Back BULGARIA: Commercial Real Estate Sector
Interview with Petar Ivanov, Founder revalue.bg
What is the profile of Bulgarian Property Developing companies?
We monitor business properties. In this market investors are very diverse in terms of legal form, nationality and segment in which they are active. If in residential real estate it can be summarized that the average buyer is a young male with a good profession, etc., such a generalization is impossible in the commercial market.
It is good to note that in recent years our market has been developing positively in all segments. Not only local but also international portfolio investors are active. There is interest in so-called “prime assets” or first-class investment assets that generate regular returns. 5-10 years ago such assets were few, but now more projects of this type appear on the market.
Another characteristic of an investor profile is whether it buys for own purposes or searching periodic rent cash flow. In the case of industrial real estate and land plots, investments in recent years have been mainly for own needs, while in offices and shopping centers we see portfolio investments.
In other European countries some of the largest RE investors are pension funds. For instance, Finish pension funds’ portfolios consist of app. 10-15 % of investments in RE. What is the situation in Bulgaria?
Unfortunately, in Bulgaria, the share of pension funds’ direct investments in real estate is very insignificant. I will not get into detail, but this is generally because of regulations. I say unfortunately, because our pension funds have huge resources, and practically our stock market is not very active, so they are increasingly investing outside the country.
On the other hand, our pension funds have a regulatory freedom to indirectly invest in real estate by buying shares of the so-called REITs (real estate investment trusts). However, here I see an issue again. There are simply not enough such companies with sufficiently diversified portfolios or focused in a particular segment. The simplest example is that there is no company (REIT) to invest with focus in residential properties. So at the moment, our money for retirement cannot be invested in this market, which itself has a good long term risk / return ratio. I do not want to be misunderstood here. I am not saying that our pension money should be invested solely in construction. But in retirement plans, mix and diversification are very important. So some portion must certainly be invested in real estate, as in your example in Finland. This will also help the real estate market itself. It will balance it and make it more stable. For example bank financing, the horizon is very short, which pushes entrepreneurs' expectations and prices up. It is different with pension funds where the horizon is long, which can have a positive impact and balance the market.
In conclusion, if our retirement money is not directly invested in real estate, I see a niche for more REITs with different profiles to meet the need for this type of investment.
Do you think that the current corona crisis will modify the profile of Property Developers in Bulgaria? If yes, how?
There will be а change and I am optimistic that it will be in a positive direction. The market and investors are always changing, even without a corona crisis. This is deep within us. The Corona crisis and similar factors and events are just a trigger.
I would not be able to predict exactly how investors will change. It is too early to say. But for now, the most affected are shopping malls, hotels, offices also. They will definitely rethink their strategies, models and expectations. But again, this is nothing new. Markets are constantly changing, according to the environment and needs of market players. So investors will become more conservative and and their strategies more resistant to market shocks.
How do you think the crisis will affect PropTech as a whole?
PropTech will certainly benefit from the current situation in the long run. The market will need more technology solutions related to cost optimization, risk calculation, project management, sustainability, etc.
Which alterations in the traditional industries of construction and real estate will impact PropTech solutions in Bulgaria?
I would not point out specific alterations, but I think they will be in both directions. On one side, PropTech solutions themselves will outpace the industry and provide new ways and technologies for better functioning of the business. On the other side, traditional industries will turn to technology seeking innovation, to facilitate their operations and ensure sustainability.
Tell us more about Revalue.bg which is your PropTech solution
We are an independent research company in the field of CRE (commercial real estate). In a nutshell: we are trying to make CRE market in Bulgaria more transparent. We are constantly monitoring all major segments: office, commercial, industrial, hotels and land plots. We provide both up-to-date and historical information on actual transactions (transfers and leases) through our online platform. The information is comprehensive and includes: date and value of the transaction, detailed description of the asset and its location, involved parties and more. In addition to specific deals, we also aggregate general market statistics, which we present using graphics and charts.
Our solution targets all players in the local CRE market, such as banks, appraisers, funds, and retail companies in expansion.
How have you decided to launch Revalue.bg?
Our team has a good track record in this market. For the past decade we have performed hundreds of valuations, we also have worked on many CRE transactions and financing projects. And all that time the main issue that we were facing was: the local market is not transparent and there is a lack of public information about what happens on it. For example: How does an appraiser perform valuation of an office building? He/she browses the web to view rental and sales offers. I stop here, we all know asking prices are not real transaction price levels. What's more, if you are a Class A office building owner, you'll never post "FOR RENT" ads, even more pointing rent expectations. This example of such a valuation approach is not accidental. Such assessment would be a basis for transaction, bank financing, and raising capital through the stock exchange and will reflect along the chain...
And to get back to your question - we launched this project because as professionals we needed such data.