Investment funds with operations on the local market are just window shopping for real estate opportunities
By Magda Purice and Dana Verdes
Fund officials told The Diplomat – Bucharest that they are playing it safe, keeping an eye out for distressed assets or businesses with growth potential despite the crisis, and not thinking of exits – yet. Cautious and reluctant to take risks in any economic sector which is currently delivering unsatisfactory investment yields and contracted businesses, such as retail and construction, investment companies, are becoming even more prudent when it comes to property investment. Still, according to the real estate consultancy company CB Richard Ellis (CBRE, the investment volume of transactions, both purchases and sales, recorded in the first half of this year totaled EUR 279.1 million, representing growth of 23.4 percent on the same period of 2010. "The largest investment value, EUR 125. 6 million, has been registered in office transactions," states the CBRE market report. The remaining sum was split, with EUR 85.9 million spent on the industrial segment, and EUR 25.3 million on commercial deals. This year, the office buildings involved in transactions in Bucharest have included Europe House, River Place, both transactions by CA Immo, and other office deals involving Astoria Center, Plevnei Office Building and Berthelot Center. The second best real estate segment, which has been a little livelier this year, has been the industrial sector. In fact, the first six months brought the largest transaction in the local real estate market by two Austrian companies, the purchase of Europolis Logistics Park by CA Immo.
Staying on the safe side
The fund is remaining "on the safe side", according to Marian Roman, managing director of CA Immo Real Estate Management Romania. "With a 52 percent office building share in our portfolio globally, we target the same kind of projects locally," Roman told The Diplomat – Bucharest. The current asset value owned by CA Immo in Romania is estimated at EUR 323 million, with assets totaling around 330,000 sqm in nine projects including Europe House, Opera Center I and II, Bucharest Business Park, RiverPlace, Europolis Park Bucharest and a retail project in Sibiu. The sum represents almost 20 percent of the total assets held by the fund in the CEE region, where it has properties worth EUR 2.3 billion. In Romania, the fund's ongoing projects are estimated at EUR 62 million. According to Roman, the fund concentrates its resources on areas with growth potential, such as the Bucharest office project Orhideea Towers and the development of Europolis Park Bucharest. Elsewhere, in July 2010 Swedish investment fund Interprime Properties inked the purchase agreement for the land of the former Timpuri Noi factory, whose surface exceeds 5 hectares. "For the moment it is the first acquisition for our portfolio in the Romanian market. Except for the Timpuri Noi land we have not yet purchased any new property. Nevertheless we are constantly assessing different land plots and buildings across Romania. Property owners' expectations are in general still too high given the downward adjustment of the rental market and current international situation," Antoniu Panait, managing director of Interprime Properties, tells The Diplomat – Bucharest, adding that currently the firm's main focus is to start the design works on the Timpuri Noi land as soon as possible. "We are currently witnessing the ongoing maturing of the Romanian real estate market, which is seen in the adjustment of land prices, the quality of the projects delivered and the quality of the services performed. Taking a midterm perspective we hope to see this maturation process speeding up and allowing us to increase our level of investments," he adds.
Low-cost opportunities
"Taking into account the investment opportunities by cost perspective, the momentum on the market is currently good," argues George Teleman, managing partner at Equest Balkan Properties. The price of land has dropped in some cases by 75-80 percent since 2008. In Bucharest, the investment appetite targets land plots located close to the city, where prices have not posted such a tremendous drop. "We are talking about the asking price, because, currently, there are few transactions on the market and no clear monitoring of them that could give reliable statistics," says Teleman. The investment market in Romania and in most European regions at the moment is marked by the disappearance of the speculative approach to investment. Investors are looking more carefully at the risks of their outlay, which is visible in a more cautious attitude. According to the Equest partner, pre-lease contracts are now a mandatory tool to guard against the risks of an investment. The approach to risk is also seen at the early stage of investments. "The purposes of the investment and the targeted client have to be clearly defined from the very start, in order to be able to establish a feasible project," says Teleman. Last but not the least, the premises for a successful investment consist in the existence of competitive financing, according to the managing partner. "Within the current economic context, this is the big uncertainty in the investment equation and the main factor in evaluating the investment risks of a project. " In other words, the money earned from a project might come at too high a cost, which might offset or even cancel out the other "savings" obtained through the project outline.
Searching for distressed assets
For Valad Property Group too, the local market is slowly moving to "an increased transactional level which will be better seen in 2012," Matthew Bann, head of CEE for Valad, told The Diplomat – Bucharest. "Valad is looking at a number of investment opportunities in Central and Eastern Europe at present. We believe that, given the current economic climate, it is only a matter of time until banks have to start seriously addressing the situation of the assets they hold directly or indirectly. One of the opportunities we are exploring is working with the financial institutions in solving the real estate related issues they have in their loan portfolios. In this regard we will look at most asset classes and areas," Bann says. Valad is active in Romania on behalf of Central European Industrial Fund (CEIF which has investments in the Czech Republic, Hungary, Poland and Romania. The fund's existing local portfolio is concentrated in three industrial assets, including office space located to the west of Bucharest, close to the A1 Highway, amounting to almost 120,000 sqm of leasable area.
Looking for businesses with growth potential
"The investment market in Romania for this year and 2012 is pretty limited," Cristian Nacu, partner at Enterprise Investors, tells The Diplomat – Bucharest. The Polish fund looks at grown-up businesses, ones that are profitable and with growth potential, delivering a strong competitive advantage in their markets. It carries out investments through the two fund's investment vehicles, a buy-out fund and a venture capital fund. The minimum volume for investments through the buy-out investment vehicle, targeting large companies, is EUR 20 million, while for venture capital transactions targeting small firms, the fund stipulates a minimum of EUR 1 million to EUR 5 million, according to Nacu. Enterprise Investors has around EUR 60-70 million left to invest in the region through its buy-out fund, while for the venture capital fund there is a budget of EUR 50-60 million. From the ten markets where the fund looks for investments, Romania has the largest portfolio after Poland. In six years since of operating in Romania, total investment has amounted EUR 200 million, representing probably 20 percent of the funds put into the entire region, according to the representative. With an investment rate of two companies per year, the fund finds sectors such as retail, IT, manufacturing and financial services appealing but, according to Nacu, "is keeping away from construction at the moment".
Low visibility
For Spanish GED Capital, a fund that has recently inked transactions in the Romanian market, including the purchase of 30 percent of shares owned by PPF Partners capital management fund in the 14-hotel chain Continental Hotels, the focus is on assets producing certain income. "Romanian investors rarely back private equity funds (banks, pension funds, public institutions and insurance. This lack of funds keeps the PE community really small and with little likelihood of attracting foreign capital. Therefore the visibility of Romania is low," said Enrique Centelles Satrustegui, managing partner private equity at GED. Through GED Real Estate Eastern Investment, GED's private equity fund for investments in South-Eastern Europe, which manages EUR 46 million, the company "is focusing on income-producing assets, with good locations and where the firm can add value to the company through refurbishment or increasing the asset, or by simply changing the activity of the company or the use of the asset," Rafael Trebolle Larraz, deputy managing director of real estate at GED, told The Diplomat – Bucharest. In line with the approach adopted by other funds, it is not thinking of an exit now. GED officials said that their current strategy is to wait at least two years before considering about exiting any investee. Nevertheless, "we are private equity investors and it wouldn't be a surprise if we sold a company next year, but it is not our intention today," adds Satrustegui. The fund believes that Romania has strong potential on the medium term, even if, for the moment, "Romania is not on the radar of the private equity community". GED has carried out different transactions in tourism, hotels and FMCG, involving companies such as Prestige Tours, Heineken Romania and Continental Hotels. These transactions join existing shares owned in companies such as Happy Tour, Paravion, Travel House, Diamedix, Bioservice, Total Energy Business, Rosegur, Fonomat, Infopress and RED Capital Management. No exit in sightIn response to the lack of large investment opportunities and courage, investors, both private equity funds and investment companies, have given more thought towards customer retention. "Starting from the premises that we have to treat our clients as business partners, we listen carefully to their needs and try to come up with the best solutions," says Teleman. Some of the current demands from clients, especially tenants in industrial or retail parks, include: the temporary freezing of rents, limited service charges, the adjustment of fit-out costs according to different criteria, assistance with legal papers and different borderline requests. Also, according to Teleman, customers are asking for assistance in the procurement of different services or offers. But the retention approach might be a double-edged sword. "Sometimes, different unilateral requests are being presented as alternatives to ceasing the renting contracts. In this case, we cannot compromise and we prefer to stick with the contractual partnership, including taking the case to the court if necessary," he says. The opinion is shared by Ingo Nissen, managing director of developments for Romania of Portuguese fund Sonae Sierra, looking at the situation from a mall developer's side. "Clients' demands have changed dramatically in the last few years. They are asking for lower rents and operational costs. Romania is still an underdeveloped market in terms in large investments and, currently, more equity is needed in order to restart the investments."He added: "Also, the latest changes to the entire real estate system should be balanced by an adjustment of the developer's expectations. A properly developed project should respect the rules of location, be a tailor-made project and provide a balance between the sale price and the costs. "At the beginning of this year, British fund East Balkan Properties sold 51 percent of the company controlling the commercial centers Vitantis Shopping Center in Bucharest and Moldova Mall in Iasi to Equest Investments Romania. Flexibility in responding to customers' demands doesn't translate to funds' strategies when they have to calculate the opportunity of investment in a certain market."There is not much difference compared with what has happened in the last couple of years. There is a clear boom in energy and related sectors, private healthcare and infrastructure. Retail doesn't seem to be a sexy business right now but it might offer good opportunities. In addition, IT is a really interesting sector if you have the proper skills," says Satrustegui of GED. His colleague from the real estate department attributes the slow dynamics of investments to banks. "In terms of real estate, the banks are not open to financing new developments. The risk of some of the new projects is high because the land was bought very expensively and it is impossible to drop the prices of the final product, so the end client is not interested. This is the main problem for real estate development, the final price of the product has to be adapted to the real possibilities of the buyer," says Rafael Trebolle Larraz. ■
Who's going real estate shopping?
CA ImmoOrigin: Austria Local assets value: EUR 323 mln Properties: 330,000 sqm logistic and industrial space (Europe House, Opera Center I and II, Bucharest Business Park, RiverPlace, Europolis Park BucharestPortfolio assets value for CEE/SEE/CIS: EUR 2.2 bln
Enterprise InvestorsOrigin: Poland Total capital CEE: EUR 1. 7 bln Recent investment (2010: EUR 66 mln (Profi retail chain acquisition
Valad Property Group Origin: Australia Total investments: EUR 100 mln Properties in Romania: 3 industrial assets of 120,000 sqm leasable area in A1 Business ParkOverall portfolio assets value: EUR 12. 5 bln in 12 countries in Europe
GED Origin: Spanish Total investment in Romania: EUR 350 million Assets portfolio (different shares: Prestige Tours, Heineken Romania, Continental Hotels, Happy Tour, Travel House, Paravion
East Balkan Properties (formerly Equest Balkan Properties Origin: UK Portfolio in Romania: Equest Logistic Center, Vitantis Mall BucharestTotal assets (June 2011: EUR 91.5 mln Total assets (December 2010: EUR 89.4 mln
Interprime PropertiesOrigin: SwedenTotal investment in Romania: EUR 34.6 millionRecent investment (2010: land of former Timpuri Noi factory, whose surface exceeds 5 ha, for EUR 34. 6 mln
SOURCE: Companies
PRINT 
EMAIL
COMMENTS
There are 0 comments:
Share on Facebook
Share on Twitter
Email
Print
