Reasons for the freeze

Declaring that real estate is still hot in Romania, Troy Javaher of Jones Lang LaSalle Romania, discusses why so many deals are still on ice. Profile by Corina Ilie

July 2010 - From the Print Edition

Roasting financial power, scouting for transaction opportunities and confident that yields will return to attractive levels, big-time investment funds are still present in Romania, targeting well-located projects with decent technical details and beginning negotiations with the owners.
But these discussions are slower than before 2008 and many sellers renege on the deal just before signing-off, while others drag negotiations on for longer, in hope the market will pick up and they can ask for a higher price.
Other funds lack the courage to close transactions, fearing that investments may turn less profitable than expected and they will have to face angry shareholders.
“Negotiations for transactions are taking far too long today,” says Troy Javaher, managing director of US real estate consultants Jones Lang LaSalle (JLL) Romania. “Decisions which took three days in 2007 and 2008 are now taking eight months. Most of these deals are dancing a samba - two steps forward and two steps back, doing a lot of movement, burning a lot of calories, but going nowhere.”
Many buyers are waiting for a sale which can act as a guide to the value of property in Romania today. “If one important transaction happens, I would not be surprised to see another two or three more transactions of similar size happening quickly after,” says Javaher. “Investors need a reference point. But whoever leads the way should be a trustworthy and well-known fund that can make a transparent deal, not a mysterious one, which might raise suspicions and could be destructive for the market.”
However Javaher argues there are good offers in office and retail and states that Romania is the most attractive country in the region for real estate investments. “Investors like the way Poland and the Czech Republic look and still think they can go there and buy something at a great price, which is not true, because everyone is trying to buy there, pushing the prices up,” says Javaher.
Locally, deals are also held back by a negative perception about Romania, conjured by pessimistic declarations from owners, real estate consultants and potential investors. “If you own a restaurant and you write on the outside: ‘Do not eat here because you will get sick’, you should not be surprised if no one comes inside,” says Javaher. “Things that were positive in Romania in 2007 are still positive now, but people should stop talking negatively about the market.”
Another reason why deals do not happen is investors’ reluctance to be more flexible and structure their offers in a more attractive way for the owner. Instead of trying to find solutions to close the deals, investors prefer to wait and see, hoping distressed assets will eventually emerge. “There are people who think that having this dialogue on structured sales shows weakness,” says Javaher. “In New York people sit down and talk about it. In Romania, this is not the same.”
But unlike last year when everything was on hold, this year some deals, even if lower in value than expected, should happen. “In 2010 the investment funds feel pressured by shareholders to do something, because they were not able to buy what they wanted in 2009,” says Javaher. “There were deals that should have been done in 2009 and still can be done this year. There are good assets on the market. We are working on deals in retail and office. The funds are looking for opportunities, even those from Germany, but they need to see transactions first.”
The transaction market was not entirely dead in the first half of 2010. This year began with South African equity fund New Europe Property (NEPI) paying 50 million Euro for Iris Shopping Mall in Pitesti from developer Avrig 35. Last year the fund bought the European Retail Park in Braila for 63 million Euro from Belgian developer BelRom. NEPI is also targeting the acquisition of Jupiter City shopping centre in Pitesti.
Romanian developer Shopping Center Holding bought Tiago Mall Oradea, the first mall in Romania that went bust, from the Transylvania Insolvency House for 30.5 million Euro. Austrian investment fund Immoeast purchased 85 per cent of the 50,000 sqm Polus Center mall in Constanta, developed by Hungarian company TriGranit, for one RON, plus debts of 40 million Euro.
British equity fund Dawnay Day, Carpathian, the owner of real estate company Atrium Centers, the developer of a four shopping malls in Romania, sold its Arad mall to the project constructor, Arcadom. The mall was sold due to debts worth 39.8 million Euro, which could rise to 59.2 million Euro by the end of construction work.
Israeli developer Aura Investments offered Polish developer Globe Trade Center 37 per cent of its shares in retail chain Galleria Shopping Centers, which the two developers are building in partnership. The shares were offered to liquidate a 13.6 million Euro debt Aura Investments had to GTC. “There have been some deals in the past 18 months, which have not been fully transparent cash transactions,” says Javaher. “Most of them took over debts or share offers.”
On the residential market the number of transactions were fewer. Romanian real estate developer Euro Market Services, which is building residential project Decebal Tower near Blvd Unirii, sold the project for 2.9 million Euro to an undisclosed investment fund. British equity fund Tri Investment bought 69 flats in Eminescu View project, developed by Israeli company Future Group on Strada Eminescu, for 11.5 million Euro. Last year, Tri Investments also bought 69 flats inside residential complex Perla Residence in Pipera. Norway’s Romania Invest fund paid two million Euro for 40 apartments in Evocasa Viva residential complex, developed by US company Adama, in Brasov. There are further opportunities for small investment funds to purchase smaller projects and some investors are negotiating to set up boutique funds raising around 50 million Euro.
Javaher thinks that Romania is more interesting for investors in all areas, not just real estate, than other countries in the region, due to the cheap labour costs, Romanian talent for foreign languages, their IT brains and entrepreneurial spirit.
“I love the Romanian mentality, because Romanians are very good entrepreneurs and very creative,” says Javaher. “Even if they do not always find the best solutions to solve things, they are not afraid to start businesses. This is not a spirit you can find in the Czech Republic, Poland or Hungary.”

Who is Troy Javaher?

Before working for Jones Lang LaSalle, Iranian-Swedish American Troy Javaher set-up and sold companies in the USA and developed real estate projects in North Carolina.
“I have lived in France, Italy, Holland and New York, but I really wanted to get back to a market which was not as emerging as, say, Turkmenistan, but still with lots of development opportunities after EU accession,” says Javaher.
With a Masters’ in real estate, finance and development from Columbia University, New York City, the globe-trotting managing director worked for a non-real estate company in the Republic of Moldova, before coming to the Bucharest office of JLL as head of capital markets and eventually managing director at the beginning of 2010.