FCC and Caja Madrid’s real estate scout focus on local residences

In the context of generally lower confidence due to the world-wide financial crisis, some late-entry developers have adopted a cautious approach to the local market.
They don't feed the headlines throwing around big numbers, and some of them fly below the radar, despite having the financial clout to show off more.
Spanish developer Realia, majority-owned by Spanish FCC and Caja Madrid bank, entered the market late last year, when it opened a representative office in Bucharest.
“Entering the market at the end of the boom period meant we had to deal with the highest land prices for Bucharest. I am trying to avoid a similar situation for other cities in the country, where prices are still going up,” Cristian Badoiu, general manager of Realia Romania, tells Business Review. This disadvantage may however turn into a strong point, as at the time Realia expects to deliver its first apartments in Romania, in 2010, Romanian buyers should have already had experience in judging new residences, says Badoiu.
Although the developer is building offices, retail and residential in other markets where it is present, the strategy for Romania is to focus on residential.
Realia will start with a first project to deliver 270 apartments close to Calea 13 Septembrie in Bucharest. The company bought the 8,400 sqm former Libertatea bread factory in the area for EUR 12.2 million and is planning to demolish the existing building in order to build four apartment blocks on the site.
This type of project should be the smallest kind planned for Romania, where the firm can develop up to 700 apartments per project. Investments should vary accordingly between EUR 20 million, which is the size of this first project, up to EUR 100 million per project. Works on this project could start next year, after demolition is ready and all permits received.
The apartments in the project will likely be priced at around EUR 1,800 per sqm, depending on when the developer is able to start construction works.
After 2010, Realia hopes to deliver around 500 new apartments each year, says Badoiu, and on the medium term, the development in Romania could exceed Realia's activity in Poland, Spain and Portugal, markets on which the development company is present.
At the moment, Realia is looking at buying plots of land for its future residential developments, with negotiations with several parties underway. Its budget for buying land in 2008 is EUR 130 million, but it could increase if necessary, says Badoiu.
For Bucharest, Realia will only look at sites inside the city, from a minimum of 2,500 sqm to several hectares.
“We had negotiated for a 2.5-hectare piece of land, but after due diligence, we decided to withdraw from the deal. We could have built 750 apartments on the site,” Badoiu explains.
After looking at several plots of land at the end of last year and the beginning of this one, and ruling some out due to higher prices, Badoiu has witnessed a slight decrease in the price of land. “In the last two months, land owners have started to ask lower prices. What was priced EUR 2,800 per sqm two months ago is now on sale for EUR 2,600. The lack of equity after the financial crisis and the drop in share value of listed buyers has left potential buyers with less money to invest or less willing to invest fast, and land owners have reacted accordingly,” he explains. The first quarter of the year was comparatively dead for the real estate market, says Badoiu.
Realia's budget for Romania could increase provided there are good opportunities, several of which have started to come Realia's way. Smaller Spanish developers already present in Romania have offered the firm the chance to partner for their residential projects, in
exchange for the financing they need.
The Spanish developer is also looking at cities such as Cluj-Napoca, Sibiu and Brasov for land, although at the moment it is focusing less on secondary cities.
Its target for profit margins for the residential projects planned in Romania is between 20 and 30 percent, which is, in Badoiu's opinion, a normal profitability rate.
Offices, a segment in which Realia is investing in other countries as well, are not so much of a target in Romania. The company has received offers on the local market to become a partner or buy projects both underway and already completed, but the Spanish managers have decided not to do so, and to stick with residential. “For Realia, it is more tempting to buy an office building in Paris than one in Bucharest, as an investment in office in a Western country is more secure than one in Romania,” says Badoiu.
Realia holds EUR 6.3 billion of assets as of yearend 2007. Realia is 51 percent controlled by RB Business Holding, a 50:50 joint venture between FCC and Caja Madrid.
The pair also own 2.15 percent of Realia directly. The company was listed on the stock market mid-last year. Since the IPO, other investors, such as S