I have been so engrossed in overseeing this month's cover story package on international development that the song “It's a Small World” keeps replaying in my head. Yes, the nuts and bolts of commercial real estate are essentially local, but some of the emerging opportunities for U.S. developers are clearly global, from Madrid to Moscow.

Our special report examines the driving factors behind some developers' willingness to step outside their comfort zone and venture abroad. The objective was to develop a better understanding of the risks and rewards facing developers of office, retail and hotel product.

What's my takeaway after poring over 7,000-plus words? I was surprised to learn that publicly traded shopping center REITs are light years ahead of their counterparts in building an international presence. In fact, none of the office REITs has invested outside the U.S. to this point, but that's likely to change, according to research firm WR Hambrecht + Co.'s 2004 REIT forecast. “Low going-in yields and ownership issues complicate expansion, but if one buys into globalization, then owners of Class-A office properties in the CBD would be the next logical companies to make investments overseas,” wrote analyst Christopher Hartung.

However, global expansion by U.S. developers is not on the fast track. As Hartung writes in his analyst report, it's a “slow march to internationalization.” Why? I see development as a complicated business where the depth of one's local market knowledge can mean the difference between success and failure. Even here in the States, developers often encounter myriad obstacles such as delays in the zoning and permitting processes, environmental concerns, financing issues and, in many cases, community opposition.

The number of headaches only multiplies when developers do business overseas. They frequently encounter language barriers, cultural differences or quirky ownership laws. The only solution is to partner with a local real estate firm to navigate the obstacle course. And that's what successful developers such as Chelsea Property Group and Hines have done overseas. Partnering with local experts can't guarantee success, but without those affiliations failure seems inevitable.

The other reason developers aren't flocking overseas is that there are simply too many domestic opportunities, ranging from urban infill to commercial real estate expansion in the secondary and tertiary markets. The U.S. economy is the strongest and most stable in the world, so the risks are comparatively low.

That's why foreign investors continue to pump money into U.S. real estate. For example, Jamestown Management, which syndicates U.S. property investments to German investors, recently purchased 4111 Northside Parkway, an 864,700 sq. ft. office complex in Atlanta for $131 million. The deal was the largest in Atlanta in 2003.

“A weaker U.S. dollar combines with relative economic stability and market transparency to make investing here particularly enticing,” according to Emerging Trends 2004, a forecast compiled by the Urban Land Institute and PricewaterhouseCoopers. In fact, as of December 2002, Germany accounted for 10.9% of all foreign investment in U.S. real estate, surpassed only by Japan (23.6%) and Canada (13.5%). For these folks, Boston is as appetizing as Beijing.