January – February 2008:The end of speculation – The beginning of seriousness

My lessons from the first 2 months of the year

January 2007…
It was just 14 months ago… January 2007 and I was feeling very stressed. After a long preparation, my client, a major French company, was ready to purchase a plot of around 8.000 sq.m. in the north area. The whole project received all the necessary approvals very fast and not only they wanted to develop on the land an A+ Class office building, but they had already reserved half of the future projected surface for very good tenants. Knowing that the location was very good and the fight for it very big, I was doing all possible to secure the deal, trying to avoid bad surprises.
And here we were… in the meeting room of the headquarters of a major bank, together with the notary. On the left side of the table, the owner. An arrogant Romanian, around 40 years old, who had received back from the state a plot that once belonged to his grand father. This grand father was a shepherd and he had built on the land some small constructions for his sheep. Nowadays, his grand son received a… “piece of gold”, without to pay for it, without to understand how this can happen. The guy was unshaved, he was smelling really bad and he had the greediest eyes I have seen the last years. (I found this year a greedier person, but for him we will talk another day).
On the right side of the table (after my proposal, so as to have our back on the wall) you could see my clients and me. The French guys, well dressed and smiling, were really showing their happiness for the upcoming deal. They were also quite nervous, as they did not want to lose the deal for no reason at all. This was the main reason for their following mistakes…
The owner knew english and the discussion between him and the buyers was really weird. “Is your company big?” “Yes, very big and very serious”, “And do you have the money to pay me? Did you have enough profits declared last year?” “But Ofcourse! We are a big company”. “So, I will receive my money for sure?” “Yes, immediately it will enter in your account, as we asked you to open an account here”. The owner was searching for a problem to find and he was also provoking the buyers, trying to make them declare how strong and wealthy was their company.
It started as a joke… “As you have so much money, why to give me ONLY 17 million euros?”, he said smiling. “What do you mean?”. “I want more money, as your company has a lot. For you it is nothing… instead of 17… 1 and 7… you can put in the contract 27, 2 and 7” “…”. “Yes, it is just one digit, 2 instead of 1” “But, mister, with all due respect, what are you talking about?” “What? You have money, don’t you? Why is it a problem for you to pay something more to me?” “Because the price is already quite high and if we pay what you want, it will not allow us to have any profits”. “And you must have profits from all your business? What about us? The Romanians? (he started shouting) You, STRANGERS (the foreigner in Romanian is translated is stranger) come here and you want to steal our lands for free, so as to gain huge profits”, he was yelling while spitting around… I entered in the conversation, trying to calm him “mr …, relax, there is no reason to be angry… You are selling your property in a really good price, I think you should be happy and I am sure that you will invest your money in the most profitable way”. “Shut up, you F…ING GREEK. You are with THEM, all of you try to steal my property for nothing. I WANT 27 MILLIONS, you told me you have a lot of money”.
My clients agreed with my proposal. We all stood up and we left the place immediately, leaving the owner shouting and cursing us. His property was finally sold some months later. I kept an eye on him, as I do with many people who receive huge money without having worked for it. He “invested the money” in a huge luxurious villa, a Porsche Cayenne and some trips, together with “some ideas he had for business”. Now he has less than 10 millions and I can bet that by 2012 his ideas and a lovely lady will relieve him from most or all the “weight” that so much money can add to a man’s back.

March 2008…

Well, this is more or less the story of 2007. Arrogant owners, lawyers, “agents”, “intermediars” who “have this property with exclusivity” and many other similar “tribes” were the majority of sellers in the market. Many deals were cancelled, many of my clients were upset, most of the times psychology was more important than anything else. People got crazy here in this country, watching thousands of foreigners (but also Romanians too) eager to buy everything that was for sale.
Many brokers with very little knowledge were daring enough so as to analyze to their clients almost any bullshit you may imagine. To write on the paper whatever you can guess and to lie without to think about tomorrow. I will tell you more about this category of brokers the next days, but let us stay now on the part of the owners and the investors. So, after a crazy 2007, today the situation is as follows:

1. The volume of transactions has been decreased really much, for most of the companies. Just a small part continues having the same (or more) size of deals that they used to.
2. The implementation of the 19% VAT in the cost of transaction when a company is selling, has forced many investors to think seriously the solution of buying the shares of the company which sells the asset, especially when this company is an SPV (Special Purpose Vehicle = companies that we usually create so as just to be owners of one property).
3. The prices have stopped rising in almost all categories that they had been gone crazy. Ok, still some insane owners rise the prices by themselves, but the market does not follow and noone is signing a contract to pay them what they ask. Ofcourse this is not anything bad, or any bad sign, on the contrary, it is very healthy to find out that things will return to serious process. The prices of all expensive properties will remain stable for the next months AT LEAST.
4. In some cases, we even faced the first prices which were lowered. Is it something bad too? Nope, not at all. For example, a totally unserious owner had dared to ask 1.700 euros / sq.m. for a land in Baneasa area, with a coefficient of 2,2. In February he asked us for 1.200 euros. He didn’t really lower the price, he just stopped asking something crazy.
5. With the size of transactions to be bigger, it is normal things to move a little slower. The banks are also more defensive this period, the evaluators have 1.000.000 cases to finish… so, when we talk about millions for a transaction, the speed is significantly lower.
6. In the same time, in all the small deals, apartments, lands etc, the madness continues. If a price is good, the property is sold VERY fast, sometimes immediately.
7. Many ‘sweet small crooks” who try to play games with the clients, lieing non stop, have started to feel the situation pressing them. Big prices, big deals, require big effort and too much seriousness. Whoever is used to easy money, he will have  a really bad surprise. Maybe for the moment he doesn’t feel it in his (bought by money he “arranged to get”) luxurious car, but the first 2 months of the year normally have worried him. (Ok, I accept that many people have so… thick skin, that they don’t understand anything before the last second).
8. The clients keep coming! For example, our company, MORE. We continue to receive every week more than 10 – 20 new clients! This is a situation that is not easily handled, especially when the market does not offer us a serious variety of properties to present to these clients and conclude the deals. And when people want something that is commonly asked by all, then they need to be really very fast…
9. The supply in the high end sector is increasing really fast, while the demand is becoming stronger every day in the medium – medium low part of the market.
   10. The traffic got even worse, while the sales of new cars were again higher than last year’s new record. Result: The city has “heart attack” many hours per day and the brave inhabitants of the North part (Pipera etc) really test their nerves…
   10 + 1. The commercial projects around the country continue to be very hot, with the supply to be not even half than the supply, but we started having the first projects with more “elegant” characteristics, targeting to a part of the market, not all of it.