Romanian mall auction may not herald investment thaw

The sale of Liberty Center shopping centre in Bucharest last week isn't likely to signal the beginning of a thaw in the frozen Romanian real estate investment market. If anything it underscores the challenges facing the market.

Liberty Center comprises a gross leasable area of 30,000 m² over three levels and 700 parking spaces and is one of the largest malls in the country. Yet, the asset attracted little active interest when it was put up for sale at public auction last week. It was acquired for the starting bid of EUR 60 mln.

Romanian media said that the buyer is administered by Ciprian Chiorean, legal manager of the Bank of Cyprus in Romania.

Bank of Cyprus is one of the three credit banks that forced the sale of Liberty Center to recoup outstanding debt of EUR 61 mln. The other two creditors banks are EFG Eurobank and Alpha Bank.

It is telling that the sale was the largest recorded in Romania this year. The only other large transaction this year involved New Europe Property Investments (NEPI) buying the office asset, City Business Centre (CBC), in Timisoara. The investment volume was not disclosed but PropertyEU understands NEPI is paying around EUR 45 mln for the first three completed buildings. When two more buildings, are delivered the full scheme will be valued at about EUR 80 mln.

The question is whether the Liberty Center sale heralds more investment activity in the Romanian market. Not necessarily, says Troy Javaher, managing director at Jones Lang LaSalle Romania. 'Each auction has its own back-story which makes hard to generalize about the knock-on effects. Moreover, this transaction is primarily driven by the banks’ activities, not the investors or the investment community.'

While a number of large retail portfolios and medium-sized office assets are on the market, it is by no means certain whether these will transact in the short term. Besides the usual challenges affecting most investors at the moment - global macroeconomic headwinds, restricted/expensive debt, and a mismatch between buyer and seller expectations, there are also some more Romanian-specific issues which are affecting retail assets, Javaher said.

'For example, in many centres the gap between the contracted rental levels (signed in 2007/2008) and the currently collected rental figures (following rent reductions given in the last 3 years) is particularly notable here. While the few dominant, prime centres are doing well with little if any gap, the less prime centres are taking a huge hit. For the smaller volume assets, a structured deal mechanism is required to bridge this gap, and few sellers to date have been willing or able to structure such a deal. To put it bluntly, anything other than truly prime will have a very difficult time transacting in the short term.'

Click on the link below to read 'Irish-owned mall sets at auction in Bucharest for EUR 60m'