Gauging the wind of change on the legal scene

Francisc Peli, partner at law firm PeliFilip, does not expect the real estate market to change significantly in the year to come and believes that banks are adopting a rather conservative stance on toxic real estate assets. However, the owners of retail centers are finally seeing consumption rates rise, despite a dramatic plummet in rents in the previous two years.

Ovidiu Posirca

What is the average value of real estate transactions this year and how do you see it going in 2012?
The market and the public were used to cataloguing as transactions investments in completed goods that are already producing revenue. Now the business focuses on opportunities and ongoing projects, meaning that investors bring value to these projects by building them, to create revenue and only then to sell them. The prices of large transactions range from EUR 10-30 million. Moreover, the real estate yield for projects ranges between 8 and 9 percent.

What type of transactions are taking place now in the real estate sector and how do you expect the market to evolve in 2012, in terms of new players and deals?
We are talking about transactions where developers or potential developers are finding land in new locations or purchasing projects in the initial stages of building – therefore, either land acquisitions or joint ventures for developing real estate projects. The office stock in Bucharest will further develop, with the Barbu Vacarescu area being a hot spot at the moment.

Green technology in buildings is interesting for the competition between buildings, but not something that tenants and owners perceive can make a difference in value. Rent and location still make the difference. This could lead to a cost reduction but other aspects have to be taken into consideration like the management of the building, which is crucial for containing costs. Cost positioning involves both parties as owners discuss rent reductions with tenants. Apart from some investment funds that have some remaining money allocated to Romania, I am not convinced that new players will enter the local market or that new deals will be struck.

How are the owners of commercial retail centers coping with the falling prices of real estate and the current decrease in buyers’ purchasing power?
Between 2009 and 2010 we witnessed an adjustment in rents, allowing the survival of tenants and landlords. In 2009, owners had to decide between the future of the center and making immediate profit. In some cases, large tenants were given rent holidays of several months.

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In 2011 owners are saying that things are not looking so dramatic, which had more or less been expected. We are at a point where the crisis is not that acute, although at a macroeconomic level in Europe and globally, the situation may worsen. Locally, consumption has leveled out. From my talks with owners, their business is starting to pick up again.

How are banks handling the toxic real estate assets on their balance sheets?
Banks realized that the solution for some projects was insolvency, and I know situations where powerful investors have been invited to acquire the projects. In recent years, the market has been expecting a wave of price slashes but this will not come. The disposal of toxic assets will happen gradually over time, which in my opinion is a good decision, so we should not face break point in the coming period.

Will the recent adoption of the ordinance on the renewable law 220/2008 convince potential investors that Romania is the right destination for the production of green energy?
The main energy players that are interested in this law and its benefits had a reasonable expectation that the law would come into force. For them, it was something extra that had to come. Therefore, from this point of view it will mean the concretization of projects they were looking at and at the same time a safer approach to projects. Although the law is still unclear in some areas, there are positive intentions and actions and we will see whether this
enthusiasm proves to be well founded in the end.

Wind will be the driver of renewable projects, including critical mass. Solar power is looking good, but it is still in an early phase, but the medium term development is in wind. There is no significant strategy or interest in hydro and the scheme for biomass is not well established yet, although there have been some attempts at these projects.

What PeliFilip practices have developed the most during the past year? Do you expect the situation to stay the same? Are you actively recruiting?
We are committed to adding good colleagues from other practices, and this is an area of growth, but our main focus is to hire bright young graduates. We have made a first wave of seven offers to next year’s graduates. We will continue to allocate time and resources to new talent and we are looking to grow organically. We have been positioned in such a manner that we offer assistance to legal firms that are not present in Romania like Linklaters and Norton Rose. At present we have 59 lawyers, excluding the new acquisition of graduates, and 9 partners.All the practices are performing well independent of one another, and this contributes to our growth, because it will prove tricky if you focus and recruit only for one or two practices on the medium term, not knowing the growth rate.We are involved in real estate, energy, corporate, competition, banking and employment – our traditional practices. Two years ago we added litigation, which is also a big practice for Romania.

What areas do you plan to focus on? Where will business development come from?
Clients that have been added to our portfolio are looking to solve day to day work issues and specific difficult situations. It is the portfolio settlement that is important, not striking the best couple of deals in the city. I once revealed that PeliFilip had improved its client base from 30 to 250 in three years but the figures are not important as they only show the scale of the phenomenon, proving that clients stick with our practice. Reputation is important in our business where one client recommends the firm to another. Our client retention rate is crucial for the growth of PeliFilip.

ovidiu.posirca@business-review.ro

Previous experience:
partner, NNDKP
managing associate, head of real estate practice area, Linklaters Miculiti, Mihai & Asociatii SCA,
partner, Iacob and Peli, Bucharest
associate, Cobuz & Associates
Education:law degree (Magna cum laudae), University of Bucharest, Faculty of Law