By Michael Lerner
My business is U.S. real estate, so the recent reports of solid earnings by U.S. corporations with substantial international revenues, like IBM, Google and Coca-Cola, would not seem to apply. But, in fact, the foreign sector is also propelling our current growth in an otherwise sluggish economy, and we are being as proactive as possible in our efforts to improve business from that source.
Selling to foreign buyers is nothing new, of course, and direct foreign investment in the U.S. has long been considered a safe bet for overseas clients, especially those located in nations with a compromised sense of stability. Lately, however, there has been a rush of new interest from overseas buyers. The reason is plain and simple: The dollar has been growing weaker and weaker over the past several years, and today offers a huge discount to foreign buyers of anything American. The Euro, for example, was worth US$1.59 in April, up from less than US$1.20 just two years ago. This represents a hefty increase in buying power.
The Euro is not alone, either. For the last several months, the Japanese Yen has been hovering at around 100 to the U.S. dollar. Last July it was north of 123, so we are talking a jump in comparative value of nearly 20 percent. In South America, the Brazilian Reais is also strong relative to U.S. dollar, trading now at 1.65 to the buck versus 2 to the dollar last August and 3 to the dollar four years ago.
Thus, overseas buyers are becoming a great new source of clientele because of this new buying muscle. My company is fielding inquiries from Western and Eastern Europe, as well as from Asia. In particular, we are assisting clients from Ireland and Russia (Euro driven in both cases) and from the Philippines, where 41 Philippine pesos will buy a dollar that cost 47 pesos last fall, 50 pesos the previous fall and 56 pesos the fall before that. And because this buying power will not last – at least not according to the pundits, who are predicting a rise in the value of the dollar over the next year – we are experiencing a sense of timeliness, or even urgency, which is to our benefit.
Even with this new-found clout, however, foreigners have special needs, and those who can meet them will win more of these coveted clients. One issue is credit, which for us means the customer’s ability to access the loans they need to buy real estate; even overseas buyers with advantageous exchange rates want to leverage their investment. The current credit crunch, however, is requiring buyers to put up larger down payments. Where once a buyer could finance 90 percent, 95 percent or even 100 percent of a purchase, today they are lucky if they can finance 80 percent. And that’s for U.S. buyers, when it comes to foreigners that figure drops to more like 60 or 65 percent.
Helping clients find adequate credit is something we have done for years, using our many mortgage affiliations. Often that can be the key to making a sale. But finding capital sources is really part of the bigger picture, which is to recognize that foreign buyers have unique requirements.
This is one reason we set up a new division at our firm called MCZ Affinity. It provides a wide array of services, for domestic as well as foreign buyers, that address special needs. Basically, we examine a property and create customized recommendations, offering suggestions on how to reinvigorate the deal. Sometimes this is through financing options, other times it is through marketing or sales. Sometimes this happens through undertaking conversions, while other times it is through new construction.
For the foreign buyer, this provides a way to invest in one of our projects without the hassle of managing that investment – by finding tenants, meeting the needs of those tenants, collecting rents, maintaining the property, etc. So not only can MCZ Affinity help an investor find a great property and finance it, the division can also manage it as a rental asset for them and then ultimately offer the property up for resale. In effect, MCZ becomes an extension of the investor himself.
These tactics are real estate centric, but the overarching lesson makes sense for other industries as well. While foreign buying power is at a peak, U.S. businesses that want to leverage this opportunity must engage these markets – not only by reaching out to potential clients, but by assisting them with ancillary services. The U.S. Department of Commerce, it’s export services and even overseas U.S. embassies, can help you with this. However, as in any business, it ultimately comes down to figuring out what your clients need and then delivering that product or service.
Michael Lerner is the founder and president of MCZ Development ETC., a company that specializes in revitalizing urban neighborhoods and adaptive reuse of architecturally superb, vintage buildings. lerner has been in the industry for 30 years, and he is a 2008 inductee for the Chicago Area Entrepreneurship Hall of Fame.
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