Between Two Worlds: The Developer’s Dilemma

“I can’t sleep at night,” Roni told me as he sat down across from me in the office. “I have 48 apartments under construction in Bucharest, five months to handover, and I needed to make a decision yesterday.”

Roni, a veteran real-estate developer who had already delivered three successful projects in Romania, came with a dilemma that has become very common among my clients: who should he sell the apartments to right now, during construction? Romanians or Israelis?

“Let’s start from the end,” I told him. “What’s weighing on you most?”

He leaned back. “You know what? The question isn’t only financial. It’s about my cash flow right now, my ability to finish the project without being squeezed, and my peace of mind afterwards.”

Scenario one: selling to Israelis

“If I go with the Israelis,” Roni laid out the dilemma, “I can collect a 40–50% down payment right now, sometimes even 70%. They understand the investment potential, they’re used to payments like that from Israel, and that money gives me a safety cushion to finish construction without going to the bank.”

“Sounds excellent,” I remarked. “So what’s the problem?”

His face creased. “The problems start the moment they transfer the money. Israelis who pay a big down payment become my bosses already during construction. One of the buyers in my last project called me 11 times in a single day because he saw a worker smoking in the site yard.”

He went on: “They want weekly updates, photos from the site, last-minute changes to the plans, and they’re tense because they’ve put a large sum into a project that doesn’t exist yet. And when the project is delayed by two weeks because of a permit problem? I have to explain to twenty couples why the sun isn’t rising over Romania exactly as I promised.”

“And there’s a bigger problem,” he added. “When most of the apartments in a building belong to Israelis who rent them to travellers or leave them empty, local Romanians don’t want to buy in my next projects. It stains my reputation in the local market.”

Scenario two: selling to locals

“Fine,” I said. “So why not Romanians?”

Roni let out a long sigh. “With Romanians it’s a completely different story. The local custom is a down payment of 10%, 20% at most, on signing the contract, and the remaining 80–90% only on handover. That means I have to find bridge financing for the next five months.”

“Does that hurt your pocket?” I asked.

“It doesn’t just hurt,” he replied. “It can break a project. If I sell 30 apartments to Romanians at 100,000 euros each, that means I get 300,000 euros now and 2.7 million euros only in five months’ time. Meanwhile I have a contractor to pay every month, suppliers, workers.”

“So you need a bridge loan.”

“Right,” he confirmed. “And Romanian banks don’t give bridge loans on simple terms. They want guarantees, they demand equity of at least 30% of the project cost, they do their own valuation that’s always lower than mine, and the interest? Much higher than I’d pay in Israel.”

He took a sheet of paper out of his bag. “I’ve calculated it. With the loan and the interest, I’m basically giving up another 8–10% of the project’s profit. And that’s before we’ve talked about the risk – what if halfway through the bank decides it isn’t happy with something?”

“But there is an advantage,” he added quietly. “Romanians don’t interfere during construction. They come to see the apartment twice, they don’t call every day, and they understand that building is a process. And at handover? They pay the balance and say thank you.”

The decision

“So why are you really here?” I asked him directly.

Roni smiled for the first time in the meeting. “Because I know there’s no perfect solution. If I choose the Israelis, I have money now but a headache for five months. If I choose the Romanians, I have peace of mind but I have to go to the bank cap in hand.”

We sat and talked for another two hours. We went through his cash-flow position, his relationships with the local banks, his tolerance for day-to-day pressure and his long-term ambitions in the Romanian market.

In the end, Roni decided on a hybrid approach: sell 60% of the apartments to locals with a 10% down payment, take a smaller bridge loan that would be easier to get and manage, and sell 40% to Israelis with down payments of 50% – enough to cover the financing gap – with a clear agreement in advance on how often updates are sent (once every two weeks only) and limited rights to request changes.

“Thank you,” he said on his way out. “Sometimes you just need someone who has been through this with dozens of other developers to see the full picture.”

The lesson: in projects under construction, a large down payment today isn’t always better than full payment tomorrow. Sometimes the right balance between cash flow and peace of mind is the key to success.