DEVELOPERS’ OPINION
The Commercial Property magazine addressed Ukrainian development companies asking to tell about the measures which they are taking in order to overcome the consequences of the crisis and make forecasts about the probable scenario for the commercial real estate market segment.
Denis Sluchinsky, General Director of the "KARAVAN" Group of Companies
|
|
|
СР: Did the “Karavan” Group make any corrections to its development strategy in connection with the crisis at the Ukrainian real estate market? If yes, then in which way?
I’m sure that all companies made corrections to their development strategies to a more or less extent. Our company froze the projects which were at the stages of designing or building preparation. We also considered the projects at the stage of construction which could be implemented in the near future and set into operation so that they could bring a certain cash flow. We are now working on the project of the “Karavan” shopping center in Dnipropetrovsk for which we have the financing. We have a task of setting it into operation as quickly as possible.
Unlike a number of developers, we entered the crisis with loan (financial assets from private allocations and credit lines) and own financial assets generated by operating shopping centers. |
Talking about the market in general, I can say that single projects will be implemented, which are provided with the organized financing at the expense of company’s own assets or credit assets allocated before the crisis. Today it is practically impossible to get a credit according to the project financing scheme at Ukrainian or foreign banks. For many companies, the financial problem is very sharp; most of them don’t have their own assets which could be enough for project implementation. Thus financially strongest market players now face great opportunities because competition is getting weaker.
Besides, the net cost of construction is now decreasing which is one of the advantages of the crisis for developers. Over the last 3-4 months, the net cost of construction decreased by 20%. The investment into a square meter made about $1100, but now it is $900-950.
СР: What do Ukrainian and foreign private investors think about the real estate market? Is it worth waiting for investment deals in the commercial real estate segment? The investors of which countries are ready for such deals?
There are many offers at the market now for both projects and land. Still, as far as I know, no deals were made and are not probable in the near future. Everybody understands that the market is not yet at its lowest point, which will be followed by development again. I think that both Ukrainian and foreign investors will be on a wait-and-see attitude till spring 2009.
In our turn, we see and analyze but don’t buy anything, because our own project portfolio is big enough. Our company supports the portfolio balance, so that it contains operating objects which generate profit and land for further development. Currently we have 3 objects in operation, 2 objects under construction and 14 grounds. Besides, we need to save liquidity and financial assets and limit costs.
СР: Please describe the situation at the land market.
The supply at the land market is rather big, besides, the prices are falling. In average, the cost of a regularly shaped ground of land, nicely located within the bounds of the city, decreased by 30%. Moreover – the tendency for price decreasing is continued, that’s why soon the value will generally fall by 50%.
СР: What are the current expectations of institutional investors concerning capitalization rates in the commercial segment of real estate?
It’s extremely difficult to answer this question now because there is no real market. We had a strategic idea of selling the “Karavan” shopping center in Kyiv. From the development point of view, it is no profit for us to have it in our portfolio – it would be more beneficial to sell it and reinvest the money into new projects. Because of the crisis we stopped the realization of this idea but still keep our ears to the ground. We understand that the price as it was before the crisis won’t be restored in the near future. Still, we are sure that the shopping center of the “Karavan” level will always be in demand.
СР: What changes are to be expected at the market within the upcoming months?
There is a risk of decrease in rental rates in the future which will influence all market participants — some of them more and some of them less. The degree of such decrease will depend, first of all, on the quality of an object. If the object is of a high quality, the rates decrease will influence it insignificantly, because tenants need to develop anyway and they are unlikely to close the existing shops.
We build professional objects; and both our tenants and visitors are always satisfied that is why we consider that this tendency will affect us to a less extent. Nevertheless, in order to keep our eyes on the ball, we talk to the tenants of the “Karavan” shopping centers in Kyiv, Kharkiv and Dnipropetrovsk every day and try to find out what problems they face and inquire about the financial results of their work. It is going to be a difficult time for the companies which have big debts in loan financing, credits, especially short-term ones, and unsecured real cash income. A number of companies will go bankrupt and face serious financial problems which can lead to the rearrangement of the market participants. The weak companies which dealt with speculation of land will leave, but those ones which will survive will be remunerated with new opportunities for further development.
19.12.2008 |
Print version
Authorization
