In today’s interconnected global economy, effective international portfolio management has become crucial for investors seeking to diversify their assets and capture growth opportunities beyond US markets. As markets across the world continue to evolve, international investors must navigate a complex landscape of different economies, regulations, and currencies.
International Portfolio Management offers increased diversification, access to emerging markets, and the potential for higher returns, but it comes with higher risk, complexity, and currency exposure. It’s best suited for investors seeking global growth opportunities and who are comfortable managing the complexities of international investing.
US-Only Portfolios, on the other hand, are more familiar, stable, and easier to manage from a legal and tax perspective. While offering lower risk and greater liquidity, they lack the diversification benefits of international markets and may miss out on the growth potential from overseas.
In this post, we’ll explore what we consider are the top strategies for managing an international portfolio. Whether you’re looking to expand your portfolio’s reach or enhance its performance, these strategies will provide valuable insights for successful global investment management.
What is International Portfolio Management?
International portfolio management refers to the strategic oversight and administration of real estate assets across multiple countries. It involves managing a variety of property types while also navigating the complexities of different markets, regulations, and cultures. With assets spread across different countries, organizations need to adopt sophisticated strategies and technology platforms to ensure visibility, compliance, and efficiency in managing this global portfolio.
How is International Portfolio Management different from US Only Portfolio?
While managing a US real estate portfolio involves familiar laws, regulations, and market dynamics, managing an international portfolio introduces a host of new challenges. International portfolio management requires a comprehensive understanding of varying global currencies, languages, and cultures as well as the capacity to manage properties in multiple time zones and jurisdictions.
In addition, cultural nuances in negotiations, tenant expectations, and regulatory environments differ greatly across countries. Managing these differences requires specialized tools and platforms that can centralize all global real estate data into one accessible system, enabling teams to efficiently manage leases, ensure compliance, and make informed decisions.
My International Real Estate Portfolio Experience
It was early summer of 1995, and I was aboard a French SST Concord traveling at roughly Mach3 from New York to Paris. The CFO of my company had received an alarming call from European headquarters. Apparently the General Manager of the French company had unilaterally contracted with his brother-in-law to build out a new French headquarters in a suburb of Paris. The GM had not put the project out on competitive bid, and it was feared that beyond the conflict of interest there was the specter of kick-backs and other fraudulent issues involved. My mission was to confront the French manager with this issue and attempt to shut down the project pending a competitive bid process. Needless to say the French manager refused and was subsequently fired by senior corporate management.
This brief tale highlights some of the more exotic issues with international real estate management. As a general statement, Europeans are quite independent and insist on a degree of autonomy in running their businesses. In managing a far flung international portfolio, it’s wise to have local advisors overseeing projects and lease portfolios, to inject a level of local control in the process.
Understand local cultures and practices
Attempt to work within the cultural practices wherever possible. Avoid imposing standardized policies and standards; it will only antagonize local management and slow down the process. Maintain a level of flexibility and use local advisors to handle lease negotiations and project management activities. Consider using advisors that have pan-continental services, with offices in the US to insure coordination. Such firms as Jones Lang LaSalle or Cushman and Wakefield are examples of international service firms with a global presence.
Be mindful of unique real estate practices
Each place has its own set of practice, legal requirements, and transaction procedures when it comes to buying, selling, or renting properties. This could mean differences in how contracts are structured, how negotiations happen, or even the laws surrounding property rights, taxes, and ownership. For example, in the UK there’s a practice called “upward only rent reviews.” This refers to the somewhat bizarre practice of only escalating the rent periodically. US practitioners are typically bewildered by these local industry practices.
Use a lease management system that has language and currency translation capability
It’s critical that your lease management system can normalize international international portfolios can be normalized both in currency and space data. Most international portfolios are denominated in metric units such as square meters versus square footage. It simplifies processes, reduces the chances of errors, and enhances the user experience by accommodating multiple languages and currencies.
Involve your local advisor in lease and other contract negotiations
Their expertise minimizes risk, enhances your negotiating power, and ensures that contracts are aligned with local norms and requirements. Whether you’re dealing with lease agreements, vendor contracts, or property management issues, their guidance can help you secure better terms and avoid mistakes. Perhaps the greatest risk in negotiations is differences in language. I recall negotiating a lease in Japan when my counterpart kept saying “hai,hai,” to many of our deal points. I wrongfully interpreted this response as his agreement. But I later learned that “hai” means “I understand,” not “I agree.” Big difference!
Integrate the international portfolio into the over-all real estate database
This provides a company- wide view of the real estate portfolio. Make sure to also have local lease administrators update and maintain the database to insure language, currency, and space accuracy from country to country. I would typically designate someone in the country’s finance group to take on this responsibility, and report on a dotted line back to the lease admin in the corporate office.
Takeaway
Managing an international real estate portfolio requires focus on local practices, cultures, and differences in language. But beyond these local differences, real estate management is essentially uniform in the underlying economics of the transaction whether in the US or internationally. Understanding how the concept of discounted cash flow affects the economics of the deal is true whether in New York, Amsterdam, or Tokyo.
Visual Lease can help streamline international portfolio management by providing a comprehensive and efficient platform for managing your leases.
