“Tell me, have you gone mad? Why do I need him?”
Yehuda, an Israeli building contractor who had bought a building in Athens and intended to renovate it in order to sell the apartments at a profit, sat opposite me, red with anger, after I suggested that he consider a partnership with the local contractor we had met on the last trip to Athens, whom Yehuda was considering engaging to carry out the project for him.
“You're here. He's there. He's local. He knows how to operate there. Give him a candy so that he has an interest in carrying out the project properly and finishing it on time,” I replied.
“I pay him well. I don't argue about the price. Why do I need him as a partner?” he insisted.
“You're reducing your risks,” I explained. “True, you have to share the profit, but you also have to bring in less money. A local partner like that may also be able to help raise financing for the project. Imagine he brings money from a local bank and reduces even further the capital you need to bring.
“I've already had developers who worked with local partners, and it always turned out to be successful, if it is managed properly. In one of the projects, the local partner, who owned a construction company, took care of the whole matter of building permits and dealings with the authorities, and afterwards of all the dealings with the building contractor, while our client, the Israeli, managed the whole marketing and sales side. It was a win-win.”
Yehuda calmed down a little and I saw that he was beginning to digest the idea. We parted agreeing that the idea of creating a partnership with the local contractor was worth deeper thought, and perhaps even initial soundings and an examination of the options from the local contractor's standpoint.
A study by the international consulting firm Deloitte found that partnerships are a key factor in the success of international real estate projects. “Partnerships allow companies access to resources and expertise that are not available to them on their own,” the report states. “Partnerships can also help companies overcome regulatory and cultural obstacles.”
About a week later we held a Zoom meeting with the local contractor to examine the partnership option. He too, at first, was reserved about the idea, but after I explained it to him in depth and we began to examine the options for a partnership, we managed to move forward, and even agreed that Yehuda and I would come to Athens again to advance the matter.
Yehuda is an experienced developer who has already carried out several residential construction projects in Israel and in recent years even completed 2 Tama 38 projects (the Israeli national plan for strengthening existing buildings against earthquakes in return for building rights), but this is the first project he is initiating abroad. The local contractor, according to the checks we carried out, has a good reputation with proven experience and organic teams at his disposal, and is experienced in work on this scale, but without a cash reserve.
The negotiation was not simple or easy, and at the first stage it was necessary to generate each side's recognition of the strengths and advantages the other side brings to the partnership, so that we could divide roles between them, and then to build trust between them, and only at the third stage did we turn to building the protection mechanisms for each side. Agreeing on the numbers was not easy either. Each of the sides came with expectations of his own from past experience, and above all with his own forecasts regarding the costs on the one hand and the expected income on the other.
The local contractor laid all his cards on the table for Yehuda and exposed him to the real costs of purchasing raw materials and labor costs. They had to agree on pricing and marketing costs, and this was not simple since the Greek contractor was not aware of the marketing processes and marketing costs in Israel, and here Yehuda had to show him his cards. This process of building trust, presenting invoices and transparency by each of the sides is not a process everyone is willing to undergo, but once you pass the initial barrier and understand the meaning and power of the process, the road to a successful and profitable partnership is open.
A Harvard University study found that partnerships with local parties can increase the chance of success in international real estate projects by up to 50%.
Yehuda's greatest fear was losing control of the project, a fear of losing control that is natural and justified especially for a developer for whom this is his first project overseas, with an unfamiliar partner (and so there are no misunderstandings, before we began negotiations we carried out an in-depth check of the potential partner, including a background check, prior experience, financial strength and reputation. We also checked references from the partner's previous clients, and I even held a conversation with them personally together with Yehuda), and later on how disputes that arise between them during construction would be resolved, and therefore a large part of the negotiation revolved around finding solutions to ease these concerns.
As they held more meetings and got to know each other better, the barriers of fear of Yehuda, and also of the potential contractor/partner, gradually diminished, especially when I insisted that they spend time together over a meal at a restaurant and/or at a bar outside the formal meetings.
After several weeks of negotiation, while in parallel Yehuda continued accompanying the potential contractor/partner in the planning proceedings, we reached a detailed partnership agreement that included the definition of the roles and authorities of each of the partners, supervision and control mechanisms that would allow each of them to track the project's progress and make sure the other partner was acting in accordance with the agreement, and an arbitration mechanism for resolving disputes.
Not only was the project completed successfully, but the two together located a new building and this week contacted us to set out on another joint project.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית