Due to the rapid decline in stock prices, including a recent 61 percent decline in the Nasdaq Composite Index, more pension funds and other big investors are looking to put money into real estate today. This presents a golden opportunity for investors, managers and opportunity funds based in New York and the tri-state area who desire to implement national and international strategies.

Real estate is by nature cyclical, and can be regarded as a commodity, with opportunities to buy, hold and sell. While many investors rode the wave of the boom that overtook New York and other areas, the climate for U.S. real estate investing is better than it has been in several years.

Many traditional sources of capital have left the market. That leaves a void for the remaining participants. Institutional capital has been focused on buyout, private equity and venture capital, to the detriment of real estate. Few REITs are currently making additional acquisitions, and many opportunity funds have been focused offshore. Major banks are out of the loan market and, for those loan programs that remain, long term investors are low and spreads are historically high. At the same time, concerns about the economy are increasing buying opportunities.

To take full advantage of the current market, it is advantageous to joint venture with local partners in local markets. These local partners form the basis for targeting market efficiencies and evaluating the risk profile of each investment.

For example, in the retail sector, Starwood has formed ventures with Starwood Ceruzzi and Starwood Wasserman to develop credit-tenant, build-to-suits with strong anchors in infill locations. In the mixed-use arena, Starwood has followed a local approach, forming a venture with Gene Heller, whose knowledge of the New Jersey markets surfaces outstanding local projects. On the opposite coast, Seattle-based Tri-Met Realty has brought Starwood an excellent portfolio of waterfront office, condo-conversion properties, single family lots and industrial land with a pipeline of new industrial properties.

While many of the larger, high-yield properties have been snapped up, 2001 is shaping up as a prime time for smaller transactions. For example, Starwood recently invested $50 million to recapitalize a three million square-foot portfolio of Southern California industrial, flex and research-and-development properties owned by Westcore Industrial Properties, a unit of the Shidler Group. Starwood has been extremely successful in identifying real estate sectors with optimal risk-adjusted returns, then adds value through asset and financial restructuring, by attracting local market expertise and management through local market expertise. In most cases, Starwood focuses on "off-market" transactions, often sourced by its local partner network.

Investors in the New York area are seeking out new opportunities abroad, as well. The world of international investing presents exciting new real estate opportunities for the informed investor. Select European markets offer opportunities for compelling, risk-adjusted returns due to strong supply and demand fundamentals, combined with significant barriers to new supply and a relatively inefficient marketplace. Asian markets offer intriguing opportunities as economies start to recover and local governments intervene in the real estate marketplace through new REIT legislation and the creation of RTC-like agencies. Such government intervention frequently provides profitable opportunities for experienced investors.

Starwood believes that partnering with top local market experts is one of the largest factors in achieving success in a foreign market. Aside from forming the basis for targeting market inefficiencies and evaluating the risk profile of each investment, local partners also provide knowledge necessary to navigate around local, governmental, legal and cultural obstacles.

As an example, Starwood formed a venture with an established national partner in Japan, Nomura Real Estate Development Company, Ltd. By entering into this venture, Starwood gained access to Nomura's local expertise in deal sourcing, as well as asset and property management. Starwood has similar ventures in the United Kingdom, and prospective ventures in Western Europe.

The economic downturn and the decline of the stock market has created favorable conditions for real estate investing in the New York area and abroad. With the right partnerships, and consideration of economic as well as demographic conditions, the current market will reward the informed investor.