This is the story every developer should hear.
“Eyal, have you done a project in Cyprus before? Are you aware that the banks there are very strict?” I asked Eyal. He was a real estate developer who came to me through recommendations, and he told me about the project he planned to build in Cyprus and sell to Israeli investors. He was full of confidence, the type of person who loves the edge, the unknown.
“Yes, I'm just now getting a permit for a project on land not far from the land we talked about,” he replied.
“So why aren't you continuing to work with the same lawyer you worked with on the previous project?” I asked in surprise.
“My local lawyer will continue to accompany me on this project too. In the other project all the financing comes from a fund, and here I want to sell to investors and I need the accompaniment of an Israeli lawyer for that,” he replied.
The discussion continued and after we agreed on the accompaniment, we built a legal outline that could meet the project's needs and Eyal's financing needs while giving the Israeli investors security and peace of mind. We scheduled a Zoom meeting with Eyal's Cypriot lawyer, in which we explained to him the outline I proposed. Milos, the Cypriot lawyer, suggested a few amendments and he too raised the issue of transferring funds and the Cypriot banks.
“No problem at all. Alexandros, my accountant, spoke with the bank and explained the outline to them. The bank will accept the money,” Eyal replied confidently.
“I suggest,” I said, “that you ask the bank in advance for the list of documents they will request when we transfer the money so that we can be prepared.”
Eyal set out, and after a few more pleas from me we received a list of documents that would be required from every buyer/investor. I tried to push harder and asked Eyal to arrange a conference call with the manager of the branch where he manages the account so that we could make sure there would be no glitches, but Eyal refused. “I have their word, and that's enough,” he said. “They know me.”
The storm begins with a light breeze
And of course, the glitches came. They always do.
When the time came to transfer the money according to the outline, Eyal called me in a tense voice. “The bank is asking for more documents,” he said in a broken voice. “They want notarized certificates, more declarations, and copies of pay slips. They also demand to know, for every investor, who his spouse is and what the source of his funds is, and to check that he has no political affiliation. That wasn't on the original list.”
Suddenly, Eyal of “my word is enough” ran into reality. Suddenly “they know me” became a distant dream. He realized that “spoke with the bank” is not “got approval in writing.”
The pressure grew. The investors began calling and asking what was happening. The Israeli banks had released the money, and they too began to press. Eyal had to turn to all the investors, one by one, and ask them for additional documents and notarized certificates. People began to raise eyebrows. “What's going on there? Is there a problem with the project?” they asked.
The story rolled like a snowball. The delays caused one of the investors to have second thoughts, and he demanded his money back. This created a wave of fear and uncertainty. The project, which only a month earlier had been the hot next thing in Cyprus, began to look like a landmine.
Eyal learned the hardest lesson in real estate: when it comes to other people's money, nothing is certain until it is closed in writing, signed and sealed, including personal contact with the decision-makers at the bank.
He could not force the branch manager to talk to him, but he learned that if he did not get the call, he would have to choose another bank. After losing one investor, he realized his time was limited. Eyal paid the price, and the price was steep. Not only in money, but also in reputation.
Insights for the global developer
- A bank is not easy. It never will be: When you operate outside your own country, banks are not just a financial entity. They are gatekeepers of local policy, regulation and bureaucracy. They want to make sure your money does not come from a dubious source, and that they are not about to get into trouble. Don't think they will “know you” - they won't. They know only the rules and procedures. They have a long checklist, and every project is a new check.
- Exaggerating caution is the right approach: When you prepare a list of documents, always think about the next thing they might ask for. Think about the bottom line: what is the next step? The way to solve problems is by defining the possible problems in advance. Always assume there will be things you did not think of, and prepare yourself in advance.
- Everything begins and ends with your reputation: An international real estate developer is a brand. Trust is your currency. Once trust cracks, it is very hard to repair. Transparency with investors is the most important thing. Instead of ignoring problems, it is better to explain them in advance, even if they are still potential. Stories like Eyal's travel by word of mouth faster than any success.
So what should a developer do?
Get the branch manager on the phone. Get all the instructions in writing. Be careful to sign everything. Attach to the investors a list of documents with a notarized translation into English and make sure they know in advance what is required of them.
And when that happens, they will give you the money.
Stories are based on real situations, with identifying details changed. Not legal advice.
Translated from the Hebrew original. עברית