Moshe and his brother bought an agricultural plot in a European country more than a decade ago. Our office accompanied them through the purchase process and afterwards through the planning process, up to obtaining the building permit. After receiving the permit they began looking for financing to build the buildings they had planned. We suggested that they launch a presale to family and friends in order to bring in the initial financing for construction and to be able to obtain financing from the bank, but the two insisted on raising the money from the bank or from investors.
After a few months they managed to raise a sum of money and gave us the green light to hold a construction tender. The local team recruited a project manager, published a tender among several contractors whose quality of work we know, and together with Moshe and his brother we conducted a bidding round, after which we chose the contractor. An agreement was signed and the work got under way.
The sum raised was enough to excavate the parking basements. Moshe and his brother believed that once the work started they would manage to raise financing to continue the work and complete the construction, but unfortunately Moshe suffered a medical event that kept him from working and from handling the project for more than a year. Moshe's brother is not a real estate man, and preferred to postpone any decision and wait for Moshe's recovery and return to activity. My attempts to persuade him to launch a sale in Israel of some of the apartments in the buildings in order to inject money into the project were rejected by him.
The work stopped. The contractor moved on to other projects. Moshe was incapacitated and not functioning, and time went by. Then the coronavirus pandemic arrived too, with all its difficulties and restrictions. Meanwhile the building permit expired, and we had to renew it.
When the brothers took an interest in the project again and tried to restart it, every bank they approached turned them down or set equity requirements and/or interest rates that the brothers were unwilling or unable to meet. The brothers' frustration only grew. Raising money from investors in Israel also failed.
Moshe and his brother decided to launch a presale and raise funds this way in order to restart the project, but sadly, even after 6 months of trying, they did not manage to sell more than 2 apartments, to family members. I felt their frustration and called the marketer they had engaged, to try to understand what was happening and why some projects sell while theirs is stuck and does not sell.
He is an experienced marketer whom I know from the marketing of other clients' projects. He knows the country in question. I was surprised by his answer: “This project is burned,” he said. “Everyone who goes there and sees the basement pit comes back and doesn't get in touch. Probably they talk to the neighbors or I don't know who, and understand that this pit has been sitting there like that for several years. Everyone who checks on a project with the authorities or on the internet just loses interest. It's not a known project.”
Yes, this can happen even to experienced developers, but all the more so to young, new and inexperienced ones. A project that stutters, whose work stops or proceeds slowly, or in which units are not sold at a sufficient pace, gets burned in the market. A negative image of the project forms, which causes potential buyers to keep away from it and look for an alternative project. This will usually happen when some negative event becomes associated with the project.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית