HOW TO GET AHEAD IN REAL ESTATE IN 2018
REAL ESTATE INVESTMENT ALERT NO. 8
In this Alert:
- How to get ahead in real estate in 2018: Dealing with the elephant in the room; and
- Farewell 2017: We are open during the Xmas/New Year period.
HOW TO GET AHEAD IN REAL ESTATE IN 2018 – DEALING WITH THE ELEPHANT IN THE ROOM
In the ever-competitive world of non-residential property investment and advisory, participants are constantly considering what can they do to demonstrate that they are the better alternative to deal with in relation to a particular project.
What is important in winning a transaction – price is not enough
Although offering a higher price is generally seen as sufficient to become the preferred party to participate in a transaction, additional factors are becoming increasingly important to the other parties involved in deciding if this is the case. This is due to the increasing complexity associated with real estate transactions (particularly ones involving foreign investors) and the importance of being able to act quickly to take advantage of opportunities.
Non - price factors: The elephant in the room
As a result, price of itself will not necessarily be enough to guarantee success. Other factors that may be equally or more important to the other parties include:
- the ease of dealing with a party;
- the availability of funding (including debt finance) for the party;
- whether FIRB approval is required for the party to complete the transaction; and
- the level of familiarity of the party with the type of transaction to be entered into.
These factors can each have a major impact on transaction costs and meeting deadlines.
In the case of foreign investors or local investors involved in more complex transactions than those to which they are used to, these non-price factors are particularly relevant and can work against them in a tender, expression of interest or private treaty sale. In relation to ongoing arrangements such as joint venture, co-ownership or development transactions, these factors take on even greater significance due to the extended period of time during which parties need to work together.
There are a large number of property advisers in Australia and it can be difficult to identify those which should be engaged in a particular project and when.The scope of their services, as well as their expertise, experience and work ethic, should be regarded by clients as being the key factors to take into account in determining which advisers should be engaged on a project. Cost is also clearly a relevant factor.
Recent examples highlight the importance of non-price factors
Non-price factors tend to favour local investors with experience in the type of project to be undertaken. Foreign investors or local investors involved in unfamiliar transactions are likely to be disadvantaged.
This has recently been highlighted by reports of disputes and adverse outcomes in relation to arrangements entered into between local counter-parties and foreign investors – See, for example, Articles in the Australian Financial Review Commercial Real Estate section, 23 and 29 November 2017).
Dealing with the elephant in the room
To overcome such disadvantage, investors should ensure that they understand the main issues which need to be taken into account in respect of the transaction they are seeking to enter into prior to entering into it. Foreign investors are becoming increasingly aware of the importance of such knowledge and this is likely to continue to improve as a younger generation of executives (who have had the benefit of greater education opportunities) take on senior roles with such investors.
The role of advisers
The role of advisers should be seen as increasingly important. To improve the likelihood of an adviser being engaged by an investor, the adviser will need to consider both the scope of the services it can offer, when such services are provided and the expertise and experience of its staff.
Investors should seek advice as soon as they start considering potential transactions. Such advice should cover high level legal, documentation and structuring advice as well as tax, accounting and, once the project has been identified, technical advice. Discussions with financiers (both bank and non-bank) should be initiated as soon as reasonably possible and the impact of the Foreign Acquisitions and Takeovers Act 1975, as well as the relevant state-based stamp duty and land taxes on the particular transaction, should also then be considered.
Advisers who will be able to provide such a broad range of services (cost effectively) will stand out from the crowd.
Foreign investors or unfamiliar local investors, which receive the above advice will stand out relative to other foreign or unfamiliar local investors. They will be seen by local counter-parties as savvy investors who are good to deal with. This will improve the likelihood of the investors winning projects and being invited to participate in future projects.
WHAT MAKES US DIFFERENT?
Due to the background and experience of our Founder, Peter Faludi, the main focus of our consulting services relates to legal, documentation and structuring issues associated with property investment, development and finance in Australia. The ability to mentor clients on these issues at the very early stages of transactions has significant benefits to the cost and time taken in getting to settlement. This type of advice is generally not provided by other advisers at such early stage of the transaction.
WHAT DIFFERENCE DOES IT MAKE TO YOU?
Property Investors and Developers
By utilising our services, investors gain more control of matters and are in a better position to protect their interests at the vital early stage of discussions with other parties. They will avoid feeling like an outsider as they will know the issues that the other parties know putting the investor in a much better position when negotiating the terms of the transaction.
Advisers and Consultants to Property Investors and Developers
In the competitive markets in which we operate we all need to differentiate ourselves to make us stand out from the crowd. By engaging us to be part of its team, and adviser will be differentiating its services relative to its competitors and will be adding significant value to its clients for the above reasons.
We are not competing with other advisers but rather work with them to provide a more complete and valuable service to their clients.
PLEASE NOTE THAT WE ARE OPEN FOR THE XMAS/NEW YEAR PERIOD AND CAN ASSIST YOU ON MATTERS REQUIRING ATTENTION OVER THAT PERIOD.
Please feel free to share this email with your business network and to contact us to discuss how we can work with you to improve your investment outcomes.
We wish you all a prosperous and healthy 2018.
I welcome your feedback at firstname.lastname@example.org
Peter Faludi Consulting
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