Who would have thought at the beginning of 2003 that the run-down, half-completed concrete structure on the corner of Alexander Stamboliiski and Opulchenska boulevards in Sofia would soon turn into the high end of sale-for-profit investment. Nowadays, it has also become an indicator of the direction that Bulgaria's property market has taken.

Before that happened, however, the neglected skeleton was demolished, thus allowing a freed land plot for the first modern mall in the country to be built - Mall of Sofia.

Initial investors in the project were two Israeli companies - Aviv Group and Cinema City International (CCI). Only a year after the mall's construction began, General Electric acquired another part of it, while a month before the scheduled opening in 2006, the Irish fund Quinlan Private bought a 50 per cent share.

So, it took a little more than two years for the initial investors to pocket 40 million euro, after their investment of 50 million, not counting the shares of the project sold later worth 90 million euro.

Now, the retail giant is ready to change owners yet again. The new buyer, the largest investment fund in Germany, DEGI (Deutsche Gesellschaft fur Immobilienfonds), has filed an application for approval of the deal with the Bulgarian Commission for the Protection of Competition. DEGI wishes to acquire 100 per cent of M.O. Sofia, the current legal steward of the retail and office complex.

However, nowhere in the filed paperwork was mentioned the negotiated price, and, following an inquiry undertaken by Kapital weekly, both parties involved declined comment.

"It goes against our practice to discuss deals that have not yet been completed, that is why we ask for your understanding. Information will be released as soon as the deal is finalised," Dietmar Muller, DEGI's spokesperson, told Kapital. But sources close to the newspaper have indicated that the negotiation takes into account about 127.5 million euro; the property has brought a return of nine million euro for 2007.

New buyer, old negotiator
While Mall of Sofia was DEGI's first Bulgarian transaction, the German fund had also recently decided to enter parallel negotiations with Equest Balkan Properties for the possible purchase of another mall in the capital - City Center Sofia (CCS). Equest, however, preferred the 101.5 million euro offer from the international investment fund Heitman European Property Partners III; that deal was closed about a month ago.

"We are one of the largest investors in Eastern Europe and in countries that are members of the European Union. We are looking at the whole country, but Sofia, as the most populated city, remains our priority. All countries in Eastern Europe register the same dynamics of market development. For the past several years, annual economic growth has registered more than four per cent, which equals Europe's average index," Muller said. "As a result, the population's disposable income and consumption has also been increasing. This tendency gives us reason to believe that, in Bulgaria, there is still a niche for shopping centres."

Muller also said that DEGI was closely watching activity on the office spaces market and has been staying alert for an advantageous purchase of a completed project.

Malls of hope
The fact that, on the backdrop of the financial crisis, a second retail centre changed owners in less than a month with record-low rates of return on investment indicates that funds like DEGI and Heitman still consider Bulgaria's property market to be relatively stable. The two companies probably decided to act on the market now because they did not see the potential for investment in other completed projects.

"This deal, to me, is a positive indication, let alone the fact that it is being realised immediately after another grand investment sale," Pavlina Nokova, manager at the consultant company Forton, told Kapital. "It is a sign of hope that buyers of such property have not vanished completely, and it also confirms that quality projects, sooner or later, become the subject of successful business transactions."

The new owner
DEGI (Deutsche Gesellschaft fur Immobilienfonds) was founded in 1972 and is one of the largest German real estate investment funds. The company has two smaller divisional funds for property with private shareholders, and another specialised fund for real estate. DEGI has a staff of 130 people who manage close to six billion euro in 16 countries. Since March 2008, the company has been part of the financial group Aberdeen Property Investors, which is listed on the London Stock Exchange.

One of DEGI's most recent investments includes a business park in Prague, acquired for 400 million euro, in addition to an office and retail centre amounting to 90 million euro in Osaka, Japan.

In recent months, the company has announced that it has invested 167 million euro in a business park in Warsaw, Poland, as well as 57 million euro in another office building in Prague.

Source:Kapital weekly
Issue 42