Loans are granted to some real estate projects, but only if shareholders contribute significant capital and only for truly viable projects, given that large banks currently have quite a wide range of products they can choose to lend to.
“Financing doesn’t mean a cash line, it has to do with the value of a capital resource. On the market there are projects that compete over financing. This is not a beauty contest, it’s an analysis of the figures,” explains Sergiu Manea, Executive Vice-president Treasury, Capital Markets and Group Large Corporates with BCR, Romania’s largest bank.
He says BCR doesn’t have a budget specifically dedicated to lending to viable projects. “The bank has funds that can be invested in projects that make sense.”
Moreover, Manea says investors have not been in a hurry to invest in real estate last year because this sector is a mirror of the economy. “It was a year of waiting for the real estate sector because it is correlated with real growth and the evolution of added value at national level.”
According to ZF information, the largest real estate loan granted last year was the refinancing of office project City Gate in northern Bucharest through a EUR100-million loan granted by Erste Bank, the majority shareholder of BCR.
On the other side, Martin Slabbert, CEO of South African investment fund New Europe Property Investments (NEPI), which invested around EUR300 million on the Romanian property market in full crisis, says developers have to also invest money of their own because real estate investments need capital.
In the past few years, NEPI bought several projects, including Promenada Braila and Iris Pitesti malls, Floreasca Business Park and City Business Center Timisoara, with the South-African company relying very little on bank support.
NEPI reached a real estate portfolio of EUR464 million on the local market with loans of just EUR180 million, i.e. an indebtedness level of under 40%, which can be considered a good one for a real estate investor.
Slabbert said the fund’s strategy on the Romanian market is to focus on developing its portfolio, not on profit. “We will likely continue to aggressively invest in the coming period, as well.” An advice for other real estate investors? “Perhaps they should consider developing the projects with their own funds and refinancing it at the end of construction,” Slabbert also said.
How come NEPI has the courage to invest in Romania now, while other investors don’t even want to hear about the local market?
Slabbert says that investors often have a “herd” behavior. When a market becomes attractive, everyone flocks in, as is now happening in Poland. “Romania doesn’t currently look very attractive from the outside, but I think it sits well enough because, unlike other countries, where austerity measures are only being discussed, here they have really been taken, public sector wages were cut, VAT was raised to 24%.” He adds that Romania has one of the lowest public debt ratios in the EU.
Asked if they would invest their own money in real estate, only about a quarter of the 150 bankers, managers and consultants present at the HQ of the National Bank of Romania, where the event was held, raised their hand to say “yes.”
New contract standards
While banks are not very inclined to finance the projects of real estate developers, consultants propose the standardization of real estate financing contracts to ease the relationship between bankers and real estate investors.
To this end, Loan Market Association (LMA), a British organization that brings together banks, consultants and law firms, has created a standard contract dedicated to such financing.
“The act means a joint database of documents made available to the creditor and the debtor. (…) It is not a fixed-form contract, amendments can be brought,” explains Amelia Slocombe, associate director within LMA.
Andrei Burz-Panzaru, partner of law firm Reff & Asociatii, which advised NEPI on the transactions it conducted on the local market, explains that if one of the parties, either banks or investors, is not familiar with a standard LMA contract, it will not kickstart lending.
In his turn, Alexandru Paunescu, head of the legal department of the National Bank of Romania, said that the central bank cannot interfere with the bank-client relationship, but that an initiative for the standardization of credit contracts can come from the Romanian Banking Association.
(English version by Daniela Stoican)