Octagon fits to new shape of market

The poor prospects of the Romanian real estate market have led local firm Octagon Contracting & Engineering to expand its operations abroad. Alexandros Ignatiadis, managing director and co-founder of the firm, told BR about the company’s plans for its recently established subsidiary in Iraq as well as its latest investments in Romania.

Simona Bazavan

What projects are you presently working on both in Romania and abroad?
This year we have signed four new contracts in Romania totaling approximately EUR 2 million. The first is an office building in Bucharest on Aviatorilor Blvd. Here we were a subcontractor for Bog’Art, executing the building’s infrastructure. It is a five-story building with three underground floors.

The second project was signed with Aktor Group as subcontractor and the beneficiary was the National Roads Administration. Octagon executed consolidation works on 7 km of road between Drobeta Turnu Severin and Lugoj. The third is a residential project in Constanta. We have also signed an addendum to the OMV Petrom contract for the Petrom Brazi Power Station for the construction of secondary roads and platforms. As part of this project, Octagon has carried out structural works for 42 buildings and sections of the power station, installations and architectural works.

At the end of 2010, Octagon was appointed specialist contractor for the Hermes Business Campus office building developed by the Belgian Atenor Group in Bucharest. The EUR 5 million contract covered geotechnical works.

How attractive is the Romanian real estate market compared to other regional markets where you have projects?
For starters one should differentiate between these regional markets. Among them are countries that are EU members like Romania, Greece and Croatia. There are also those that are hoping to join in such as Serbia and Albania but these have a long road ahead. And there is Turkey which is a unique market compared to the rest. In Turkey, the macroeconomic context, growth and development rate are completely different and one cannot compare it with the others.

Romania is more attractive than other countries in the Balkan region because of its size – it is a larger market. However, when considering the growth perspectives, it is not attractive as there is no demand, from private investors or from the state. To sum up, right now Romania doesn’t have growth perspectives for reasons that relate both to the world economy – and especially the related domestic governmental policies – as well as the economy in general.

Greece is also unattractive due to the present economic situation. Albania, Serbia, and the rest of the countries in the Balkan region are less attractive markets as they are smaller and more fragmented.

Do you plan to extend on new markets?
Our expansion outside Romania was a consequence of the economic crisis hitting the country and the downturn of the local real estate market. Until 2009 we delivered projects only in Romania. The works we delivered involving residential and office buildings in Bulgaria, Greece and Turkey haven’t had a significant share in our profit but we plan to have a more and more significant presence on external markets. There will be a tendency to increase exposure on foreign markets, especially Iraq, as a consequence of the slow evolution of the Romanian real estate market.

What can you tell us about the company’s subsidiary in Iraq?
We haven’t signed any contracts in Iraq so far as we set up the subsidiary there only recently. This year we will focus on registering the subsidiary and establishing relations with potential clients. We hope that it will become operational by the end of 2012. The estimated investment for the first year will be EUR 300,000. The projects we are looking for in Iraq are the same as on other markets, meaning general contracting or subcontracting for geotechnical constructions. We hope than in two years’ time, 70 percent of our turnover will be generated by the operations in Iraq.

Which of the segments of the local real estate market has been the worst affected in the past couple of years and where have you seen recovery this year?
The residential market has been obviously the most affected by the economic crisis, followed by office, retail and infrastructure – the least affected. This year we have witnessed a slight pickup in the office and retail segments following direct investments made by some retailers and new brands entering the market, but also because works on some shopping malls that had been postponed or sold to new owners have resumed. In 2012 we expect a strong recovery for infrastructure but not so much in the sense of starting new projects. We will see an intensity of auctions and contracting which will also be boosted by the fact that there will be elections in 2012.

Do you see demand for restauration and consolidation works on historical buildings increasing?
This segment will grow for two reasons. First of all, the absorption of EU funds for such projects will go up. Secondly, many of the existing old buildings are closing their time limit and there is the risk of collapse which can be avoided through renovation and consolidation.

We expect a gradual and constant growth of this segment over the next four to five years. Such projects are complex and hard to execute considering that there aren’t many people left who know old construction techniques. And many of these buildings have to be renovated using the technique used when they were built. Also, these works are expensive and it is hard to estimate the total investment from the beginning because as works advance, one can discover structural problems that weren’t obvious in the first phase and which generate additional costs.

Usually the costs are double compared to investing in a new building. If we were to build a new building on the same plot of land, with a similar architecture, we would require about half of the money needed for the renovation and consolidation of the old building.

What is the company’s strategy for 2012 ?
Next year we don’t plan to expand on new markets but we intend to consolidate our local business and continue our efforts in Iraq. As for new investments, Octagon has become this autumn the main shareholder of Comat Electro logistics base which covers 20,000 sqm of industrial halls. The investment was EUR 2.5 million. We plan to invest another EUR 8 to10 million in expanding the industrial park with new production halls and warehouses as well as constructing an office building for those working there. We estimate that works will start in late 2012, early 2013.

What were the results reported in 2010 and so far this year?
Last year Octagon reported a turnover increase of 39 percent, taking the total to EUR 14.3 million. The profit was EUR 117,000. In the first semester of this year we reported a EUR 6.5 million turnover and EUR 324,000 profit. The turnover objective for 2012 is EUR 20 million.

Why did you decide to set up the company six years ago and what kind of services do you offer?
Octagon Contracting & Consulting executes special geotechnical works – diaphragm walls, slurry walls, bored piles, micropiles, grouting, anchors, sheet piles – general contracting, concrete structure works, steel works and restoration and consolidation works for historical buildings.
I set up the company in 2005 with my partner Paschalis Paganias, after we both had long professional experience in various executive director positions with the Greek construction companies, Diekat and Themeliodomi.

simona.bazavan@business-review.ro

CV Alexandros Ignatiadis
2005 to date – Main shareholder (84.1 percent) and member of the board of directors at Octagon Contracting & Engineering
January to June 2005 – Managing director of Global Emerging Property Fund, Bucharest
2001 to December 2004 – Member of the board of directors of Diekat ATE, Athens
July 1995 to December 2004 – Managing director and vice-president of BoD of Diekat Construct, Bucharest

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