by Paul R. Bergeron, III
The global apartment market represents a tremendous and growing opportunity if companies doing business abroad adjust to cultural and business challenges.
There is a 1 million-unit apartment development project underway in a major market. Interested? This enormous plan, set for Cairo, Egypt, was among the discussion topics during a meeting at the NAA Capitol Conference in March attended by key domestic and foreign apartment management companies. Also attending were experienced service providers that had operations abroad, as well as decision-makers from companies that are curious about going global with multifamily housing.
The 90-minute meeting revealed first-hand information about entering and succeeding in a global housing market that analysts expect to boom in the coming years. Companies attending the NAA gathering had presences in Germany, Great Britain, China and elsewhere.
Andreas Jelonnek, CEO Region South & Emerging Markets, ista International GmbH, based in Germany, spoke about the prospects for doing business in Cairo. He said this immense development project was one of many big opportunities for international development.
The speakers shared their worldwide experiences by outlining the key differences in doing business around the globe. Trade shows, workforce idiosyncrasies, language barriers, and legal and regulatory red tape were addressed with real-life examples. The speakers focused on how U.S.-based companies can best merge their business practices with local customs and develop realistic operating objectives.
Can You Speak the Language?
Language is one simple but noteworthy barrier to U.S. companies hoping to do business abroad. Richard Gerritsen, Director of European Sales from Yardi, a property management software provider with an international presence, said it is difficult to succeed in business negotiations in Germany, for example, without being fluent in the language. It is helpful to have local staff who can conduct business meetings, and many countries prefer to work with vendors who have a local presence anyway.
Not speaking the language, though, should not be a deterrent. Some German housing firms offer English translation on their website. Translators can help, too, especially during the crucial “emotional” discussions of property transaction deal-making or during the start-up phase of a company’s operations. Companies should hire qualified tax
accountants and legal representation to help comply with Germany’s “complex” tariffs and tax laws, one representative said.
Developing software to reflect local tax laws and accounting was one challenge that was overcome, Gerritsen said. Vendors in other lines of business will discover their own set of unique challenges. Another company, which has done business abroad for eight years, said perseverance is critical, especially in marketing and relationship building. That company said that even today it is still working to develop brand awareness among the international players.
NAA President and CEO Doug Culkin, CAE, said those issues should not discourage companies from exploring opportunities in global housing markets. International business networking with local experts experienced in key international markets is a step he said NAA is prepared to assist with, and companies who don’t look abroad are ignoring a potential business growth opportunity.
Companies can start taking advantage of such opportunities by attending premier industry events such as Expo Real (Oct. 4-6 in Munich, Germany) and next spring’s MIPIM (March 6-10, 2012, in Cannes, France). This year, 17,000 professionals from a total of 81 countries attended MIPIM.
At European trade shows, it’s all about the “deal rooms.” This is where the real business is conducted, according to the developers, management companies and service providers. It is encouraged that client meetings are set months in advance, though some impromptu meetings do take place. Unlike American trade shows, there is a minimal amount of walk-up traffic from potential clients. These conferences also offer education seminars and economic briefings for attendees that are either delivered in English or use translators.
When engaging international clients, Americans and American companies are strongly advised to avoid saying, “Here’s how we do it” during proposals and discussions. That’s one way to lose the business right away. Instead, they should be willing to adjust their business practices to work with local clients.
Cultural Considerations
Cultural awareness is also critical. European workers are very formal, according to one management company executive. “I’d been working with someone for about seven years before they finally called me by my first name and not, ‘Mr. [Smith],’ ” he said.
Opportunities outside of Europe are just as attractive, but they come with their own set of challenges. In China, for example, there are cities with populations of 3.5 million—and those are the cities that many have not even heard of, one company’s sales executive said.
Traveling in a country that size—and in one that has such wide-ranging levels of development, religious customs and general social cultures—requires a savvy approach, Jelonnek said. Companies with a presence in China say that the closer a city is to the capital (Beijing), the more government regulation and restrictions apply.
Creating something akin to the U.S. apartment industry’s trade association arrangement is also not likely in the near term in a market such as Germany. One management company executive said that the apartment industry there differs greatly from the United States in many ways, especially in that there is little to no relationship between owners and vendors at the association level, as exists with NAA.
Given that government regulation such as rent control occurs with much of the housing in Germany, the business mindset for German housing companies is to assume significantly lower return thresholds compared to the sometimes double-digit growth expectation of U.S. and other owners, the management company executive said. Many in Germany invest for the long term, and foreigners considering entering the German housing market must be aware of this philosophy.
Marketing Abroad
Operational differences abroad start with the leasing process, which is far more casual than in the United States. German apartment buildings, for example, are typically 95 percent occupied. Interested prospects make an appointment to see the available housing. There are few print marketing vehicles such as those in the United States. Occasionally, a banner is hung at the property or sometimes a placard is displayed in a unit window or in regional rental offices.
The primary apartment Internet listing site in Germany is www.immoscout24.de. That name is derived from the German word “immobilien” for real estate; “scout” is a common search term and “24” represents the site’s continuous accessibility. The site appears in German and it has a “translate” button in the top right corner. Some firms have apartment listings on their company website.
A typical German apartment home is 650 square feet and includes a bathroom, one or two bedrooms and a living room. There is little closet space. Most use armoires instead. Most owners do not provide finished kitchens. Plumbing is included, but the renter must supply the cabinets and appliances. Upgrades and additions are done by the renter, not the owner. If renters make these upgrades, they must remove them and repair the unit when they move out. By personalizing their living space, renters are inclined to stay longer, as it feels more like “home” this way. This is part of the reason why the average stay by an apartment resident in Germany exceeds 10 years, compared to approximately nine months in the United States.
As for regional office and company headquarters staffing, what many hear about the Europeans’ vacation time is true. European employees typically get six weeks of vacation, 10 holidays and have a liberal sick-leave policy. Staff works 7.5 to eight hours per day. One management company says that only about 82 percent of the entire staff is working on any given day. In Germany, the janitor is typically the only onsite staff member.
The company says that savvy apartment management companies entering international markets learn to blend their effective business practices with those in place in the local market. Outside firms must adjust their employment policy to meet the requirements of a particular country’s employment contracts. Because of local regulations, they will likely find it legally and financially challenging to make extensive staffing changes.
Paul R. Bergeron III is NAA’s Director of Communications. He can be reached at 703/797-0606 or paul@naahq.org.