Commercial Real Estate Sector Grappling with Higher Financing Costs

Two major refinancing deals with a combined value of almost EUR 1 billion have been closed in Romania’s property sector in the past year, despite the higher interest environment, and banks are open to financing new property developments across the country, according to consultants.

By Ovidiu Posirca

As long as we are talking about good, income-producing assets, banks remain open to funding such deals, even though the terms may not be as attractive as they would have been a few years ago, suggest experts from some of the largest real estate consultancy firms in Bucharest.

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“This is the important aspect to note, the fact that credit has not dried up—on the contrary, banks still want to write up loans for good products,” says Silviu Pop, Research Director for CEE & Romania at Colliers.

Last fall, Romanian developer Iulius secured a syndicated loan exceeding EUR 410 million to refinance its portfolio of malls in four cities, including Iasi and Timisoara.

Three months later, AFI Europe secured a funding round of EUR 450 million, the biggest to date on Romania’s property market, to refinance its shopping centres in Bucharest, Brasov, and Ploiesti.

Elsewhere, Globalworth, which is the biggest office owner in Romania, secured new funding worth EUR 160 million in early 2023. The first part is a EUR 50 million unsecured revolving credit facility with a three-year term. The second facility is a EUR 110 million asset-secured financing of the company’s logistics/light-industrial portfolio in Romania, with a ten-year term. Globalworth’s portfolio in Romania comprises a series of office and industrial assets. The group is also a significant player on the Polish property market.

Meanwhile, NEPI Rockcastle completed a secured green financing of EUR 200 million for a 5-year term in the spring of 2023. The group, which is the biggest owner of shopping malls in Romania, said the bank funding was in line with its strategy to access different sources of funding and strengthen its relationships with banking partners. Cristi Moga, head of capital markets at Cushman & Wakefield Echinox, agrees that banks still have an appetite for financing real estate projects, but notes that each investment is approached individually.

“At the same time, looking at the other markets in the region, we can see that financing conditions in Romania are still less attractive, even with the cost of money having increased in these countries as well,” he adds.

Nevertheless, most large financing deals in Romania are based on the euro, and the European Central Bank (ECB) has signalled that it would continue to push interest rates up until September in a bid to lower the inflation. In Romania, the central bank has put a stop to rate hikes and has maintained the key interest rate at 7 percent. Laura Bencze-Dumea, Director of Investment Properties at CBRE Romania, points out that while we have seen some major refinancing transactions over the past 12 months, the high cost of financing is diminishing the potential for new deals, as buyers’ expected return at the point of purchase is impacted. Across Europe, the rapid acceleration of financing costs from mid-2022 onwards destabilised pricing on the market, which led to a drop in new investments as both buyers and sellers pulled back, wrote BNP Paribas Real Estate experts in a report. Total investments were down 60% between Q1 2022 and Q1 2023. In Romania, by contrast, the commercial sector reached a fresh record of EUR 1.3 billion in closed deals during 2022 despite the challenges posed by the growing interest rates and the war in Ukraine.