Foreign names rely on local knowledge

International brands snatch locals, focus on consolidated businesses
The formula of combining an international real estate brand and a local company has long seemed a successful one in Romania. In 2002, when DTZ, a global real estate adviser, teamed up with the local agency Echinox, the recipe proved to be a brilliant business idea. Another pioneer on the local real estate agency market is Colliers, the first large international real estate agency to come to Romania,
in 1996, following a direct investment.
At another business level, some 1,500 small agencies still covering the market slice up old apartments, with business results of up to EUR 50,000 yearly, according to last year's real estate market. Some of their representative would be happy to escape the aggressive competition and rely on a strong foreign name; others, who have already built a name on the market, say that not in a million years would they sell.
From the last two years' entries on the Romanian market, it seems that international brands prefer operating directly on the Romanian market by opening a local office or purchasing a local company.
There are cases such as the global franchisor Century 21 which signed an exclusive franchise master in 2007 on the local market, the local franchisor being Century 21 Romania, and Re/max franchisor which started its Romanian franchising network in 2006 and operates 16 franchised real estate agencies. According to Re/max, the company plans to double the number in 2008.
One of the ways a foreign name could enter on the local market is by acquiring a local brand. Medium-sized companies are usually better suited to this kind of link up than large, established brands, as the latter are less willing to cede their marker share, according to real estate specialists. But recently completed transactions seem to contradict this theory, such as CB Richard Ellis's purchase of Eurisko, one of the top players on the local market and already a local brand. The pair now have a larger market slice, combined market expertise, a cocktail of business links following a strong client portfolio and an already consolidated team.

CB Richard Ellis makes two-pronged move on local market
Hardly had 2008 began when two important takeovers – or strategic partnerships as they are styled by company representatives – occurred. Eurisko was bought for USD 35 million by the American group CB Richard Ellis (CBRE) and Atisreal, subsidiary of BNP Paribas Real Estate, the real estate division of BNP Paribas, opened an office in Romania, through the acquisition of Cornerstone International, the former Romanian-based franchise of the American company CB Richard Ellis.
With CBRE the common name in the two transactions, its seems that, as some real estate agencies' officials say, the local market is becoming more crowded and competitive. Although it is still developing, the real estate market in Romania is becoming more mature, with more defined players and business segments. By acquiring Eurisko, one of the top real estate agencies which had remained untouched by the international brand aura, CBRE has re-entered the Romanian market to operate directly. Eurisko representatives said that it was a coincidence that CBRE withdrew its franchise on the Romanian market and pretty soon after, decided to take over a strong real estate agency with a consolidated team and transaction portfolio worth EUR 800 million, according to Radu Lucianu, the country manager of the new company CB Richard Ellis Eurisko. Adrian Capraru, COO of the new company CB Richard Ellis Eurisko, says that the franchise withdrawal and Eurisko takeover transaction were not linked. “It just happened like that and I don't think that CBRE withdrew the franchise in order to later buy Eurisko,” said Capraru.

Business strategy changes for Eurisko
Radu Lucianu, managing partner of Eurisko and country manager of the new CBRE Eurisko, defines the transaction with the American group as a strategic partnership, and not a pragmatic takeover. “With this partnership, the newly formed company will be provided with the international know-how and background from the strongest real estate commercial services supplier worldwide. This means added value for our clients and a strong link with CBRE's corporate clients and investors who are active in the region,” said Lucianu.
Furthermore, CBRE Eurisko will make some changes to the business strategy, with a focus on the evaluation segment and investments, following the American group's business structure which derives 30 percent of its turnover from evaluation services and 30 percent from investments, according to Lucianu. In 2007, according to Eurisko officials, the company provided consultancy studies and advice for real estate developments with a total investment value of EUR 3.7 billion and evaluated real estate properties with an overall market value estimated at EUR 1.85 million. Eurisko registered a turnover of 14.3 million in 2007 and estimates a growth of 75 percent for this year, to reach a turnover of EUR 25 million, a high number of transactions and links on the market and a consolidated network of clients, according to Lucianu.
Andrei Diaconescu, partner and one of the founders of the private equity investment firm Capital Partners, the company which counseled Eurisko's shareholders in the transaction besides the law firm Biris Goran, said that he had talked with Radu Lucianu about a potential Eurisko alliance or partnership on the market with a strategic international group since 2006, and in mid-2007, the sale process was completed. Diaconescu said there were up to seven potential buyers at first, four strategic investors and two investment funds.
CB Richard Ellis has been present in Romania since 2001 through a franchise but in the middle of last year decided to withdraw it. The US real estate company is now trying to increase its presence in Central and Eastern Europe, according to its official statement. Prior to the deal, Eurisko was majority owned by Cyprus-based Fastahead, with 71 percent of the shares, and individuals Ionut Dumitrescu and Gabriel Marchievici, each controlling 14.5 percent.

Cornerstone International moves from US to French hands
With Cornerstone put aside by CB Richard Ellis in 2007, BNP Paribas changed the situation and acquired the company in 2008, and by doing that, made the first move on the Romanian real estate market. It seems that one of the top qualities for a local company to attract an international brand is the team. For instance, BNP Paribas was convinced by the “international-awareness of the local team” of Cornerstone International.
“The Cornerstone team was already known to international clients and had a strong business background, which was the main reason for the acquisition,” said Ioana Momiceanu, managing director of Atisreal Romania, who occupies the same position in the new company as in Cornerstone.
Big international companies don't take risks on obscure companies with low profiles and unknown business backgrounds, as a company's financial performances in local or international markets are vital. BNP Paribas also wanted a good track record on the Romanian market. According to the company's official statements, Atisreal was interested in acquiring a safe and profitable company capable of providing BNP Paribas Real Estate's corporate clients real estate with services at international standards. The Cornerstone annual turnover growth of 60 percent was exceeded in 2007 (EUR 3 million) and the company doubled its portfolio of international and local clients.
“The acquisition of Cornerstone International is for us a natural step, in the context of our development through strategic accession on new markets with high real estate potential,” said Henry Faure, president of Atisreal International. He went on: “Romania is a young and very dynamic market, with impressive investment potential and this is what attracted us. The evolution of Cornerstone International, its reputation, the experience and the performance of the local management were the decisive factors.” Atisreal official think that firm will keep up its growth rate of at least 60 percent in 2008.
Last year was the most prolific year for international arrivals, with Romanian-based offices for Jones Lang LaSalle, Coldwell Banker, A1 Real Estate and Arco Real Estate plus franchise offices from Century 21 Real Estate, the takeover of Active Consulting by Cushmann and Wakefield, and the long-discussed franchise Cornerstone International. And this year also started with two major takeovers, which some local agencies believe means that the local real estate market is starting to prove its maturity and stability in the eyes of the big international chains.

Locals, what say you?
Eduard Uzunov, president of local agency Regatta, has studied the recent takeovers. “If we take a look and see what kind of local companies have been taken over, it is obvious that they are strong market-related, with consistent business backgrounds and a consolidated team. We've operated for 15 years on the local market and witnessed the entries of Colliers, DTZ and CBRE. Each of them has Romanian top managers with a background within the company or sourced from the local market,” said Uzunov. As regards the big chains' growth on the local market, it seems that none of the local agencies are shaking with fear; on the contrary, in fact.
Regatta's president, a businessman who has been active in local real estate from the outset, thinks that local brands underestimate their value, which consists primarily in knowing the local market very well.
Regatta registered a turnover of EUR 4 million and a profit of EUR 2 million in 2007, and has hopes of achieving a turnover of EUR 50 million in 2012, according to Uzunov. He believes that the value, business performance and power do not lay only in association with a big name.
He is not alone in this outlook. Dragos Dragoteanu, general manager of Euroest Invest, told Business Review that his company had received several partnership and takeover offers from multinational companies, but had declined them. “With this partnership, I couldn't profile the company on the future real estate market. I think Euroest is a powerful brand which cannot be integrated into a regional or international company,” he said. Dragoteanu believes in the family-based business and intends to keep the business in house. He is also planning a stock exchange listing for Euroest. The GM is hoping his business's 2008 turnover will be treble the 2007 figure of EUR 2.15 million, but said he would be satisfied with double.
But while some local players are determined to go it alone and take on the international competition, others would look more favorably on a partnership. An example is Catalin Mihalache, shareholder of local agency Imobiliar Expert Grup. “For a local brand, there is no harm in the international chains' entry on the local market, On the contrary, clients who are loyal to the foreign, international names, could also reach the local brands. For a partnership, I would look to an association like Imobiliar Expert Grup-Jones Lang LaSalle,” said Mihalache. He plans to double the company's turnover in 2008, from EUR 1.5 million in 2007.
But whether or not they would welcome the attentions of big foreign real estate firms, local companies look ambitious and are busy planning development strategies
on a market which they deem “active and aggressively competitive.”

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