in Thailand and Malaysia, and those investments are performing well. China is, as everybody always says, a place unto itself. We have a team on the ground in China. Bill Carey has done a great job in supporting education around the globe, and one of the places where his philanthropy has reached is China. Arizona State University and the W.P. Carey School of Business has an arm in China which gives out an executive MBA program. So we've gotten a chance to meet some of the people on the ground there. We think that long-term there is definitely something for us to do. We're looking for the right opportunity.

And in order to do that, one thing that I've been a big supporter of, is hiring people who are local to the area. So that office has someone who was born in China, an American-born Chinese, and an Australian, since obviously the Australians and the Chinese have been very well linked for a long period of time. So we're working on it, and we will eventually crack it, I believe.

GlobeSt.com: There was a report earlier this summer that Carey was looking at sponsoring a fund specifically geared to Islamic investors. What's the status?

LaPuma: That's exploratory and not something we are focused on. The focus for the time being is on the CPAs. Our focus really is investing our capital and the CPA investors' money as effectively as possible. Our fundraising has increased substantially and I think the reason is that our performance has been so good. Even through the downturn and the massive losses for people who have invested in equities and so forth, we have maintained our dividends.

GlobeSt.com: Any final thoughts?

LaPuma: Companies are looking for alternative sources of capital, and even in light of the fact that there seems to be some indication of a return to normalcy in the financial markets, I think that's going to take some time. And I think that provides an interesting window of opportunity for our investors and for the companies who we do business with. That's something that hopefully, over the next six, 12 months or longer, you'll see and we'll be talking more about.