5 Essential Tips for Expat Business Professionals
Being an expat on a new job in a foreign country can be daunting. When a friend in New York hired me to go to Berlin, Germany to help him manage a real estate investment company, I was excited and a little scared. At the time, I could speak Chinese and analyze the value of companies from Taipei to New York, but I did not speak German, had no experience in Europe, and had never worked in real estate.
My friend was buying apartment buildings in foreclosure, with cash, and needed someone who could help him get bank loans for the properties. Using common sense and what I learned as an expat in Asia, I helped my friend arrange a multimillion Euro loan facility within a few months.
Expat Tip #1: Network with Expats
Upon arrival in Berlin, I met the CEO of Berlin Real, my friend’s real estate investment company, and he took me to a flat in Friedrichshain, which would be my home and office. Feeling lost in a sea of German speakers, and not wanting to depend on the local CEO to translate, I used Meetup to find a local pub where I could meet other Americans. There I met a woman from Colorado and hired her to be my translator.
My next step was to contact friends, classmates, and alumni who might be able to help me in Berlin. A friend from University of Chicago Booth School of Business introduced me to REInvest Capital, a Zurich investment firm that advised a Euro 100 million fund investing in Berlin real estate. And I met a Berliner who spent a year at Northfield Mount Hermon and was a partner at Lindemann Schwennicke, a Berlin law firm that works with real estate investment funds.
Expat Tip #2: Learn the Local Language
In Asia, Chinese was for me an essential skill. So I enrolled in the intensive German program at the Goethe Institute in Mitte. where classes met for a few hours every morning, Monday to Friday. With the time difference, Berlin is 6 hours ahead of New York, I went to class, had lunch, and got back to the office just as my colleagues at home were starting their day.
For those who doubt the importance of language study when working abroad, I refer you to the US Special Forces Qualification Course, which calls for 12 weeks of training for weapons and tactical skills, but 18-24 weeks for language and culture.
Expat Tip #3: Network with Locals
With my personal network and communications established or in process, it was time to meet the local team. This was a network of professionals that was built by the local CEO and my friend in New York. It included property managers, real estate brokers, lawyers, accountants, and bankers.
At Deutsche Bank, where my friend had a banking relationship, we met a real estate lending officer, with whom we visited the properties for initial due diligence. The properties were late 19th and early 20th Century apartment buildings in the eastern boroughs of Berlin. Having been in foreclosure, the buildings had significant maintenance backlogs, and the lending officer told us that we could not get financing without renovations.
Based on recommendations from my network, we decided to interview two architects. One was a large firm called KBA Architects that was working with private equity investors Blackstone, Cerberus, and Lone Star, all of whom were buying distressed German real estate debt portfolios. The other was a smaller firm called BHB + Partner Architekten & Ingenieure. Following two days of site visits and interviews, we chose BHB because they could meet our needs, cost less, and we liked them.
Expat Tip #4: Learn the Local Market
The German real estate market differs from the US in many ways. I had to understand the legal system, taxes, regulation, subsidies, trade organizations, and market structure. For example, the level of home ownership in Berlin was just over 10% versus 70% in the US.
My lack of familiarity with Germany and real estate made me cautious. While the rise in home ownership presented an opportunity to convert our buildings to condos, a popular strategy at the time, I recommended instead the lower risk, lower return strategy of rentals. Another important part of our strategy was to use German government subsidies for energy efficient refurbishment, administered by KfW (Kreditanstalt für Wiederaufbau), a government-owned development bank.
Expat Tip #5: Trust Yourself
Once renovation plans were complete, Deutsche hired an engineer to do a valuation of the properties and, while he was competent at assessing the structural integrity of the buildings, we disagreed on the crucial issue of what rents would be after the renovations. I relied on current rent data from Immobelien Scout, Germany’s leading real estate portal, but the engineer relied on a rental index that used historical data. As a result, the rental range he used for estimating post-renovation rents was in some cases 30-60% lower than what I was seeing on the street.
Disappointed by Deutche’s assessment, I approached my lawyer friend who helped me arrange meetings with three other banks, including Deutsche Kreditbank (DKB), EuroHypo (now Hypothekenbank Frankfurt), and Berliner Volksbank. The size of our portfolio was too small for EuroHypo, but DKB offered to lend us 40% more money than Deutche, and Berliner Volksbank offered nearly 70% more, thus winning our business.
When the the renovations were complete, our strategy to maximize energy efficiency paid off, as renters were willing to pay even more than I expected for our investments in sustainability.
What I Learned
Most of what I did as an expat working in Berlin was apply common business sense – network, hire local guides, get advice from others, master the detail, manage risk, trust my own judgment, and shop for the best deals so we could offer great value to our customers. The less obvious thing was studying German. In my experience, language study is one of the best ways to avoid mistakes, establish credibility, and earn the respect of the local people.