Go east, young man

Many Americans look at the Middle East primarily as a source of trouble, but it's also a land of opportunity, as C. MacLaine Kenan of Arcapita has found. The Bahrain-based private equity firm has a healthy $2.7 billion balance sheet, and has completed $18 billion in deals over the last decade.

Arcapita is based in Bahrain, with offices in Atlanta, London and Singapore. While most of Arcapita's 32% average annual returns have been generated by operating companies, infrastructure, and real estate in the U.S. and Europe, the firm also invests closer to home.

One new project: a golf-centered housing development in Bahrain, an island kingdom of 700,000 people off the coast of Saudi Arabia. Many Bahrainis are middle class, with per capita income of $20,000 a year. “There are almost 300 golf courses in the Atlanta metro area. There is one in the Kingdom of Bahrain — and we're building a community around the only grass golf course available,” says Kenan, Atlanta-based director of real estate investment.

Investing in the Arab world is challenging, since investments must comply with Islamic beliefs (such as no alcohol or gambling), and interest-bearing mortgages are forbidden, Kenan says.

Still, there are advantages. “If we're bidding on something in Chicago, 20 investors will show up,” explains Kenan.“If we're bidding on something in the [United Arab Emirates], three, four or five will show up,” seldom an American.

No Trump deal?

Romanian television reported in April that Donald Trump plans investments in the country worth $1.3 billion in the next five years. However, despite a penchant for central Europeans — The Donald's first wife and current, third wife are central European — Trump has no plans to invest in Romania, says Jessica Beebe, a Trump Organization spokeswoman.

But Trump may be missing a bet. Land prices across Romania doubled in the 18 months prior to January, Jones Lang LaSalle reports. Office vacancies in Bucharest are below 2.5%. The current supply of 8.8 million sq. ft. is expected to increase by more than 60% in the next few years, and JLL expects the space to be absorbed on delivery. Retail stock is expected to quadruple by the end of 2009, from 1.6 million sq. ft. to 6.4 million sq. ft. — also likely to be snatched up, says JLL.

“There is a market here, if he's interested,” says Levis Vlad, a JLL analyst in Bucharest, with un-Trumpian understatement.

A mouse roars

Russia closed some border crossings in May and allegedly launched weeks of cyber attacks on most of Internet-savvy Estonia's Web sites after Estonia removed the statue of a Soviet soldier from downtown Tallinn. But real estate investors seem unconcerned.

Although the Baltic country of 1.3 million has been independent only 38 years out of the last 800, and was invaded multiple times in the last century, investors seem more focused on brighter statistics. The vacancy rate for Class-A and Class-B office space is now less than 1% in Tallinn's CBD. It's 4.5% for the city as a whole, according to Colliers International. Class-B rents rose 8% to 10% and Class-A rose 15%, and in popular buildings up to 30%.

Tallinn's historic central district is one of the best-preserved in northern Europe, featuring a medieval town hall and an ancient monastery. The city has been named to UNESCO's World Heritage list.

The country's retail outlook is good, and incomes are rising. In three years, some forecasts show that average income in Estonia will match Portugal's.

Meanwhile, retail property stock is limited. “In Stockholm and in Helsinki, the retail space per capita is double that in Tallinn,” says Eugen Aarna, an analyst for Colliers International in Tallinn, “so there is still room for development.”

And the big bear to the east? No one expects tanks to roll in. These days, Estonia is part of NATO and the European Union. “There are some businesses who have suffered from this dispute with Russia,” Aarna explains, “but these are really minor.”

Outside the Russian squabble, things are good now in Estonia, where GDP has grown an average of 8% a year for the past seven years.

Of course, there is the occasional bad news — this year's government surplus turned out to be only 0.5% of the budget, not 1.5% as forecast — but business doesn't seem too fazed by it.

In real estate, too, Estonia seems to be leading a charmed life, as shown in the healthy market for office space in the picturesque capital. In 2007, new supply equal to 20% of the market is expected to come on line. Of that, 60% is already pre-leased and 40% pre-sold.

Bennett Voyles is a veteran commercial real estate reporter and National Real Estate Investor's Paris correspondent. For questions or comments, e-mail benvoyles@yahoo.com.