Decision Time
With a home in a new Spain facing high unemployment, but fresh opportunities in their country of birth, many Romanians face a dilemma on whether to return
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The end of Spain’s over-exuberant construction boom and the rise in unemployment in the country is affecting many of the 720,000 Romanians living in the Iberian nation.
Huge numbers of Romanians who left to work in construct ion are now facing joblessness in Spain. On paper Romania should offer a complementary opportunity such as rising salaries and demand for skilled labour, especially on building sites.
However many Romanians have settled their families in Spain and taken out long-term mortgages. With their breadwinners facing unemployment, families risk failure to keep up with repayments. Selling up and leaving is not an option because the value of many of these properties is lower than the price for which many Romanians paid. A sale would leave them in negative equity. Romanian families are in a Catch 22 situation - they cannot afford the mortgage in Spain and cannot go back to Romania without losing all they have built up abroad.
“They are suffering the same consequences as the Spanish, Americans and British and if they lose a job in construction, they have to look for another job in a different sector,” argues the Spanish Ambassador to Bucharest, Juan Pablo Garcia-Berdoy y Cerezo. “It is a little bit dramatic to say that Romanians are stuck in Spain, because they can come back to Romania at any time and nobody is putting them in jail or anything.”
Spain also cushions the blow with unemployment benefits and fair education and health systems. “The benefits of the social securities system give jobless Romanians a good landing until they find a new job,” the Ambassador says.
It may take three years before the Spanish construction market gets back on track, argue Spanish real estate developers. These firms are now focusing on the growing Romanian market, even though this is also witnessing a correction.
“It would be a mistake to differentiate between Spanish and Romanians, because in the end we are talking about EU citizens who share the same space and the same problems,” argues Garcia-Berdoy y Cerezo.
One interesting scenario which could emerge is that Romanians could settle their family in Spain and commute to Bucharest to work on a construction site, while sending cash back to Iberia.
Diversifying interests
Spanish investment in Romania is most visible in construction, real estate and infrastructure. But there is a multitude of different interests, including car parts manufacture, wind power and Spanish IT company Indra, which has won an 18 million Euro contract to introduce an IT system for traffic control in the Black Sea.
Many large Spanish construction and infrastructure companies are still not present in Romania, but this is because few of these great Spanish firms will enter Romania for only a 100 million Euro contract. “I do not see any evolution regarding the state of infrastructure in Romania,” says Rosa Sanchez-Yebra Alonso, the Spanish Embassy’s chief economic and commercial counsellor.
She adds that European funds are not key to building infrastructure, but Public Private Partnerships (PPPs), which have not properly established in Romania. “As long as PPPs are not functional in Romania, concessions for motorways cannot happen,” says Rosa Sanchez.
Romania also suffers a deficient and unpredictable legislative system. “In a civil society before a new law is introduced, all the parties in the sector affected by the law are consulted by the Government or Parliament,” says Rosa Sanchez. “In Romania this does not take place.”
Spanish companies complain that local authorities do not respect the legal terms for issuing permits needed to develop their business. Authorities also delay paying construction companies for finished works.
“The lack of infrastructure should be of national interest because, in the future, when the salaries will level with European standards and infrastructure will continue to be deficient, Romania will stop being competitive in comparison to other countries in the region in attracting foreign investment,” adds the economic counsellor.
by Ana-Maria Nitoi
Grupo Lar: foreign real estate investors vanishing
Residential sales have dropped since last spring, while new investors are also avoiding Romania.
“Foreign real estate investors have disappeared, not because the Romanian market is no longer attractive, but because they are frightened by the fall of other European real estate markets and the US credit crunch,” says Ionut Dogaru, country executive director at Grupo Lar. “The time when apartments were selling very fast has gone and will not come back soon.”
Grupo Lar’s sales on its Bucharest-based projects Serena and Natura Residence projects have also dropped since last March. The company has sold 77 per cent of the 186 apartments in Natura Residence in Baneasa for delivery at the beginning of 2009, while the company will finish its Serena residential project in 2010. In the same year Grupo Lar will start a new development near Parcul Politehnicii with 200 apartments in a 30 million Euro investment.
Grupo Lar has opened an office in Cluj-Napoca, where it will build two residential complexes with 600 apartments in total in the southeast near Iulius Mall and in the north on Strada Fabricii. The company is looking at cities around Cluj-Napoca for future developments.
Grupo Lar
Real estate developers
■ Projects Bucharest:
Natura Residence, Aleea Privighetorilor, Serena Residence, Sos. Viilor,
Residential project, Parcul Politehnicii
Bogaris: housing, office and hotel project for Constanta
Spanish company Bogaris will start this year the development of a mixed-use project in Constanta centre near Tabacariei Lake.
‘Marina Park’ will include office spaces, a four-star hotel and around 2,000 apartments for delivery in 2013. “In the first stage we will build the commercial centre and the first residential building,” says Alfonso Otero Zapata, country manager of Bogaris.
The company has also acquired a land plot in mountain resort Busteni, Prahova county, where it plans 400 holiday and weekend apartments. “We will probably start construction in the first half of 2009,” says Zapata.
The company is building retail parks in middle size cities such as Alexandria, Ploiesti and Giurgiu for retailers such as Penny Market, Lidl, Altex and Auchan.
Now Bogaris is preparing to launch an industrial project development division in Romania. “We look for the best locations, acquire the land, get the permits for building the factories, build the factories and then we rent them over the long term,” says Zapata. “The only thing tenants have to do is to bring their machines.”
Bogaris
■ Business areas: real estate, energy, agriculture.
■ Total investments in real estate: 600 million Euro.
■ Real estate projects:
Marina Park Constanta
Residential project in Busteni (Prahova county)
Office building, Pta Charles de Gaulle, Bucharesthe energy division of Bogaris is developing two wind power stations with capacities of 200 MW in Facaieni, Ialomita county and in Harsova, Constanta county.
GranVia Real Estate: one
billion Euro slated for 6,000 homes
Since 2006 Spanish real estate developer GranVia Real Estate has spent 100 million Euro on four large land plots in west Bucharest and Constanta through project management company IMGBusiness and plans investments of one billion Euro in 6,000 living units.
The three land plots in Bucharest are located in Drumul Taberei on former factories Tricodava, Frigocom and Electrotehnica. “These projects focus mainly on residential units and commercial areas, but we also have a hotel and three office buildings in our plans,” says David Martinez Vallbona, project manager, GranVia Real Estate.
On the former Electrotehnica factory, the first 500 units of a total of 1,500 apartments will be delivered by mid-2011.
Vallbona is not worried about the slowdown on the residential market in Romania, because supply is still low compared to demand. “We have no intention of stopping or slowing down our residential projects,” he says.
GranVia Real Estate
Owns project management company IMGBusiness
■ Four ongoing projects: three in Bucharest and one, under construction, on the outskirts of Constanta
■ Total assets value: 105 mil. Euro
FCC: Deals worth half a billion Euro in Romania
With a portfolio worth over 500 million Euro in Romania, infrastructure construction company FCC Construccion won this year the bid for the design and construction of Constanta bypass in a 142 million Euro deal.
The 22 km long road is located west of Constanta and includes five interchanges, plus six viaducts, six bridges, eight flyovers and six underpasses.
In 2007 FCC won the tender for the construction and expansion of national roads between Livada-Dej, Filiasi-Petrosani, and the northern circuit of the Bucharest ring road, which includes a 240 metre bridge.
FCC is also working on the widening and upgrading of the 52.2 km Timisoara-Lugoj section of national road DN6.
The company is now building the Basarab viaduct northeast of Bucharest for 135 million Euro and the bridge over the Danube that will connect Bulgaria to Romania.
FCC Construccion
Infrastructure construction company
■ Ongoing projects:
Constanta bypass
■ Expansion of national roads DN1 C Livada-Dej and DN66 Filiasi-Petrosani
■ Expansion of northern circuit of Bucharest ring-road
■ Widening and upgrading of Timisoara- Lugoj section of DN 6
■ Basarab flyover
Hercesa: real estate market seeing healthy correction
The real estate market slowdown and tougher consumer credit regulations enforced by Romania’s central bank will not affect the development of ongoing residential projects, argues Alejandro Solano, director of Hercesa Romania, but they will influence developers’ future investment plans.
“We have 5,000 dwellings under development and we are not in a rush to invest in new projects if we do not consider them real opportunities,” he says.
The residential market is undergoing a correction after three years of continuous growth. “When we entered Romania, we knew that the market could not have a 40 per cent growth rate forever and this is a healthy correction,” says Solano.
Hercesa has so far sold 220 apartments of 1,400 in its Vivenda Residencias project in east Bucharest. Construction on this project will be completed by 2012. The company has just launched a mixed-use project in Bucharest, Estellas Residencias, which will start construction next year.
The firm is waiting for construction permits to start work on a 3,500-unit residential project in Ghencea, developed in partnership with Greek investment fund Bluehouse.
Hercesa will also build a four-star hotel in Bucharest in affiliation with a Spanish hotel chain which is not yet present in Romania. In addition the company purchased former Hotel Cismigiu on Blvd Regina Elisabeta and plans to turn this into a 67-apartment luxury hotel.
Hercesa
Real estate developer
■ Projects in Bucharest:
Vivenda Residencias, Blvd Basarabia
Estellas Residencias, Blvd Orhideelor
Residential project in Str. Brasov
Luxury hotel on Blvd Regina Elisabeta
Four-star hotel on Str. Mircea Voda
■ Total investments: 65 mil Euro
Sedesa: finishing pilot programme for Bucharest historic centre in 2009
Spanish construction company Sedesa will finish in 2009 the rehabilitation of the streets and the networks in part of Bucharest’s historic centre.
This includes design and execution of roads and utilities in the area around Strada Lipscani, Splaiul Independentei, Calea Victoriei and Blvd Bratianu.
Since spring 2008, the company has also been modernising Braila’s historic centre. “Works include improvement of the water supply network, sewage collection and new green areas,” says Alejandro Urciuolo, general manager of construction division Sedesa Romania. “We will conlude this by the end of this year.”
In Dambovita county, Sedesa is building a modern industrial park on the premises of an old military base in the Priboiu-Branesti area. Next December Sedesa will finish the rehabilitation of 42 km of motorway to Alexandria to improve the traffic on Strada Turnu Magurele-Nikopole.
Sedesa
Construction company
■ Divisions: Construction, energy, concessions, real estate
■ Projects: Rehabilitation of Bucharest’s historic centre, modernisation of Braila historic centre, rehabilitation of Turnu Magurele-Nikopole road, Priboiu-Branesti Industrial Park, Dambovita county.
Ibiza House: delivering Pipera apartment complex this year
Real estate developer Ibiza House will deliver by the end of this year all 304 apartments included in Ibiza Sol complex in Pipera, near the American School.
The company sold half these apartments at prices ranging between 1,250 and 1,750 Euro per sqm. “People are more interested in ground floor apartments, so these apartments are now more expensive,” says Federico Carapuig, marketing & sales manager of Ibiza House.
Pipera is attractive for residential developments due to the large number of green spaces, shopping centres and its proximity to two International Airports and the British and American Schools. Ibiza House has delivered four more residential projects in this area. The company also owns two land plots in Bucharest near Calea Calarasi, where it plans to develop an office building project and a mixed use project including offices and 120 apartments.
Ibiza House
Real estate developers
■ Delivered projects: Ibiza House, Ibiza Club, Ibiza Golf and Ibiza Golf&Light- all in Pipera, Voluntari county.
■ Ongoing projects: Ibiza Sol- Pipera, Voluntari county.
CP International: aiming to deliver new block in 2010
Spanish real estate developer CP International last July started building 144 apartments in north Bucharest overlooking Plumbuita Lake. “We hope to deliver the building in the second half of 2010,” says Bosco Gutierrez, general manager of CP International. The company invested 25 million Euro in this project and the selling prices per sqm range between 1,300 and 1,900 Euro per sqm. CP International is also planning to build a small office building in north Bucharest. “We are in the process of acquiring all the necessary construction permits and hope to start works in six to nine months,” says Gutierrez. The company is also targeting Cluj-Napoca and Timisoara for future developments.
CP International
Real estate developer
■ Investment plan: 100 mil Euro in residential and office over the next three years
■ Projects: Lakeland Residence, Strada Fabrica de Gheata, Bucharest
Pryconsa: 1,000 apartments in west Bucharest
Real estate developer Pryconsa is working on its first residential project in Bucharest - Buna Ziua Rezidential - in west Bucharest on the site of the former factory Tricodava.
This will include 1,000 apartments, from studios to three-bedroom apartments, and 5,000 sqm of shopping space, plus a swimming pool, playground and fitness centre.
“We expect to deliver, at the end of 2010, 400 apartments in the first phase of the project,” says Jose Manuel Sanchez, director at Pryconsa.
In the last three years land prices have increased dramatically in Bucharest and Romania’s main cities - but this is abating. “Starting in 2008, the land market has slowed down with a reduced number of transactions and now prices are adjusting to real demand,” says Sanchez. He adds that Pryconsa is finding more opportunities than one year ago and expects this trend to continue for the next twelve months. According to Sanchez, offices and commercial segments on the real estate market seem to be most profitable at this moment.
Pryconsa
Real estate developer
■ One ongoing project: Buna Ziua Rezidential in Drumul Taberei Bucharest
■ Total assets portfolio: 35 million Euro
Grupo FDP: small real estate investors leaving Romania
Romania has become a difficult market situation for real estate, says co-managing partner of property management company Grupo FDP Daniel Prieto, because there are no longer small investors in plots of land, apartments and villas.
The appetite for investors buying off-plan has dropped. Last year sale prices increased up to 30 per cent every three months. But in 2008 sales have dropped by up to 50 per cent on the previous year and Prieto does not expect to see growth in the next 12 months. “Romanians are afraid of buying off plan,” says co-managing partner Grupo FDP Florentza Barbu.
Residential prices on new apartments are too high for an average Romanian earner, while the financing environment is also tough. New regulations from the Romanian central bank will also make it harder for end-users looking to take out a mortgage. “Demand will decrease and prices will need to go down,” says Prieto.
Grupo FDP manages properties for non-resident investors. The company has the power of attorney to buy and sell properties in the name of investors. In addition, it undertakes rent collection, tax payments and paperwork. Many investors in property in Romania, especially those from the UK, do not bother coming to the country. They buy an apartment off-plan and then sell in a year, happy with a ten per cent return.
Barbu argues that her company has had a more rapid rate of sales than real estate agencies because she sells to the end user without charging the buyer a commission – meaning sales are three per cent cheaper.
Grupo FDP
Property management
■ Role: manages Romanian properties for non-resident investors
■ Portfolio: includes flats in Quadra Place, Politehnica
Garrigues: less speculation on market
Spanish investors are changing from showing a speculative to a strategic interest in Romania, argues Mihai Mares, partner at the Romanian branch of law firm Garrigues.
“The real estate sector is calming down, but there is huge interest from construction companies in entering the market,” Mares says.
The financial crisis in Spain has cleared Romania of many small and opportunistic investors from Iberia. Now mainly large companies are entering Romania. “These are not small speculators buying four or five apartments and a few plots of land and then disappearing,” says Mares.
This includes interest from investment funds, large energy companies and banks looking to take a stake in a project or construction companies. Energy utility giant Ibedrola has recently bought a wind project in Dobrogea from Rokura. “There is lots of interest from nuclear to wind power,” says Mares.
While the exuberance of the real estate market is cooling, Bucharest still has a massive need for offices. “There is a huge opportunity in hotels in Romania and Bucharest, where prices are still very high for services and conditions,” says Mares.
The Spanish law giant entered Romania this year through the takeover of Romanian-based law firm Mares and Associates. “We propose to enter the top ten law firms in Romania in the next four years,” says Mares. The company will probably increase its lawyers from 12 to between 40 to 50 lawyers.
Garrigues
Romanian branch of Spanish law firm
■ Specialises: banking, energy, real estate, construction and tax law
■ Looking to develop: litigation, arbitration, M&A
■ Lawyer to equity partner ratio: 12:3
■ Spring 2009: target to increase lawyers to 20
GED: turning towards travel market due to sharp growth
Private equity fund GED intends, in the next two to three years, to invest 50 million Euro in middle-market companies backed by management with a strong vision and will add 20 million Euro to its existing portfolio, says Robert Luke, managing director of GED.
The private equity company completed its fifth transaction with its GED Eastern Fund II in an investment in Romanian travel agency Happy Tour at the end of 2007.
“There has been a sharp growth in the travel market in recent years,” says Luke. “The growth of the Romanian economy is bringing a lot of foreign businesses to the country as well as making national ones grow.”
GED intends to reinforce Happy Tour with new management and an independent business specialist in the Board of Directors to change a family owned business model into an institutional company.
If there is an opportunity, GED will try to internationalise Happy Tour by acquiring other tour operators from the south and east European region.
For 2008 Happy Tour estimated total revenue of over 55 million Euro and expects to increase this in the next three years.
According to Luke the most promising Romanian economic sectors are services such as engineering, medical, finance, distribution and leisure, infrastructure and energy related businesses, agriculture and pharma.
GED
Private equity fund
■ Portfolio in Romania: Rosegur, Romanian Real Estate Partners, Dasimpex, Happy Tour
■ Active: in south-east Europe and Iberian peninsula
■ Total fund volume: 350 million Euro
Iberinsa: giving more attention to Romania
Consultancy engineering company Iberinsa is specialised in carrying out civil, hydraulic, industrial and environmental engineering studies and projects. In Romania, Iberinsa has only a small branch where around seven people are working. “Our headquarters in Spain have decided to give more attention to the operations in this country,” says Eugen Zubcov, director at Iberinsa’s branch in Romania. Now Iberinsa offers the City Hall of Galati consultancy on a project targeting solid waste management. The local authorities have to close down the current rubbish dump and construct a modern facility.
Iberinsa (Iberica de Estudios e Ingineria)
Part of Acciona
■ Year of establishment: 2004
■ Consultancy in infrastructure projects and civil works
One branch in Romania
■ Employees: seven
Prointec Romania: main focus on infrastructure work
Engineering company Prointec last year bought 60 per cent of the shares of a Romanian counterpart Consis. About 80 per cent of Prointec’s activity is now focused on infrastructure works and the remainder on private projects in real estate.
“The office in Romania will be the basis for the establishment of the company in all east Europe,” says Esther Gonzales Diez, general manager at Prointec Romania.
The mother company is now focusing on development outside of Spain. The company develops road projects, wants to get involve in waste management projects and offers project management and design for residential and commercial units.
Many of Prointec’s projects in Romania involve the rehabilitation of railways. Now the company is creating the design for four sectors of railway on the Pan-European Corridor IV, which leads from Constanta to Bucharest up to the western Romanian border with Hungary. The Spanish engineering company also won a project to review the stability of about 300 bridges in the Romanian railway network.
Prointec Romania
Engineering, architecture
■ Consultancy and project management
■ Owns 60 per cent of the shares in Romanian engineering company Consis
■ Value of projects: around 20 million Euro
■ 2007 turnover: seven million Euro
■ Employees: 120, out of which 90 per cent are engineers
Dytras: betting on European funds flow
Working on five projects in Targu-Mures, Botosani, Suceava, Pascani and Slobozia, infrastructure company Dytras has increased its turnover by 200 per cent on last year’s figure and is expecting to continue its development once the European structural funds flow faster into Romania.
Dytras focuses on designing drinking water and wastewater treatment plants for medium-sized towns, but also on the management of the plants.
Four of the five ongoing projects target wastewater treatment plants which, according to Ovidiu Lucian Saniuta, executive manager at Dytras Romania, are more difficult projects to design than water treatment plants. The former treats waste water from the sewage network, decontaminates it and empties it back into the river, while the latter treats river water and makes it drinkable.
Saniuta explains that sometimes projects are delayed because there are too many parties involved who can influence the development of the works. This includes the contractor, the beneficiary, the beneficiary’s consultant, the environment authorities and the authority that issues payments.
“We are betting on European structural funds to a higher extent than on European pre-accession funds, because they are so much larger,” says Saniuta.
Dytras Romania
Engineering and construction company, focused on drinking water and wastewater treatment plants
■ Value of projects ongoing: 55 million Euro
■ 2007 turnover: nine million Euro
■ 2008 predicted turnover: 17 million Euro
■ 2007 profit: 0.3 million Euro
■ 2008 predicted profit: 0.5 million Euro
■ Employees: 70
Creare: aiding access to EU funds for training
Recruitment selection and training firm Creare offers consulting services to companies active in Romania to develop their human resources through EU structural funds.
Creare evaluates a company and sets up a coaching or staff training plan including a project designed to attract non-reimbursable EU money.
“What we want is to make Romanians understand this is an extraordinary opportunity and they should take advantage of the money offered by EU that will help them to further develop their business through training professional personnel,” says Josep Pau Hortal, president of Creare.
What Romania is suffering is the lack of workforce in every sector of its economy. Hortal argues that a solution may be to offer incentives for those working abroad to come back and work here. The psychological problem with Romanian workers at the moment is that they are attracted by large wage packets, without taking into account whether or not the choice of career is sustainable in the long-term.
“People are only concentrating on big salaries disregarding whether they like what they are doing or if it will help them further in their career,” says Hortal.
Creare
Business consultancy
■ Forecast turnover 2008: 300,000 Euro
■ Forecast turnover 2009: 900,000 Euro
■ Employees : five plus 10 consultants
NH Hoteles: revenues up 11 per cent
Running hotels for a mainly business class in Romania, NH Hoteles’s two Romanian units, Bucharest and Timisoara, have seen respective ten and 11 per cent increases in total revenues in 2008 on the previous year.
Although there are no deals yet signed to open further branches in Romania, Elena Dumitrescu, general manager of NH Hoteles Romania, says the hotel group’s plans “provide for” new openings in central and eastern Europe, including Romania. In Bucharest the guests come from mainly Spain, Germany, Austria and Italy and, in Timisoara, from Italy and Germany.
Tourists have not flocked to the capital in recent years and the weekend occupancy rates for NH Hoteles has not accelerated this year on the last.
NH Hoteles
Hotel chain
■ NH Bucharest 2008: 74 per cent occupancy so far
■ NH Timisoara 2008: 68 per cent occupancy so far
Azora: private equity moving in while real estate market adjusts
Spanish private equity company Azora Europa has budgeted 250 million Euro for investments in Romania by 2014.
“We will invest mainly in Bucharest, but we are looking at large cities such as Brasov, Cluj-Napoca and Timisoara,” says Simona Gheorghe, Azora Europe’s executive director for Romania. The company is now in due-diligence for the take-over of 50 per cent of a 700-apartment project in Bucharest Sector 1.
“We will focus on residential projects, but we do not rule out the possibility of investing in office building projects,” she adds.
Azora entered Romania this year at a time when developers began to feel the heat of the real estate market decline. This is a possinly the perfect moment for an investment fund to buy into a project at a lower price.
“We consider this moment very interesting, because we see that the prices are moving to the place where they should be and we would like to take advantage of this market adjustment,” says company representative Martin Valle Duran. “The market is starting to mature. Some developers affected by the cash crisis will exit the market, while others will become more willing to sell the projects on normal prices. That is why we consider this period favourable for investments.”
Azora Europa
Private equity company
■ Investment plan: 250 million Euro by 2014
by Alexandra Pehlivan, Ana-Maria Nitoi,
Michael Bird and Corina Ilie
