Attracted by quality returns and a strong urge to diversify their investment portfolios, U.S. real estate professionals are finally beginning to chase real estate investment opportunities around the globe.

Real estate analysts say that, although U.S. pension funds and insurance companies still account for most of the country's investments in overseas real estate, private funds, real estate investment trusts (REITs) and individual entrepreneurs are becoming increasingly interested in foreign real estate markets.

"It's pretty obvious that there is a whole new paradigm of real estate industry," says Blake Eagle, chairman of the Center for Real Estate at the Massachusetts Institute of Technology.

He says that, although globalization of real estate is happening a little bit and some of this is "wishful" thinking, the industry is heading in that direction.

"It's an indicator of what is likely to come," Eagle says.

For example, Overseas Private Investment Corp., a Washing, ton, D.C.-based federal agency, earlier this year signed a letter of commitment for a loan guaranty to the $240 million Auburndale Central and Eastern European-Newly Independent States Property Fund. The fund, set up by Wellesley, Mass.-based Auburndale Properties Inc., will develop industrial parks across Central and Eastern Europe and the Newly Independent States.

This is the second major property and development initiative in Europe by Auburndale chairman Steven J. Green in the last 12 months. Earlier, he organized HNV Acquisition, L.P., in order to acquire Heron International, N.V., a London-based commercial real estate and development company.

In April, the Mexican government approved a plan to allow a newly formed American REIT to invest in Mexico. San Diego, Calif.-based Mexus Real Estate Investment Trust plans to invest approximately $250 million in Mexican real estate over the next three years. Industry analysts say that, although REITs have existed in the United States since the 1960s, none have been totally dedicated to investment in a single foreign country until now.

Van Stults, senior international vice president of Lasalle Partners, a Chicago-based real estate investment advisory firm for pension funds, says that non-pension funds are also becoming active overseas, especially the European markets.

They include funds from New York financier George Soros, Stults says.

Houston-based Hines Interests Limited Partnership, which is owned by real estate developer Gerald D. Hines, has also been very active in Germany and has reportedly acquired an ownership interest in a French real estate firm.

Stults underlines, however, that U.S. pension funds still account for most of the U.S. real estate investment capital overseas.

He says that some large pension funds, such as General Motors, General Electric, AT&T, State of Connecticut and Illinois Municipal, are seriously looking at international real estate markets.

U.S. funds are exploring investment opportunities in two ways -- investing directly or acquiring shares of publicly traded real estate companies.

To meet the growing demand, LaSalle opened a London office in 1990 and a Paris office last year. It has also established a joint venture with the United Kingdom's Grosvenor Estate Holdings to manage funds and enable U.S. pension funds to invest in the U.K. This tie-up has already resulted in U.S. pension funds committing $100 million and taking stakes in a London office building and a shopping mall.

He says there were two reasons to go to London.

"There are good returns available and the English market offered very good secured cash return -- plus appreciation potential," Stults says. "Secondly, we went there because of diversification. These markets clearly behave very differently than the U.S. market."

LaSalle also has been recently appointed by London, based Prudential Portfolio Managers as one of its advisers on its program to invest approximately $400 million in the United States.

Stults warns, however, that opportunities come with risks and real estate investment overseas is no exception.

"All of these funds that are investing in international markets are exposed to currency risks," Stults says. "There is always a risk of entering a new market for which you don't have experience."

Real estate analysts say foreign investors should note significant differences

among different countries in their inflationary trends. Other factors to take into account include political risk and tax considerations.

But whatever the risks, globalization of real estate is here to stay, they add.

Global market

"It's becoming more of a global capital market," says Christiane M. Feldhaus, president of the U.S. chapter of the Paris-based International Real Estate Federation, known by its French acronym, FIABCI.

Feldhaus, who also is vice president of the investment services division at the Washington, D.C.-based real estate services firm Barrueta & Associates, says the globalization of real estate, an often repeated phrase in the late 1980s, has now become a reality that no serious investor -- institution or entrepreneur -- can afford to ignore.

"Five years from now, real estate is going to be totally global," says Jeffry R. Dwyer, corporate secretary and general counsel of the Association of Foreign Investors in U.S. Real Estate (AFIRE), a Washington, D.C.-based organization of foreign investors.

Dwyer says globalization of real estate is already taking hold, and is likely to evolve on the basis of property-type and geographical diversification.

The scope of internalization of real estate is illustrated by the sale of New York's landmark Plaza Hotel in April. The announcement about the sale of the property was made in Singapore - not New York. The property was bought by Singapore-based CDL Hotels International Ltd. in a joint venture with a business group controlled by Prince al-Walid bin Talal Abdulaziz al-Saud of Saudi Arabia. The first mortgage on the property is held by a consortium of Japanese banks.

"As the commercial real estate market becomes more global, it clearly becomes more important for the U.S. funds to diversify into the international markets," says lan Gillespie, president of Hall Gillespie Inc., a Boston-based real estate services firm. "Unfortunately, while the Europeans and Japanese have been very focused in their business plans for U.S. real estate, the U.S. investors have been much more provincial."

U.S. investors have traditionally stayed at home because the U.S. market has been itself big enough, Gillespie says. Also, U.S. investors have found it difficult to enter stable overseas markets, especially in Europe, he adds.

"They see other market as either being too small or impenetrable as in Japan and the Netherlands," Gillespie says. "Also, overseas markets traditionally have been much more expensive than the United States."

Nevertheless, Gillespie says that as the real estate market becomes more liquid as the result of the securitization of commercial real estate, U.S. investors are likely to venture out because participation in foreign securities markets represents one of the most popular forms of U.S. investments overseas.

"Increasingly, diversification will be currency-related as well as real estate-driven," Gillespie says. "The ultimate goal is to have a real estate market as liquid and as international as stock exchanges are now."

AFIRE'S Dwyer, who also is a partner in the Washington, D.C.-based law firm of Akin, Gump, Strauss, Hauter & Feld, says real estate is already moving in that direction and at a faster rate than anybody would have thought a few years ago.

"If you look at the real estate marketplace today, they are slowing moving on to securitization," Dwyer says.

Mortgage-backed securitie's and REIT-like structures are attracting a lot of attention in Europe and will eventually spread to other parts of the globe, he says.

"It's getting more and more difficult to distinguish foreign capital from domestic," says Feldhaus of FIABCI. "Some of the larger overseas funds are forming joint ventures with U.S. developers and property owners."

Foreign investors in the United States are becoming more sophisticated, says Feldhaus.

"We're seeing a change in what these foreign investors are looking for in the United States", Feldhaus says. "We're

His greatest concern is with the pre-WW II building stock that is still standing. "The cost to upgrade from Class-C to Class-A is very expensive. It will be hard for the owners to do. The economics may not be such that these buildings can work for their owners," says Pelli. "It was reasonable to fix up the Chrysler and Woolworth buildings because they are architecturally significant. But not the 20-story Class-c buildings unless they are of architectural quality."

Meanwhile, Pelli continues to look to the future. Some of this most recent work involves new technologies and ways of thinking about the future office. "More companies are hoteling a lot, so they need very large areas that are completely flexible with lots of light, to rearrange them into hotels, meeting areas, pickup stations, and set to continuously change," says Pelli. His new 30-story Nippon Telephone & Telegraph headquarters in Tokyo, opening in july, incorporates some of the most sophisticated building systems imaginable for energy efficiency.

Ground was broken in March for Pelli's design of the new $90 million headquarters for Owens-Corning in Toledo, "Where we are designing efficiency for a potential client's needs, not just in theoretical terms. The more options the better. This is an enormous change. Things are more decentralized. They work more like architects than bureaucrats. It's a more egalitarian workplace. The CEO has his office in the middle of the floor. You cannot ask people to give up their perks unless you give them up yourself."

Over the years, Pelli has worked with many a CEO to shape corporate identities. It's something he learned along the way working with noted architect Eero Saarinen from 1954 to 1964. There he was project designer on the TWA Terminal Building at JFK International Airport in New York. In 1977 he was appointed dean of the Yale University School of Architecture, and shortly thereafter opened Cesar Pelli & Associates with Diana Balmori (his wife) and Fred Clarke. He then took on his first major project, the Museum of Modern Art expansion and residential tower in New York City. In 1984, he resigned from Yale to attend to his practice fulltime.

Pelli has kept the creative fires burning. Right now he has massive projects under way from Kuala Lumpur to Miami. Normally his office has some 20 projects in various stages of design and completion. He only acquires about five new projects a year, with each one taking an average of four years to complete. Already this year, two projects have opened and eight others will open by yearend. Now in the hopper are the huge Kuala Lumpur City Centre office tower; performing arts centers in Miami, Fla., and Grinnell, Iowa; a federal courthouse in Brooklyn, N.Y.; and an addition to the Greenwich, Conn., library.

His most exciting project involves winning the recent competition for Miami's performing arts center. County commissioners granted final approval to his preliminary design last month.

Competitions are part and parcel of how architects win new business, and Pelli's firm is no different. Some he wins, some he loses. Along the way, he stays motivated to design more. "I have fun with all of my projects," says Pelli. "Even the hairpulling aspects in total I enjoy. Architecture is a real thing. Each one (building) has its own personality."

By this point, you might think Pelli has done it all. Not quite. He would most like to design a church. "They have such incredible history. The role of religion is so different in our society today."