Developers abroad

As the Greater Boston commercial property market slogs along, some local developers are doing what New England investors have done for centuries: seeking fortunes abroad. They're focusing on countries with strong growth prospects, welcoming governments, and the promise of enormous returns.

Paul Korian, managing member of AK Development LLC, and his team of US and Latin American investors acquired, gutted, and renovated a hotel in downtown Yerevan, the capital of Armenia, and hope to reap a return of about 20 percent on the $42 million they spent on the project.

''In Boston, under normal circumstances, we couldn't even buy a prized property in a prime location for under market value," Korian said.

Last June with construction completed, Marriott planted its flag on the 229-suite hotel, which was purchased from the government of this former Soviet republic in 1998.

Despite the uncertainties of an emerging economy, the Armenia Marriott Hotel offers classic property advantages.

''It's a real estate play; a hard asset," said Korian.

Some of his partners have invested elsewhere in the Caucasus region bordered by Turkey, Iran, Azerbaijan, and Georgia, where in 2003 they also opened the Tbilisi Marriott Hotel.

In Yerevan, ''There's a lot of risk, but in 10 years we expect a lot of reward," he said of the property, whose value has risen 30 percent since June.

In the last half of 2004, the occupancy rate averaged 50 percent for double rooms priced from $110 to $180 a night. In the next 10 years, with Marriott's global marketing systems, occupancy should rise to about 70 percent, Korian said.

Meanwhile, there are two other income streams. Above the hotel -- which has four restaurants, 14 meeting rooms, and a banquet hall -- 23,000 square feet of offices are leasing for about $21 per square foot, with 22 percent available. Behind it is another money maker, a four-acre lot on which they plan to construct a 35-unit time-share to rent for about $9,000 a week.

''We have the advantage of being early investors in an emerging market," Korian said.

But his risk/reward ratio pales in comparison to that faced by John B. Hynes III, chief executive of Gale International and its joint venture partner, Seoul-based POSCO E&C. They're developing a South Korean metropolis called New Songdo City. Within 20 years, they expect to invest $25 billion to build 100 million square feet on 1,000 acres near Incheon International Airport.

In May, after more than three years of preparation, construction is scheduled to start on the $925 million first phase of the project: 2,300 residential units in eight buildings, the first 300,000 square feet of a 1.2 million square foot convention center, and a 1,000-room hotel.

Never a traveler, Hynes didn't seek out such a far-flung project.

''But once I looked at the dynamics of the deal, I was hooked," he said. ''Partly, it's ego; the size of it. Then, it's about managing mixed use."

The project will include housing, retail, offices, hotels, a hospital, aquarium, museum, garages, utilities, roads, and parks.

''Where else could I possibly experience the thrill of designing and building a new city from scratch?" he asked.

The South Korean government has invested $10 billion to build the airport and bridges and improve the land and public transit. It also will allow Gale to intensively develop the property, building about 12 million square feet per 100 acres compared to about 2 million square feet they could build on 100 acres in suburban Boston.

With its fast-growing economy, South Korea also holds the promise of an ample upside.

At $1 million an acre, said Hynes, ''We feel our land price is 25 percent of what fair market value will be when the project matures." He added: ''If we execute properly, we may realize the profit margin that hooked us in the first place."