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London-based Letterstone Group and US firm Starr International Co., headed by Maurice Greenberg, announced last month a fund initially capitalized with 100 million euros (or, roughly, $158 million) that plans to acquire 500 million euros ($790 million approximately) in real estate investments in Eastern Europe during the next 15 months. The new joint venture, LS Real Estate Ventures B.V., is eyeing projects in Hungary, Slovakia and Romania, and later in the Ukraine across multiple sectors, including investments in existing property, properties with alternative use potential and new-build developments.

Starr International is no stranger to foreign market real estate investments. Earlier this year the firm, in conjunction with a joint venture consortium, sold a $900 million, four-asset office complex as part of a 6.23-acre mixed-use development in central Moscow. The property sold to KanAm Grund Kapitalanlagesellschaft mbH, a German real estate investment fund group. Partners in the selling consortium along with Starr International include Otkritie Financial Corporation, a Russian investment bank; Deutsche Bank; Old Lane, a New York hedge fund recently acquired by Citibank; and Artha Capital, a hedge fund specializing in global emerging markets.

The Letterstsone Group-Starr International tie up is one of the many seasoned funds that continue – and even ratchet up – their investment exposure to emerging markets. Their rationale is simple: these markets are where investors can expect to have returns tweaked higher than they could through investments in the US.

Greenberg doesn’t believe that the opportunities in the US are dormant now, though, he is quick to add. “There are great opportunities here still,” he tells GlobeSt.com. Still, “obviously you invest where you can make a profit.”

Criteria Greenberg looks for include the demand or need for the particular investment in that market, whether it is a long-term or short-term hold, and the political and economic dynamics in the country itself. Not everyone, however, is enamored with emerging markets – or with the amount of capital that appears to be heading for these countries.

William Gamble, a consultant specializing in emerging markets and author of two books, including “Freedom: America’s Competitive Advantage in the Global Market,” tells GlobeSt.com that global real estate markets are, or will be, in decline. “The few opportunities there are very speculative.”

He points to such examples as the Austrian real estate developer Immoeast, which has half of its assets in Romania, Bulgaria, Russia and Ukraine, making a fiscal third-quarter loss as it cut the value of its properties by 8%. In Kazakhstan, he says, more than 140 housing projects have been halted in Almaty, forcing the government to provide $4 billion of emergency funding to get contractors working again. In India, the investment destination of huge volumes of foreign-based real estate capital investment, “for the first time in the first time in 13 years, Mumbai’s metropolitan authorities failed to sell government land in an auction in India’s financial capital.”

His litany of bad new continues: in Japan, a listed property investor has gone bankrupt. Property prices in China have fallen 10% since last fall. Stocks of developers in Spain have crashed. There are still booms in Poland, Bulgaria and Russia, he agrees, “but these are definitely speculative bubbles waiting to pop.”

The source of much of this malaise, according to Gamble, is weak legal infrastructures in many of these countries. “What it comes down to is this: can you easily repose a car in a country where you are investing? If you can’t, then you can’t collect on a loan or seize a property.” The answer to the car question, he says, is usually ‘no’ for most emerging markets.

Gamble’s opinion, though, is by no means held by the majority in the investor community. Bill Fryer, a partner with King and Spalding tells GlobeSt.com that while the legal infrastructure in many markets is weak, many countries have worked out investment regimes strong enough to attract foreign buyers. Furthermore, he adds, the amount of capital heading for the most speculative of markets is still relatively small compared to other investment allocations. “It is a fairly narrow category of investor that would be interested in setting aside a large enough allocation in their portfolio for a market crash to have a huge impact.” For that reason, it is even a greater stretch to envision another financial meltdown because of these investments, he concludes.

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