THE ADVANTAGES OF THE PROJECT FINANCING

REAL ESTATE MARKET

SERBIA IS A FAVORABLE INVESTMENT DESTINATION

Numerous transactions which have been concluded in the previous period, in all sectors of the real estate market, testify that Serbia is “on the radar” of large real estate investors, says Steve J. Froustis, Capital Markets and Investor Services Advisor at West Properties

Text by: PETAR DOBROSAVLJEVIĆ Photo: MILOŠ LUŽANIN

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teve J. Froustis has a long experience in the financial and banking sectors, and has spent a big part of his career working for the BNP Paribas Group in Greece, Piraeus Bank in Greece and Piraeus Bank Belgrade. As Capital Markets and Investor Services Advisor at West Properties, one of the market leaders in providing real estate services, he analyzes the real estate market in Serbia for our magazine, with special focus on its potentials for new large investments as well as for small to medium-sized real estate projects.

What are some of the reasons that Serbia is considered a safe and favorable destination for domestic and foreign investors?

— Serbia was less affected by the COVID-19 pandemic compared to most European countries with the Gross Domestic Product (GDP) decline being just 0,9% in 2020. During the first quarter of 2021, the economy reached pre-crisis levels while in the second quarter of 2021 the GDP growth rate reached 13,7% year-on-year. The Statistical Office of the Republic of Serbia (SORS) announced that the GDP growth in the third quarter of 2021, compared to the corresponding period of the previous year, amounted to 7.7%. The sectors that contributed to the real GDP growth in the third quarter of 2021 were: wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage and accommodation and food service activities (17,0%), construction (15,8%), and professional, scientific and technical activities and administrative and support service activities (13,7%).

Based on these positive trends, National Bank of Serbia (NBS) has revised its GDP growth projection for 2021 from 6,5% to a range from 6,5% to 7,0%. It is also important to mention that based on Serbia’s new investment cycle and the planned infrastructure projects during the following 10 years, NBS has also revised its projection of growth in the medium-term from 4% to a range from 4% to 5%.

What is the inflation risk?

With regard to inflation, it has been relatively stable during the past 8 years, rang-

ing around the 2% level on average, however, since April 2021 we have seen higher levels of inflation. In October 2021 overall inflation reached 6,6% with the main drivers of the increase being related to the prices of food and energy. NBS considers this increase in inflation to be linked to temporary factors such as the increase in global energy and agricultural product prices and supply chain bottlenecks and it estimates that inflation will start to drop from the second quarter of 2022.

CTP HAS INVESTED HEAVILY IN NEW PROJECTS AND WHEN FINISHED, THE CURRENT PORTFOLIO WILL INCLUDE 450.000 SQUARE METERS OF FACILITIES WHICH MAKES IT THE LEADER IN THE MARKET OF INDUSTRIAL REAL ESTATE IN SERBIA

Has large Foreign Direct Investment (FDI) and a stable exchange rate influenced Serbia’s credit rating?

In terms of Foreign Direct Investment (FDI), Serbia has been able to attract approximately 60% of total FDI which was directed to the Western Balkans region. FDI reached EUR 10,3 billion during the last 3 years, and the inflows from the beginning of 2021 up to the end of the third quarter of 2021, amounted to EUR 2,9 billion. It is important to mention that during the 3-year period of 2018 to 2020, the main contributors of FDI came from EU countries (78%), Asian countries (18%) like China/HK and the United Arab Emirates as well as the United States and non-European Union countries such as Russia, Turkey, and Switzerland.

Serbia has had a relatively stable exchange rate over the past few years, the FX reserves of the country are at their highest levels, while risk premium has been on a downward trend since May of 2020. In March of 2021, Moody’s upgraded Serbia’s credit rating to Ba2 with a stable outlook while S&P and Fitch have confirmed their rating of BB+ respectively, in June and September 2021. It is important to mention that JP Morgan announced its decision to include Serbia’s dinar-denominated bonds in its renowned GBI-EM Global Diversified index as of June 30th, 2021, providing further evidence that Serbia is considered a safe and favorable investment destination.

Is it safe to say that Serbia is “on the radar” of large real estate investors?

— The answer is emphatically YES! We have seen numerous transactions which have been concluded in the previous period, in all sectors of the real estate market, which justifies this statement.

One of the most noteworthy transactions in the office sector involves Globe Trade Centre (GTC) decision to sell its portfolio of office space in Belgrade to the Hungarian investor Indotek Group during the second quarter of 2021 for an amount close to EUR 270 million. The transaction involved the sale of 11 buildings within 5 business parks (Green Heart, FortyOne, Belgrade Business Centre, 19 Avenue and GTC House) totalling above 120.000 sqm GLA. It is important to mention that this sale represents one of the largest real estate transactions in Central East Europe (CEE) in recent years and GTC is one of the first companies to complete the development circle in Serbia (land acquisition, construction, operation, and exit).

Also, regarding the retail sector, MPC Properties, a regional leader in construction and real estate management, recently announced the acquisition of the Delta City Shopping Center further strengthening its retail portfolio which also includes UŠĆE Shopping Center, BEO Shopping Center, Mercator Centar Beograd and Immo Outlet Centar. It is important to mention that aside from these retail facilities, MPC Properties also has an extensive office portfolio which includes Ušće Tower One and Ušće Tower Two, Navigator Business Complex, TLD Belgrade and Plaza Prima. During the year, we also witnessed the acquisition of the Kragujevac Plaza Shopping Center and Krusevac

There is a very big misconception that project financing solutions are only available for large real estate projects, according to Steve J. Froustis

WEST PROPERTIES ASSISTANCE IN THE PROJECT FINANCING PROCESS

West Properties has a specialized team to assist domestic and foreign investors through the entire project financing loan request process which can be analyzed as follows: Preparation of the Business Plan

Introduction to Local and International

Commercial Banks

Day-to-Day contact with the Project Financing

Teams of the Banks

Day-to-Day contact with the Technical Advisors of the Banks

Responsible for the entire Project Finance loan request process until the loan

disbursement including negotiations of the loan contract. Depending on the in-house capacity and the local contacts of investors, West Properties can also assist domestic and foreign investors in such critical areas as: Detailed assessment of the Real Estate Project Overview of the critical paths towards completion Assistance with Local Authorities and Institutions Introduction to Legal Advisors Introduction to Construction companies.

Retail Park by BIG CEE for an amount in excess of EUR 60 million.

What would you single out in the industrial and residential real estate sectors?

— CTP Invest from the Netherlands is a leading owner and operator of business industrial parks in Central and Eastern Europe and the company’s portfolio covers more than 6 million square meters of business industrial space in 7 countries throughout CEE. Since entering Serbia, CTP has invested heavily in new projects and when finished, the current portfolio will include 450.000 square meters of facilities which makes it the leader in the market of industrial real estate in Serbia.

Regarding the residential real estate sector, Belgrade Waterfront is a global scale project which has already started to transform the lives of residents in Belgrade. The area which was once considered an eyesore of the city has slowly become the new meeting point for people to live and work, walk, eat, have a coffee, shop and in general enjoy the overall riverside experience. The Belgrade Tower (Kula) is closely approaching its completion and with it, Belgrade will welcome the famous hotel and branded apartments The St. Regis. It is important to mention that Marriot International has decided to bring their top-quality brands (St. Regis and W) to the Belgrade Waterfront property providing further credence that Belgrade is a city of great potential now and in the future.

Due to the size of real estate projects being executed in Serbia, are project financing solutions only available to big players in the market?

— There is a very big misconception that project financing solutions are only available for large real estate projects. On the contrary, even small to medium-sized real estate projects can qualify for project financing facilities. We need to highlight however, that the specific details of the real estate project such as location, financial structure, track record of the investor will play a pivotal role in the overall evaluation of the project financing request by banks.