Leaving the land of confusion: Genesis head expects more sustainable growth for office sector

Newsroom 07/05/2014 | 07:54

After opening one office building after another, both before and after the crisis, Romanian realtor Genesis Development is now entering a consolidation phase, Liviu Tudor, the company’s president, told BR. Should an opportunity present itself, the developer is ready to resume expansion, but, overall, the market is showing no signs of a paradigm shift.

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Simona Bazavan

Last November you said the crisis would last another eight, ten years. Do you still believe this?
Yes, I said that and afterwards there were some negative comments about this statement. I told you back then that this was something that I could back up with arguments. Unfortunately, I believe it will take more than eight, ten years given the recent developments in Europe and around the world. It will be a long crisis of more than ten years, so long that it is no longer appropriate to call it a crisis but another way of doing business. Before, there was a fast development period while now – although there continues to be ups and downs – money is moving at an entirely different speed. Basically, capital is still running after profits but the speed at which this is happening is different. Addressing the systemic issues that led to the collapse will take time. But the fact that the development pace has changed is not necessarily a bad thing.

Talking of the European context, does the situation in Ukraine impact the local market in any way?
Not in a major way. However, there are some companies that want to relocate their operations from Ukraine to Romania. These are mainly IT companies because it is easier for them to relocate. They are looking at Bucharest and I know of such companies. We are in advanced negotiations to sign one such relocation deal, but it is too early to say more.

What about the overall evolution of the real estate market?
If we are talking about the real market, then it should be broken down into its main components – office, commercial, residential and logistics. Each has its own dynamic and I can only talk about office. Here, things are relatively okay, by which I mean that the relocation of companies from the West to Romania and the expansion of some of the existing tenants is something that continues. These are mainly companies from Western Europe and the US. They come here attracted by cheap labor costs, rents and a coherent economic and legal system.

And has this trend of relocations to Romania been growing of late?
It has been pretty constant since 2009. I suppose this is something that speculative developers have counted on and this has been their vision. I see that they are delivering office buildings and starting new ones.

What about you? Are you planning the construction of a new office building?
We have been building throughout all this time and now we would like to take a break, if it is possible, and consolidate this growth.

And what will this consolidation involve?
Because we have grown at a fast pace, even since the crisis started, we feel the need to introduce training programs for our teams in order to change from a fast growth paradigm to a continuous upgrade paradigm. So we are no longer interested in building at a fast pace and launching new buildings, but instead want to upgrade our buildings to a world quality level. We want there to be no difference between a non-central office project in London, Paris or Munich and ours. This is the target.

This will mean investments in the actual upgrade of the buildings, technological and design upgrades. It will also mean green upgrades. All our buildings now have a BRIAM certification.

We want our buildings to look the same as they did the day they were inaugurated so that a tenant who is a newcomer thinks the building was just opened. Continuous upgrade is a complex concept and it requires numerous elements. It is hard to do and it is not usually done.

And how long should this phase take?
I would like it to take about a year or two. This should also be a time during which we change our team’s mentality from growth and expansion at all costs and to meeting the requirements of tenants who relocate. We have brought know-how and trainers from the UK. We have been working with the British Institute for Facility Management (BIFM) for several years now and we have aligned to their standards. Our people need to be as qualified as those in London.

How much are you investing in this?
We are talking about more than EUR 1 million in human resources and software. For continuous upgrades the budget runs to several millions. I don’t have an exact figure but it will be around EUR 3 million to EUR 4 million over the next five years.

And at the end of this period will you resume the construction of new office buildings?
We will resume depending on demand. If one of our tenants wants to grow and we have no space available to offer we will start a new project. But only then. We don’t do speculative developments. There are two broad ways to look at a developer. There are the speculative developers who build a project first and then start looking for tenants, and at the other end of the spectrum there are those who pre-lease 80 to 100 percent of an office project and then start the construction. We are not speculative developers and we never have been. Not even before the crisis. So it is not a change of attitude. I admire the courage of those who do speculative developments because they take on a lot of risks.

Have you seen banks being more open to financing real estate developments of late?
I don’t think so. I am not very active in this direction but banks having an appetite to finance real estate developments is something that one would immediately notice. Unfortunately this is no longer trendy. It used to be, but since the collapse, since the bubble burst, banks have become reluctant. However, this doesn’t mean that if one has a good plan for a real estate development it won’t get financing. It is a not a complete refusal from the banks, only that they are not as open towards real estate as they are towards other sectors, such as energy for instance.

There has been talk recently about the start of a new real estate cycle. Is this the case?
I think this is the “w” we were talking about in 2009. After a very abrupt fall there will be several attempts to restart things, a psychological kick-start when we all pretend that we have resumed everything and that there is a powerful comeback. It has a lot to do with psychology and I think this is what we are experiencing now. The basic requirements for a powerful comeback of the real estate sector are not there. As the name suggests, real estate is a solid business where one can place liquidities, but it doesn’t function at high speed. And I’m not convinced this is a bad thing.

So, we are basically looking at slower, more solid growth ahead?
More solid, more sustainable, based on more solid grounds and built upon better research. And as long as there are empty blocks, I don’t see why there should be faster growth. As long as there are empty office buildings, I don’t see why new ones should be developed. There are empty projects and I don’t understand this speculative development. However, it is a way to develop real estate and it requires courage and boldness.

Do you plan to invest in new sectors or perhaps expand into residential?
No. There is a rule that I have learned from bankers which is that during crisis time one must keep one’s position. I have never considered investing in residential. The West Gate campus is not a residential project in the actual meaning of the word, but sustainable housing for special categories. I am one of those who believe that office, residential, commercial and logistical developments, although are all under the same real estate category, actually represent entirely different businesses.

What about investing in office space outside Bucharest?
Yes, on the office side this is something I am looking at. And I am doing this because I see tenants are looking to expand outside Bucharest to the large cities. I am looking at Iasi, Timisoara and Cluj-Napoca.

Do you plan to buy land for such developments or have you already done so?
For now I am only following this phenomenon. I will decide later.

To sum up, what are the main objectives this year for Genesis Development?
The main target is to improve our team’s degree of qualification. This means training, know-how and aiming to reach European standards. Of course, if the market requires us to start a new building, we will. We are waiting to see where the market heads. If it kick-starts we will follow.

Do you see such a fundamental change taking place by year-end?
Any fundamental change can only come from the banks, because banks lend to both buyers and developers. Should lenders fundamentally change their approach to the economy, there could be some consequences in real estate as well. I don’t see this taking place right now. I see a period of consolidation and portfolio optimization taking place at European and global level. And because we are talking about giants, this optimization will take some time. Therefore, I don’t expect banks to fundamentally change their attitude.

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