America may be the famed land of opportunity, but don't discount Europe just yet. As real estate prices continue to soar in the States, waves of American investors are exploring opportunities in the European real estate market.

"The same way Europeans are buying everything that isn't nailed down in Washington, D.C., Americans are trying to buy everything that isn't nailed down in London, Paris, Rome, Milan, and Madrid," says Steve Blank, senior fellow for finance at the Urban Land Institute, a nonprofit research and education firm. Overall buying activity in Europe is becoming dramatically more competitive, according to "Emerging Trends in Real Estate Europe," a new report from ULI and PricewaterhouseCoopers. Deals that might have attracted two or three bids in the past are now attracting 30, 50, or more, the report says. "There is a huge amount of liquidity, and people are looking for some diversifications as to where to invest," says Blank.

Paris tops the list of hot spots for overseas real estate.
Robert Holmes/CORBIS Paris tops the list of hot spots for overseas real estate.

One of the hottest foreign markets: Germany. Following the recent privatization of the country's housing stock, several large equity investors have gobbled up large apartment portfolios and hope to take advantage of growth opportunities in the recovering German market. "The German residential sector has seen a number of huge portfolio acquisitions in the past 18 months made primarily by U.S. private equity investors in highly leveraged deals," says Kate Gimblett, a London-based independent business economist and consultant to the Urban Land Institute. "They intend to exit from these via sales to tenants, sales to other property investors, and flotations on the German stock market."

Now one big U.S. REIT has entered the German housing scene. Late last year, Archstone-Smith acquired an 11-building, 822-unit portfolio concentrated in Mannheim, Germany, for $44.5 million. In a fourth quarter conference call, the company stressed the importance of using the purchase to gain market knowledge. "We have not decided to make a big investment push in Europe, but we will learn a lot more about the market if we operate a few assets than if we are merely on the outside looking in," said R. Scot Sellers, Archstone's chairman and CEO. (The company declined an interview.)

The big question: Will other REITs follow Archstone's lead? "I don't know–it's a very tough question," admits Blank. Wayne Vandenburg, CEO of international real estate firm TVO Realty Partners, suggests that overseas investment might be more suitable for private companies. "It's a better platform for a private company that doesn't have public shareholders to answer to," he says. "But if you are in a position where you can make some long-term bets, then I think it is a good strategy."

In addition to Germany, Scandinavia, Switzerland, and Austria top the list of other European markets ripe for investment, says Vandenburg, whose firm is based in Chicago. But he cautions investors that each market operates extremely differently. "People think that everything done in Europe is the same. It's not," he says. "Talk to someone who knows the markets. And just because somebody speaks English, don't think they understand what you are talking about."

–Rachel Z. Azoff