Foreign Real Estate Markets

Mann Report

Foreign Real Estate Markets

Countries worldwide have an enormous thirst for real estate and specifically infrastructure advancements from technologies and capital available in the West. The need for new roads, ports, railways and other key infrastructure has far outpaced spending in emerging markets. “McKinsey & Co. estimates global infrastructure investment needs through 2030 will total $57 trillion.” (Wall Street Journal – Monday, March 23, 2015). India, South African and Brazil lead the pack with the European Union not far behind. Only China and Japan have outpaced (in fact – far outpaced) their domestic need for infrastructure with national spending. Without daring to venture into the caustic world of the Foreign Corrupt Practices Act, there are numerous obstacles awaiting the International Real Estate Developer. But the lure of easy money is…… well – you know the rest. Yet demand necessitates supply and the duty of the In-house counsel is to circumvent the roadblocks and mitigate the inequities. Here are a few issues.

Capital. All too often, private sector corporate leaders engage in a cost analysis utilizing the Industry capital standards of modern development. To avert certain disaster, the attorney representing the private sector developer must engage the engineers and architects and as importantly the sub-contractors who bid on the projects in a more comprehensive analysis. The analysis must not be performed inside the confines of a Wall Street Investment Bank finance group. Many costs are intangible; and few are ever measured in the event of a governmental failure as governmental failures are often covered up or purposely withheld from management. A study must be done of past project cost assumptions as compared to actual costs for completion. And the cost milestones must be shortened to better determine a turn in the wrong direction. In this manner, the attorney must assume a breach and an inability to redress. A path for the private sector company and the corresponding Government agency to stop the activity without controversy must be planned well in advance. This simple adjustment in the project documentation can deter, avoid or immediately stop issues of poor functionality as well as unfortunate but possible concurrent issues of bribery and corruption. An attorney’s role is not only to perform legal analysis but to assist business managers to understand the consequences of legal analysis and act accordingly.

Technology Constraints. The In-house attorney must ascertain if your company’s technological advancements are compatible even with modifications regardless of cost parameters. The mechanics utilized by targeted Governments of Foreign Markets, even utilizing focused modifications may be unavoidably incompatible. Often, projects begin with assumptions of compatibility with intentions of modification as they are required in the work situation during test scripts, when what is needed is an actual “Go Live” test case in a “real world” environment. Despite the best efforts of many, Governmental agency functionality remains fundamentally different from the private sector. However, it is the private sector which must unclog the pipeline. And In-house counsel, the drafters of agreements and documents of cooperation must identify and present the challenges as well as provide the methodology or policies and procedures for mitigation of functionality challenges.

Adaptations and Engagement: In the mid- 20th Century, private sector corporate engineers were rebuked for “reinventing the wheel” through their habit of custom-building each IT and engineering solution from scratch. In the 2000’s, the pendulum has swung too far the other way. private sector corporate IT and engineers in developing and transitional countries too readily try to install readymade digital solutions that have been designed for private sector firms and force feed their designs. To combat such problems, attorneys and their company project managers must be competent enough and confident enough to demand designs that will perform within the parameters of the Governmental agencies specifications and not expect these Governmental agencies to bend quickly and efficiently no matter how much they are incentivized.

Anthony Palazzo is a General Counsel for a Private Holding Company in Durham, North Carolina, a contributor to the New Jersey Law Journal and an Adjunct Instructor with New York University’s Schack Institute of Real Estate.