Demetris Panayi
CFO
Zeus Capital Management

02 July 2021

Zeus Capital Management is an international real estate investment company active in Europe and the US. In Romania they are well known for their offices and residential projects, including the recently acquired the landmark prime office complex Floreasca Park.

 

You've been with Zeus for a long time now, how have seen the local market transforming and what is your vision for the company going forward?

Indeed, I've been with Zeus for over twelve years and have partaken in its development and  expansion  across CEE and SEE as well as New York. It has been a remarkable journey supporting the company’s growth, while we were navigating through a difficult macroeconomic environment and having to deal with challenging local real estate markets, especially in the early years of our company’s development. Nonetheless, our team’s focus, perseverance and hard work paid off, considering that our managed portfolio of real estate assets grew from EUR10 million euros in 2009 to approx. 800 million in value.  

We are managing residential and office projects and it's amazing how much the industry has evolved - from a dry market in 2012 to a bountiful one in the years prior to the pandemic. The ambitions for Zeus include increasing our asset portfolio, creating value for our investors and generating exceptional returns.

Floreasca Park was one of the VIP transactions on the Romanian market. What is your process in selecting which assets are worth investing in?

When selecting an asset we place special emphasis on location, focusing on areas that can sustain liquidity during market downturns. This principle applies both to Floreasca Park and HQ Victoriei - that is right in the center of Bucharest, and performed exceptionally well during the pandemic. Other important elements that contribute to the success of a project are superior property quality with cost efficient design, energy efficiency and environment-friendly concepts.

Romania is generally overlooked by large international investors, being an emerging market with less liquidity compared to Poland, but the yields in Romania are higher. Investing in prime offices here, such as Floreasca Park, allows you to secure yields at least 200 basis points higher than investing in a similar project in Poland.

You can also capture a significant upside potential, even on core assets, as the yields in Romania are expected to converge with the rest of the CEE markets. This was the main driver that underpinned our acquisition of Floreasca Park. We joined forces with Resolution Property to acquire this asset, which also marked Resolution’s entry in the Romanian real estate market. 

 

You mentioned that Romania offers, at this point in time, better returns than other countries in the region. Do you expect this will continue in the coming years?

As more investors of scale place Romania on their radar screen, more yield compression will happen in the coming years. The pandemic slowed down the processes, but prior to this crisis, Romania was registering one of the fastest GDP growth rates in the EU, had under 4% unemployment rate and attracted blue chip tenants. We have been experiencing revived buyer demand for residential properties in Bucharest the last six months. Just in March we saw a huge increase in sales of residential units in Bucharest, from 3000 in March 2020 to over 5000 in March of 2021, and prices are starting to rise. There is still good business to be done in this sector, as well as there are promising prospects in the logistics and office sector. 

Romania's high returns and market attractiveness are also associated with risks or political instability. Does your experience here confirm this perception? What are some notable challenges you came across here?

This association is true to a large extent, thus Romania offers better returns because the business environment is not fully developed. However, with patience and a thorough due diligence, it's easy to find profitable assets – but having the flexibility to time your exits is of utmost importance and  key to a successful venture. In the past, we did face instances with legal complexities related to ownership titles, permitting and availability of credit. The situation gradually improved over time as the legislative and business environment continue to evolve and credit is becoming more available and flexible, considering that more foreign banks have entered the market.

Your stake in the region expands well beyond Romania, in other CEE countries. What are your plans in the region for the coming two-three years?

Poland is the biggest and most liquid market in Central East Europe. The speed of deal making and the robustness of the market, supported by a more developed business environment, create a dynamic and evolving investment landscape. Against this backdrop and considering that in many segments we have already reached peak pricing, we are very selective in identifying opportunities caused by either market dislocations or by detecting overlooked assets and locations.  Being the biggest market in our region, Poland will definitely continue to hold a central focus of our investment activities.

Following the acquisition of Floreasca Park, our primary focus in Romania for the short-term horizon shifted to expanding into the logistics space, as well as continuing our residential program. Being also a landowner possessing a very attractive ready-for-development plot of land in Bucharest, we look forward to exploring opportunities in residential development as the market continues to strengthen. Nonetheless, we continue to explore prospects to increase our office portfolio targeting 1-2 additional acquisitions in the next 2-3 years. In Hungary the office market seems to rebound and we'll definitely take advantage of this.

Do you have a final message about the Romanian and Polish real estate markets?

We've been dealing with investors across the globe and if 10 years ago they were looking at the region as being "exotic", especially US or Asia based players, this perception has changed, as these markets are now more transparent. CEE and SEE are becoming increasingly appealing to institutional investors due to the higher yield and capital appreciation potential that is still available. Bottom line, now that we are still facing a low-yield investment environment globally, the real estate markets of Romania and CEE in general will come into the spotlight.



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