Teodor Pop: “Second half of 2010, the first solid shore in this ocean of uncertainty”

Mr Teodor Pop is one of the market leaders today in Romanian Retail industry. Managing Partner of RED, Mr Pop has been involved in projects of several millions of euro and he has promoted Romania in international level. In his interview to me, he reveals to us few “restructuring secrets”, explains the new situation in the market and he is honest enough, so as to disclose that there are cases of retailers who don’t even pay the rents, exposing in the clearest possible way the dramatic situation of the market today. Also, he presents his confidence for the success of “Prima Casa” project and predicts that the ones who await better moments, they should look for the second half of 2010.

“Some retailers simply did not pay rent and service charges”
How did the crisis affect your projects this year? Was there any project canceled or postponed?
- We have been affected on two chapters:
Banks and other financing institutions have suddenly modified their position in the ongoing contract asking for increasing costs and reducing exposure. This unexpected reaction has impacted our cash flow, usually requiring more equity than initially planned or restructuring the financing.
On the other hand, tenants in retail schemes have been negatively impacted by the reduced sales and have tried to exit contracts, obtain rent reductions or simply did not pay the rent and service charges. All those cumulative effects have reduced the income of some shopping centers sometimes below the accepted debt service coverage ratios.
All our retail projects have been postponed, no cancellations so far.

“5 measures to surpass the crisis”
What are the new strategies your company implemented, so as to solve the problems?
- We have been focusing on several directions:
a. Operational: we have strengthen our property management team to manage the shopping centers until new wave of investors would show interest for Romania
b. Letting: we have focused on letting activities outside Romania including an office in London dedicated to letting and we have build strong relations with Turkish retailers and franchisors for example
c. Financing: restructuring financing with help of foreign banks and participation of EBRD for our two largest projects.
d. Cost control: usual measures and additional replacing consultants/ third parties with our own people (e.g. project management), providing fee services for other parties (e.g. asset / property management)
e. New projects: quickly identifying new opportunities in the local markets and generating realistic new projects (e.g. residential “Prima Casa” etc.)

There is a big discussion about the retail projects out of Bucharest. Many retailers claim that their sales don’t match with their expectations and they appear ready to concentrate only in Bucharest for the next 2 years. What is your approach?
We are of the opinion that edge of town retail parks – with locations resulting from unrealistic land prices – have underperformed the market average in the last months. We believe that solutions should be found in the retail format (more discounter format versus premium stores, e.g. unrealistic Sephora shop in Braila edge of town retail park ) and relocate in the city centre – more suitable for retail due to convenience and restated catchments areas.

What is your prediction for the next 12 months? What should we expect for the Romanian economy, the Real Estate market and especially the Retail sector?
The solution is not in our hands. Significant investments in infrastructure, Prima Casa project, reduced VAT for residential transactions are some examples to smooth this hard landing. Our expectations are pessimistic for 2009, with significant bad news to come from banking system and consumers lower spending. We presume that second half of 2010 is to be considered the first solid shore in this ocean of uncertainty. Those who are able to reach this shore would see the Real Estate business with different eyes, with realistic land prices in mind and some feasible projects to be started on different economic basis.

If I would ask you to identify 2 positive news you found in the market lately and two positive plans that your company wants to proceed with, what would you tell me?
Some good ideas might include this residential opportunity “Prima Casa” to be exploited at its maximum. Without any doubt, the residential market displays a strong demand with basically limited supply for an ideal product.

* Teodor Pop, Managing Partner
Mr. Pop entered the real estate market in 2003, as a Co-investor and Development Manager in the Romanian Company Nord Grup that successfully delivered five residential projects. After project completion, he started the development of sizeable residential and commercial projects alongside with renowned international investors and developers, with a total investment of € 120 million (EUR). Previous assignments are including General Manager of Coty Romania and Sales Management for 3M Romania for Romania, Bulgaria and Moldavia.

** About RED:
Formed in December 2005 as a JV between Andrew Stear and Teodor Pop on one side as local developers and Warburg Pincus and GED on the other side as investors, RED is a development group of companies created to invest primarily in Romania to cover the entire spectrum from residential and retail to office and logistics projects.
Initial commitment of 100 million EUR has been invested in 15 projects across Romania: retail (Armonia, Cadran, Mall), mix use (Radius Baia Mare, WTC Constanta), business park (IBC) and residential (Arena Iasi, Colina Soarelui, Natura Residence, Faimar Baia Mare).
RED’s mission is to contribute to sustainable city growth through developing projects that are remarkable through use, function, quality and integration with the urban landscape. In doing so, the company considers longer term impact for the benefit of the community, with the intention of providing resources that fit modern living.
For more info: www.redprojects.com

(the above information has been received by the company)