Global Finance expands Balkans property investments

Greek investment firm Global Finance planned to expand its investment in real estate on the Balkans by setting up a second property fund, to be named Global Emerging Property Fund II (GEPF II), investor.bg reported, quoting Greek media.

GEPF II, with a capital of 350 million euro, was to be the next stage of Global Finance’s investment strategy on the Balkans, which started with the foundation of CERF I, which raised 500 million euro for investments in Bulgaria, Romania and Serbia.

Through the new fund, Global Finance will extend its activity towards countries like Ukraine, Croatia, Bosnia and Montenegro, specialising in acquisitions of plots with “appropriate” location and development of offices and mixed-use compounds.

The European Bank for Reconstruction and Development (EBRD) would take a 34 per cent stake in GEPF II, investor.bg said.

Global Finance’s core activity was directed towards investment in office and retail centres, and residential complexes. However, in countries like Ukraine and Croatia, it would screen the investment potential of industrial and holiday property segments as well.

In Bulgaria, it planned to develop Global Gate Sofia, a multi-functional complex comprising offices, shops and apartments with a total built-up area of 55 000 sq m. It would spread on a 9 000 sq m plot, located near one of the capital’s central boulevards.

Office space vacancy in Sofia stands at 5.2 per cent, said Angelo Plakopitas, Global Finance’s founder and president, going on to explain that new projects were clustered either in Sofia’s suburban areas or along the main boulevards. Currently, one can hardly speak of real class A offices, he added.

Retail areas were undergoing rapid growth, propelled by new retail chains stepping on the market and the dynamic development of the residential segment. In Belgrade the company focused on office projects, given the vacancy rate pf eight per cent and rentals that were higher than other Balkan capitals, Plakopitas added.

Property market adjusting to dropping prices

After years of bullish sentiments dominating the market, culminating in a veritable stock boom over the past two years, the Bulgarian Stock Exchange is now experiencing its first lasting bear market spell. Photo: Julia Lazarova
After years of bullish sentiments dominating the market, culminating in a veritable stock boom over the past two years, the Bulgarian Stock Exchange is now experiencing its first lasting bear market spell. Photo: Julia Lazarova

As the global financial turmoil tore down enduring myths about the global economy, Bulgaria’s domestically-listed real estate investment trusts (REITs) have started losing their appeal as safe havens.

Almost all REITs are trading at 20 per cent and sometimes even 50 per cent discounts on their net assets, said Dimitar Georgiev, broker at Elana Trading investment intermediary.

Heavy sell-offs on fears of a property price crash have evaporated nearly half of the value of the BGREIT index that tracks the performance of the property funds. The gathering gloom pushed the price-to-book (P/B) ratio down to 0.69 over the past months.

The index ended at 53.54 points on November 7, down a staggering 48 per cent from a year earlier, but still less than the other indices of the Bulgarian Stock Exchange, which have lost 65-70 per cent over the same period.

The credit squeeze and dropping demand was forcing REITs to re-assess the value of their portfolios. BenchMark Fund Estates, for instance, wrote down the value of its investment properties to 12.8 million leva, compared to 15.1 million leva over the previous nine months.

The negative outlook has already been calculated in the current share prices, and portfolio quality and managers’ professional skills may help REITs come through, said Svetoslav Soltariev, board member of FairPlay Properties, one of the bigger funds on the Bulgarian market. The fund has cut the outlook for its 2008 distributable profit from 10.4 million leva to seven million leva.

Bulgaria headed for two-year recession – BNP Paribas

The Bulgarian economy will be in the depths of a recession in the next two years with dwindling capital inflows and consumption squeezed by the rising jobless rate, forecast BNP Paribas economist Michal Dybula, a co-author of a report on 2009 global economic outlook.

Neighbouring Romania is also in for big trouble with GDP set to drop 0.6 per cent next year, according to the French lender.

The Bulgarian economy will contract 1.2 per cent in 2009 and 0.3 per cent in 2010.

Economic growth will slow down to 2.2 per cent in Q4 2009 from 4.4 per cent in the final quarter of 2008.

The Bulgarian economy is the most rickety across all Central and Eastern Europe, Dybula said in a separate report on the region.

The wide current account gap is the major challenge before Bulgaria in the face of slowing foreign capital inflows.

The expected protracted recession in the eurozone will freeze cash flows to the region and slash jobs of Bulgarian and Romanian migrants making it harder to send money back home and rising domestic unemployment if they return.

Timothy Ash, head of emerging markets at the Royal Bank of Scotland, told Dnevnik the economy will slow down to two per cent and a negative value should not be ruled out either.

Property funds grappling with tight funding

Bulgarian property funds developing or prepping to start projects are facing financial difficulties, market representatives told Dnevnik. The global economic doldrum has dampened demand and frozen prices on the property market, where some segments are even seeing downward price revisions.

The next six months would be hard for real estate investment trusts (REITs) that are yet to raise funding, executive director of Intercapital Markets, the consultant of Intercapital Property Development, Nicolay Mayster said.

REITs are facing tighter access to both equity and bond capital, said Yassen Ivanov, portfolio manager of DSK Asset Management, which manages mutual fund DSK Properties.

The bulk of Bulgaria’s listed property funds have not given up current projects, most of them started at least a year ago, but few are daring to start fresh projects.

The worsening global market conditions have pulled foreign investors out of Bulgarian properties and into undervalued assets in other parts of Europe, according to FairPlay Properties investment manager Raycho Dyankov.

The consensus among analysts, however, is that the property market crisis has a silver lining. The crisis will sift out experienced companies with good management and investments, said Ivanov.