These are the preliminary results of the consumer-spending crisis that hit the local retail market in the last few years and of the too risky real estate bets of some investors.
Four years ago, in July 2009, Brit Andrew Stear said he certainly had not researched the Braila market well enough, because the mall did not attract enough people and the prices retailers charged were not in line with the purchasing power of the people in the city.
The statement came at the announcement about the first shopping center to close in Romania, the Armonia Center in Braila (SE Romania), a EUR45 million investment, which has not reopened ever since. The court-appointed liquidators are looking for buyers willing to pay EUR15 million for it, but have not had any luck so far.
The same problems, i.e. the lack of purchasing power and the insufficient market research, would later make more real estate developers close their malls or file for insolvency.
In some cases, investors that started work on their malls when the market was growing and every project looked like it would be rented and sold at a 7% to 7.5% yield in euros a year, stopped construction and abandoned the construction sites indefinitely. There are more than 20 such projects, in which about EUR600 million were invested.
The only failed retail developments sold so far are Tiago Oradea, a mall later opened as Oradea Shopping City, City Mall in Bucharest, which is now being converted into an office building and MacroMall in Brasov, acquired for about EUR1 million at a more than 90% discount.
“Romania has many malls now but few of them good,” says Gijs Klomp, managing director of real estate consultant Jones Lang LaSalle.
Only 10 or 15 of them would be interesting for an acquisition by an institutional investor in his opinion. The retail market was overdeveloped in some regions and the project quality is low in many cases, because few experienced investors were actually active in this business. At the same time, zoning regulations in certain cities did not cap the retail space, as Austria and Germany do, hence many failed projects, he added.
The city with most ailing shopping centers is Craiova, where the mall construction sites started by Austria’s Immofinanz (West Gate) and Portugal’s Sonae Sierra (Adora) were frozen, and the only operational mall, Electroputere, went insolvent this year.
The Electroputere mall developed by Belgium’s BelRom went insolvent in May, followed soon after by the Promenada Focsani and Hello Park Bacau of the same investors. The three are still operational but their exit from insolvency and bankruptcy avoidance will depend on the reorganization plan and on the creditors’ vote, which is not easy to get.
Besides the three centers that required about EUR150 million investment, the Belgian investors also sank some EUR30 million into a project on the outskirts of the Deva (central Romania), where Carrefour, Bricostore and other retailers should have opened stores. The project is frozen, the retailers anchoring it decided against opening stores there and, on top of that, rival Deva Mall in the center of the city is having trouble and went insolvent as a result.
Another problem city for investors is Focsani (eastern Romania). Only one project was completed there, the now insolvent Promenada Mall, while an Israeli investor wanted to build the second mall, this time on the outskirts of the city, Focsani Plaza, via Omnium Invest. This project went bankrupt and liquidators are trying to sell the construction site.
As for Bucharest, even though City Mall went bankrupt, the Dambovita Center project in Eroilor area (close to the city center) is the largest retail investment frozen in the city. Developing it would require another EUR200 million to EUR300 million, which is almost impossible to get at a time like this. The proximity of AFI Palace Cotroceni, which is only 2.5 kilometers away, would create a competition leading to two malls with unsatisfactory results.
Two malls are now under construction in Romania, AFI Palace Ploiesti and Promenada Mall in Bucharest, as well as a shopping center Cora is developing in Constanta, which should open towards the end of the year.
Consultants expect more closures and insolvencies among the centers completed in 2007-2009, and therefore the stock of modern retail space would probably be flat.
On such a market where tens of projects are up for sale, one can find interesting opportunities, but few investors have the money, the courage and the management capability to make such investments.
(English version by Loredana Fratila-Cristescu)