Mitigating risk in cross border real estate transactions
17. September 2021
Despite political and economic uncertainty and sharp pricing, the share of cross border investment in Europe has increased in the last 12 months. Real estate markets have shown resiliency in the face of disruption with several firms looking to deploy capital into Europe. Growth is expected in the coming months as the COVID-19 vaccine rollout takes effect, travel bans lift and the world opens back up.
Although activity dwindled in 2020, cross border investors chose the UK, Germany and France as safe havens for their capital. As demand intensifies in 2021 however, European real estate buyers face tough competition and are needing to react quickly to make the most of opportunities close to home.
Non-European investors will continue to pursue portfolio diversification with European acquisitions too. According to an analysis by Knight Frank, the top flows for cross border capital in 2021 include the United States and countries of the Asia-Pacific region and East Asia such as Singapore and South Korea.
Risk mitigation & cross border dealmaking
From diverging regulatory systems to tax, accounting, cultural and political considerations, real estate investors have their work cut out for them. Although certain professionals may look at reinvesting in their domestic markets, analysts expect a surge in foreign buyers attracted by investment opportunities in core assets following the receding of the COVID-19 pandemic.
Whether a strong marketplace for foreign capital or not, cross border investors continue to air on the side of caution, many undecided whether to buy or sell. Uncertainty has not deterred everyone, however. Data centres, life sciences, industrial and healthcare properties remain viable investments as does underdeveloped land while retail, hospitality and office space, has for now, become less attractive.
Technology facilitating European property transactions
Aside from the legal, administrative, cultural and political challenges, one of the biggest barriers to success in cross border real estate transactions is a lack of operational efficiency. Efforts to automate processes using the right technology can greatly reduce unnecessary costs and delays. Virtual data rooms (VDRs) are particularly popular for transaction management and can help:
1. Overcome language barriers
Performing thorough due diligence is an important step in an asset sale. Language barriers can make carrying out this phase tricky, however. Investors considering international real estate do have tools at their disposal to enhance transparency and avoid unwanted risk and setbacks. Some data rooms come with built-in translation tools which cater to users from different linguistic backgrounds and eliminate the need for costly translation agencies. Data room documents can be made available in multiple languages speeding up document review times. These types of translation tools can also help to reduce security risks associated with logging in and out of systems.
On account of the increasingly international nature of transactions, Drooms’ TRANSACTION data room has a built-in translation feature, so you never have to leave the secure environment and waste time logging in and out of disparate systems again. Drooms TRANSACTION facilitates a direct machine-based translation of documents uploaded to the data room. For an easy read, a direct overlay of translated text is available on the platform. You can also compare text to its original anytime.
2. Maintain confidentiality
One of the major concerns and priorities when dealmaking on a larger scale is ensuring information security. Encrypting data not just during transfer but also at rest and storing it on secure servers within the EU can help maintain confidentiality. Certain data room providers meet EU data protection and follow security best practices. Drooms, as a German born provider, stores all data on proprietary, ISO-certified severs in Germany and Switzerland and is fully compliant with the General Data Protection Regulation (GDPR). It does not adhere to risky additional safeguards, nor does it carry out transatlantic data transfers.
3. Manage multiple parties
Data rooms provide an easy way to allocate different access rights to different groups at document level. Drooms allows for a content creation workflow with add-only permissions and approval for uploaded content. This means that entire teams can work on content creation while team leaders can approve the changes on an itemised basis.
4. Gauge bidder interest
Data room reporting features can give you the insight and level of control you need. By allowing you to see who has accessed what document and when, you get an indication on what the negotiation phase might involve and can prepare accordingly. Having an overview of all actions and activity is also indispensable for potential auditing purposes post transaction. In addition to its in-depth reporting feature, Drooms offers secure, password protected data room archives in various formats for the legal guarantee phase of a transaction.
5. Streamline document search and identify red flags
New information that gets added to a VDR should be searchable at a click. Built in filters to narrow down the search for a document or text further still is paramount. It also helps if users are able to set personal email notifications so that they can stay informed about the latest data room content updates.
Aside from its smart search, Drooms’ Findings Manager feature automates the document review phase and helps users to identify risks and opportunities associated with a deal. Helping both the buy and sell side, the algorithm filters the data room content and automatically attributes relevance to search terms, synonyms, and related search patterns. Categorisation is also available in more than one language.
6. Simplify collaboration
An intuitive, self-operating and structured Q&A process provides users with expert answers. Drooms’ competitive advantage lies in all these elements, providing transaction managers with a tool that improves their work and, most of all frees up valuable time. Even complex Q&A processes with several levels of specialist approval are simple to configure, while an enhanced range of activity enables a more efficient workflow.
7. Get expert advice and support
Depending on your provider, you may also be able to get access to additional services. Drooms offers support collecting information from the responsible authorities for example and can assist with its structuring, digitisation and upload. Dedicated project managers can also be allocated to a specific deal and can support you in all aspects of managing your virtual data room. Additionally, our technical phone support lines are staffed around the clock 365 days a year in multiple languages.
When it comes to cross border activity, the dealmaking race is on. Given the appetite for European real estate, investment in Europe will likely increase going forward. Technology adoption can play an instrumental role in the success or failure of a transaction and its value should not be underestimated.