CCIMs in South Korea and Japan successfully close a cross-border deal for a South Korean investor.
Plenty of unknowns occur in any international commercial real estate transaction. Differences in language, laws, and business practices can complicate any deal that crosses global borders, so anything that provides a common ground can make the deal go more smoothly.
Two CCIMs discovered this while they were working on an international deal in the final quarter of 2017. Yong-Nam Kim, CCIM, president and CEO of Global PMC in Seoul, South Korea, represented an individual investor who was interested in buying a commercial property in Japan.
“While many South Korean institutional investors buy commercial properties in foreign countries, including Japan, high-net-worth individuals usually buy residential properties that don't require much involvement from the investors,” Kim says. “Clients may be reluctant to invest in overseas commercial properties due largely to a lack of international investment information and a reliable advisory company.”
The buyer, a Korean businessman, owned several office buildings in South Korea and the U.S. and wanted to diversify his portfolio by buying property in Japan. Kim found an eight-story medium-sized office building in Nihonbashi, a commercial district in Tokyo, owned by a property management company.
Kim contacted Morikuni Kono, CCIM, president of Urban Real Estate Consulting Corporation in Takamatsu, Japan; he had met Kono at the 2016 CCIM Conference in Atlanta. Coincidentally, Kim has been president of the Korea CCIM Chapter since 2016; Kono served as president of the Japan CCIM Chapter from 2011 to 2016.
Besides the initial unfamiliarity of the transaction, a few elements of the deal required extra consideration. “International investors might be more sensitive to earthquake risk than Japanese investors,” Kono says. In fact, the South Korean investor needed a seismic Probable Maximum Loss report to obtain financing.
“The PML report is not required in South Korea to take out a mortgage,” Kim points out. The reports also are rare in Japan, Kono notes, “unless you are a professional investor.” So Kono arranged for a vendor to provide the report.
The two real estate professionals had to navigate other differences as well. “It took a long time to get the investor to understand Japanese common business practices,” Kono says. “Also, we used Japanese, English, and Korean for this transaction, and nuances get lost in translation, which made it difficult to communicate.”
And not just spoken nuances. “Because my client couldn't read Japanese, all the contract documents that were written in Japanese had to be translated into Korean in a short period of time, and it wasn't easy,” Kim says. The deal took only a month from the first site visit to the closing in December, which is unusual, according to Kono.
Both Kim and Kono credit their CCIM training for moving the deal along. “Since both of us are CCIM designees and commercial real estate professionals, even with the differences in business practices, we shared the common [business] language and understanding about the real estate transaction,” Kono says. “We never felt uncomfortable. In large-scale transactions in Japan, the level of trust you gain with buyers and sellers is an issue. Without the trust, it is much more difficult to close. But we have a great deal of trust in Mr. Kim, even though we did not know the buyer personally.”
Kim concurs. “I'd like to stress the importance of the CCIM global network in international real estate investment business,” he says. “Without our CCIM training and trust, we wouldn't have had an opportunity to meet each other and even dream of this international deal.”
Kim hopes he will work on more commercial deals with individual investors in the future. “Things are changing because companies like ours are starting to offer real estate investment advisory services with extensive global reach,” he says.
“Korean individual investors are turning to overseas real estate investment to find higher returns,” Kim adds. “A food company owner has asked me to find a good commercial property for a branch office in Japan, and another wealthy investor wants to buy a commercial property in Hawaii and asked me to look for a good commercial property there.
“Recently, an institutional investor asked me to seek out several small- and medium-sized commercial buildings to create real estate funds in Japan. I am working on those requests using the CCIM network and the CORFAC International network, which Global PMC also belongs to.”
But this deal laid valuable groundwork. “I learned that networking is everything in the international real estate investment business,” Kim says. “And I also realized that each country has its unique real estate investment practices which I must learn to successfully conduct real estate investment business.”
And it's helped to establish a foothold in Japan. “We continue to introduce properties to Mr. Kim, and he keeps making referrals to us as well,” Kono says. “We hope to have the second closing on a commercial property soon.”
Two CCIMs turned an improbable deal into a successful transaction. CCIM training makes collaboration more likely and easier.