In the "Wizard of Oz," when the tornado transports Dorothy to a different land, she tells her dog, "Toto, I don't think we're in Kansas anymore."
While differences between Kansas and Oz are starker than one generally encounters during real-life site shifts, what U.S. real estate executives commonly encounter overseas can be almost as daunting.
According to Richard Greene, senior manager, Ernst and Young International Location Advisory Service, being aware of the myriad of differences can be a key factor in determining a deal's success or failure.
For example, Greene points to common European lease periods which can be three, six or nine years in Belgium, five to 10 years in the Czech Republic, the Netherlands or Sweden, one to three years in Hungary, or up to 25 years in the United Kingdom.
Greene also notes that brokerage fees range from 15 percent of the first year's rent in Belgium, up to 30 percent in France, to as low as 2 to 5 percent in Italy. His advice to those making their first European deal is to take absolutely nothing for granted, particularly what you assume you already know.
"There are many items frequently covered in a U.S. gross lease that often aren't covered in Europe," said Greene.
"Because you're likely to be dealing in a language you don't understand, having someone alongside who's knowledgeable about the local real estate scene as well as the language and customs is invaluable."
| "When a building no longer meets a tenant's
needs, he just can't walk away. Rather, the tenant
is responsible for repair of all buildings
and, in general, returning them back to
their original condition."
-- James Birkett, director, Group
Marketing, Arlington Securities PLC |
This kind of assistance is commonly available from worldwide brokers that have representatives in most major markets. Another concern is inheriting the environmental sins of previous owners. While most European governments place the prime environmental damage blame on the tenant that caused it, the burden of finding those individuals usually falls to the current occupant.
"There is a very vigorous green movement within Europe, one far more stringent than many U.S. real estate executives have previously encountered," said Greene.
Greene also urges real estate decision makers to hire savvy engineers, particularly prior to building new structures.
"In the Netherlands, much of the area is reclaimed river delta," said Greene. "The country has very few tall structures, and to erect any kind of sizable building you often have to go the expense of putting down huge pilings in order to reach bedrock far beneath."
Fully understand your lease
For James Birkett, director of group marketing, Arlington Securities PLC, a critical difference impacting real estate acquirers is that the UK traditionally employs a full repairing and insuring lease.
"It's the same as the U.S. triple net," said Birkett. "When a building no longer meets a tenant's needs, he just can't walk away. Rather, the tenant is responsible for repair of all buildings, and in general returning them back to their original condition. That can well mean upgrading air conditioning, improving the elevators, or installing new carpeting."
Birkett explained that the UK currently is in the midst of a trend toward reducing lease lengths to around 15 years. He also feels confident that by dealing with a sizable real estate firm, U.S. real estate executives could reach a much greater level of comfort, rather than venturing into an unfamiliar marketplace on their own.
"The biggest difference between the U.S. and UK is that, while you have an abundance of land, we have very little," said Birkett. "And our greenbelt is very small and very precious to us. Therefore the opportunity to develop large facilities is diminishing.
"We also have much higher rents. For example, typical rent in the Thames Valley is 25 pounds (roughly $35 U.S.) per square foot for grade-A space out of town."
Another UK real estate fact of life is that consultants work as a go-between for all prime parties to smooth the way toward a successful conclusion.
| "In Austria, construction costs are just that;
everything else is separate. Clearly, not understanding the full meaning of such terms
in their local context can lead to
serious misunderstandings."
-- Andreas Ridder, managing director, CB Richard Ellis |
"In the U.S., the broker does the introduction and then dealings are company to company," said Birkett. "Here the real estate consultant holds the hand of the occupier, and essentially does the deal for that individual. That provides some confidence that the person seeking a piece of property gets dispassionate accurate advice about how the market works, and what sort of package the tenant should seek."
Birkett emphasized that the UK has favorable tax rates. Individual tax rates are 40 percent for individuals, and 31 percent for corporations. Both are low for Europe in general.
"It's no wonder that most international headquarters for firms doing business in Europe, the Middle East or Africa are based in the UK," said Birkett.
In Vienna, Andreas Ridder, managing director, CB Richard Ellis, said real estate dealings, particularly for office space, involve agents that represent both sides.
Differences between Austria and U.S. real estate are most evident in zoning, environmental concerns, and restrictions, particularly in and around key historic sectors.
"There often are rules outlining types of architecture that is and is not acceptable, as well as the height, width or usage of commercial structures," said Ridder. "When an American mentions construction costs, he usually feels that concept also covers land and financing costs as well.
"But in Austria, construction costs are just that; everything else is separate. Clearly, not understanding the full meaning of such terms in their local context can led to serious misunderstandings."
And make you feel like clicking your heels to return home.
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