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| Home > News & events > 2006 feature stories > Backing the best in Bulgarian property | |||||||||
Backing the best in Bulgarian property |
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“Business in the fast lane” is the motto real estate developer Guy Meyohas applies to his flagship investments in Sofia, Bulgaria. Mr Meyohas holds the rights in Bulgaria to import Porsche cars and he has built a stunning, top-class seven storey office building above the automotive showroom. The cars make the building look good, the building makes the cars look good. “I took advantage of my Porsche relationship to add prestige to the office building,” says Mr Meyohas. “The property’s exposure is unbelievable, it’s the first thing you see after you leave the airport. And even though we’re by the airport, we’re still just 15 minutes from the city centre.” Both businesses are doing well: Mr Meyohas has surprised himself by selling three times more cars than anticipated, and 65 per cent of the Porsche building is occupied. The Porsche building is just one of several Orchid has financed with EBRD backing. The Bank has made available to the company up to €30.5 million in debt and equity investment available to the company for Bulgarian office, residential and resort developments. Reaching smaller projects “Via Orchid we’re investing in smaller projects that would not normally attract financing because the debt amount they require is too large for Bulgarian banks and too small for international commercial institutions,” says EBRD banker Janet Woo. She adds that Orchid is raising standards in the Bulgarian property industry which has seen too many low-quality, get-rich-quick schemes in recent years. Some, particularly on the Black Sea coast, pose environmental risks as sewage from hotels is not always properly managed. A veteran investor in international property markets, Mr Meyohas’s record shows he and business partner Ofer Miretzky are experts at sussing out when to get in to a market, and when to get out. Mr Meyohas developed properties in the US in the 1990s and the UK in 1994, exiting with tidy profits before land prices in the two countries started skyrocketing. In eastern Europe, Mr Meyohas first invested in the Czech Republic in 1996 when it was still considered an emerging market. The big gains have since been realised in the Czech Republic and other central European countries that joined the European Union in 2004. So where to after that? Excitement in Bulgaria “We started in Bulgaria in 2000. I’ve been more excited by Bulgaria than the rest of the transition zone,” said Mr Meyohas, sitting among a few well-chosen antiques in the flat that serves as his office in a gracious old Sofia office building. “Local incomes are rising so Bulgarians want better-quality living accommodations and second homes at the coast. Tourism is booming here, with UK buyers very interested in Black Sea coastal properties and cheap flights coming from London to the resort areas such as Varna. Finally, a lot of offices are, like ours, in apartment buildings because there’s no alternative. There’s plenty of opportunity to develop offices on the city periphery which, given Sofia’s small size, is still close to the centre.” Bulgaria is a hot real estate market these days, with prices rising by 35 per cent in the past year. Property sections in London evening tabloids, which provide coverage of investments in sun destinations such as Spain, suggest middle-class UK investors can make quick profits in Bulgaria. They carry special sections on buying apartments on the Varna coast and on the many Bulgarian property funds, some of which have listed on the UK’s AIM exchange. But Orchid Developments Group Ltd is the only property company on London’s AIM exchange to have realised positive growth in share price since listing in 2005, says Ms Woo. Still good value Despite the hype over the Bulgarian market, Mr Meyohas says it still has a long way to go before it overheats. “Raw land value has gone up in value by more than 50 per cent since 2001 but relative to other markets, it’s still cheap. Here the land cost is just 10-20 per cent of the overall development cost whereas in London it would be 40-50 per cent. And by gaining planning permission and rezoning land, we can increase value by five or six times.” His careful preparation prior to making his first investment in Bulgaria has paid off in the long term, he says. “When we started here, we took six to nine months to check out the legalities of buying and owning land. Conducting due diligence regarding land ownership is particularly difficult. In verifying title you have to go back 35 years to ensure property transfers were done correctly. They’re still giving property back to owners (who held it in pre-socialist days). You can find 10-20 people own the same piece of land. “Our experience in these areas gives us a big advantage over other investors who have entered the market more recently. And most of our staff – 98 per cent – is Bulgarian, which also helps a lot.” The full impact of eventual accession to the European Union has not yet filtered through to property prices, Mr Meyohas adds. Bulgaria is scheduled to join the EU in 2007, although that may be delayed. That doesn’t worry the developer. “Bulgaria today is a far different place than it was five years ago. The government has made a huge effort to improve the investment climate through new laws. They’ve brought greater legitimacy to the property sector and made it a much more comfortable place to invest. “The government has reduced corporate tax to 15 per cent and there is a very well-educated work force here so international companies are locating operations in Bulgaria. They need office space, warehousing and leisure facilities, all of which we can provide. There has been large-scale emigration from Bulgaria since the end of communism but those people are starting to return and they have money to invest locally."
By Kate Dunn, Senior Communications Adviser
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