Real estate development, especially abroad, is a challenging journey. Moshe is a real estate developer who, together with his partner, has built quite a few buildings in Israel. They are small developers who build one or two buildings at a time. A few years ago the two bought a small plot in a former Eastern European country, with dreams of expanding abroad. They were wary of leverage and decided to advance the project according to their financial ability. They hired an architect, and began preparing plans to advance the construction of a 15-apartment building. At the same time, in order to raise funds for the project, they sold “Friends and Family” rights to apartments in the building to be built.
“I'm a bit despondent,” Moshe told me at our last meeting. “I've already submitted two plans to the municipality and both were rejected. I'm not meeting the timetables and our commitments to the buyers.”
“I understand,” I replied, “in terms of timetables you have not yet reached the stage where you need to worry.”
“I don't know how to deal with them. Neither the municipality nor the buyers, some of whom are already calling every week to see how we are progressing and when we will finally have a building permit.”
“And what do you tell them?” I asked.
“I tell them about the planning difficulties, I share, but not all the information. I always leave them an opening of hope, even though I'm about to throw in the towel,” he replied.
I began to explain: “As someone who accompanies many real estate investments in Israel and overseas, there is almost no project that does not run into a difficulty or problem along the way. We have seen it all - delays in timetables, war, cost overruns, bankruptcy of the executing contractor, extreme weather and work stoppages by the authorities.
Real estate is people, it's not just a slogan. Beyond the team, which you need to be the most professional you can hire in the country where you operate, so that they know how to locate, identify and solve problems on the ground, what matters is how you deal with the investors and customers. The most important thing for me is full transparency, integrity and high professionalism during the capital raising and in the ongoing management. This should not change when difficulties and challenges arise. On the contrary, surfacing difficulties as early as possible and with high transparency will be valued far more than concealment or waiting until the last moment, especially when the solution is less good and more surprising and painful. When a problem arises it is important to update and give full disclosure to investors and buyers as early as possible. Present to them transparently the solutions and alternatives, increase their certainty and let them know that they have someone to rely on, and that you are proactive and making efforts to fix the situation. I also always recommend being conservative with timetables - when there are challenges in the project, it is important to build safety margins into the timetables for solving problems. If, for example, there was a delay in obtaining the building permit that affects the start of construction and hence the completion of the project, that has many implications. We may need to extend the delivery date to the buyers or the repayment of the loan to the investors (it is not worth waiting until the 90th minute), and it may be worth offering the executing contractor a bonus for shortening the timetables. Conservatism in timetables will allow you as a developer to surprise when you progress faster and will give you “injury time” to deal with problems.”
Moshe and his partner invited the buyers to a meeting in the conference room at our office. We prepared a presentation describing the actions taken so far, the alternatives on the table and the updated timetables. The architect joined by Zoom and answered the buyers' questions, and I added on developments in the area in terms of construction, prices and so on.
At the end of the meeting Moshe proposed to the buyers to extend by agreement the timetables for delivery of possession. Everyone agreed.
The story of Moshe and his partner highlights the importance of transparency, open communication and expectation management in real estate projects, especially abroad. Even when facing unexpected challenges, a straightforward and honest approach can build trust and preserve positive relationships with investors and buyers.
“Success in real estate is about building strong relationships and creating value for everyone involved” - Robert Kiyosaki.
How do you deal with your buyers and investors? Share.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית