The phone kept ringing, even after I had sent a message saying I was in a meeting and would get back to the caller later, until I had to interrupt the meeting to see who was calling and what was so urgent and important that it could not wait another half hour until I finished. On the other end was Alon, a real estate developer who had begun marketing a project in a Mediterranean basin country, advised by our office.
“I'm telling you here and now that I'm fed up with Yossi's games, I'm firing him and looking for another marketing company,” he opened.
“Alon,” I replied, “let me finish the meeting and I'll ask them to set up a meeting together with Yossi so we can understand what the problems are and how to solve them.”
“No meeting and no call. This is the fourth deal he's blown for me. I bring the leads, I bring the customers, and he can't close and bring even one to signing,” he said.
“Take a deep breath, wait until I finish the meeting I'm in now and I'll get back to you,” I said, “nothing will happen if this waits another half hour or an hour,” I finished and hung up.
Yossi, the owner of the marketing company Alon works with, had sent me a detailed email that had been waiting in my inbox since the morning, and I hadn't had time to read it. According to him, deals were falling through, and he couldn't close a sale because of the deal structure Alon was offering. The potential buyers were worried, didn't feel secure enough, and backed off from wanting to buy. He repeated his claim, which I had already heard several times, that the security Alon offers is unattractive and makes marketing and sales difficult.
Alon proposes that buyers pay 50% of the consideration at signing and deposit the balance in a trust account, with the consideration released from that account in line with construction progress. Yossi, the manager of the marketing company, was not happy with the proposal and had warned from the start that it might be an obstacle to sales.
In our experience, one of the main concerns of Israeli buyers is the safety of their money and the assurance of receiving the apartment. Israeli developers operating in the international market need to be aware of these concerns and take steps to reassure potential buyers. The trust and confidence of potential buyers can be increased by taking steps to secure their money and rights. Transparency, professional legal guidance, the use of guarantees and security, building reputation and credibility, and adapting to the needs of the Israeli investor are only some of the ways in which developers can present themselves as reliable partners worthy of investment.
Alon could not register a priority notice in the local land registry in favor of the buyers, because in the country where he operates this is not feasible, and bank guarantees are likewise not accepted and/or recognized by the banking system in that particular country. Alon is not keen, like many Israeli developers, to give buyers personal guarantees. Therefore, the mechanisms for securing funds that Alon offered buyers are mechanisms that are feasible in this case, and the question is whether the dosage of a 50% down payment at the time of purchase and the way the balance is released from the trust account are sufficient, and how they can be improved so as to ease the work of the marketing and sales people and increase the potential buyers' sense of security.
A 2020 study by PwC on real estate investment risks analyzes the various risks involved in real estate investments, and notes that investors seek security that will reduce their exposure to these risks.
At a three-way meeting I held that same day with Alon and Yossi, I suggested that Alon change the structure to collect only 30% of the consideration at signing and add a supervisor on behalf of the buyers, who would be the one to approve to the trustee the progress of construction and the release of funds from the trust account. After some back and forth, we also managed to change the stages of release of funds from the trust account by adding 2 milestones for construction progress and release of funds, but not before Alon was convinced that he could meet the new conditions and complete the construction as he would commit to the buyers, and on time.
When you decide to initiate a real estate project abroad and market it to Israeli buyers, you must take into account the mentality and practice in Israel, and it is important and necessary to adapt the project to the regulation and the needs of the local market in the target country, but at the same time you must pay attention to marketing and the ability to sell the apartments to the Israeli and local public, since this affects the business plan and your offer.
Share. What security do you give your buyers?
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית