Akcent Development has been present on the Romanian market for over 20 years now and its current portfolio is split between the residential and office segments. In the residential space the company delivered over 5,000 apartments in Sector 6 of the Capital, but recently switched focus towards the northern area through the Cloud9 Residence project.
You took over leadership of Akcent Development in February 2020, an interesting time to embark on this challenge. What ideas did you bring to the table to help navigate this period?
Interesting time indeed. I took over the entire real estate division of the group (residential and office), so 2020 was a double challenge for me. My best bet was approaching the business with added rigor, which I find very important in an area that involves construction, and bringing in young people that were closer to my vision. The average age in our company is 32 years old. I am fairly young myself, but still the oldest in the company.
How do the residential and office segments contribute to the overall value of your business?
We treat them with equal importance. On the office side, we focused on older structures bought from societies that were underperforming and turned them into boutique office buildings. This gave us the location advantage: Mendeleev Office 5 for instance (which we delivered in February 2020, just before the pandemic started) is an architectural jewel equipped with the latest technology, located in the very heart of the city.
In the past year, however, the most relevant revenue came from residential (we sold more than 550 units). Cloud9 was financed together with Raiffeisen Bank, our long term partner. The value of our loan was EUR 30 million and the payment term was March 2021. Because of our incredible sales we paid it in full as early as September 2020 (6 months earlier!). As I joined the company it has been one of my objectives to get rid of interest rates, and I'm hoping for a similar path in our next project.
So you were able to pay out the loan earlier because of the incredible demand Cloud9 Residence generated. What was so attractive about this project?
As soon as we started the selling process, I realized we should have a customer service department. Among other things, we implemented a questionnaire to understand our customers’ profile and also any shortcomings they perceived. We aren't afraid to acknowledge our mistakes, it's the only way we can avoid them in the future.
The conclusion was that customers mostly appreciated the value-for-money. Many chose Cloud9 because of its position obviously, but also because we did not shy away from using the best finishes: the ventilated facade was an innovative aspect and the inside finishes are of the highest quality. Another aspect to which customers responded positively was the height of the apartments (2,7 m). When you enter you get an amazing feeling of openness.
Others bought from us because they saw it as a good business opportunity. The units are located in the vicinity of big office buildings, the Manhattan of Bucharest if you wish. For instance, we closed deals with a few investment funds who bought 15-20 apartments and rented them out. A two-bedroom apartment starts at EUR 93,000 (we were lucky to be at the limit of the 5% VAT) and can easily be rented out for EUR 800, which makes it very attractive.
You take pride in using the highest quality materials but also offering a better price than your competition. How was that possible?
Simply put, we have a long relationship with suppliers of materials from Italy and we negotiated ardently. Adding to this, we created a concept to optimize the use of materials: for instance, if we have a hallway that connects two rooms, we calculate its dimensions from the planning stage so that whole plates can fit in. This means we don't waste any materials and we don't need to spend time cutting them. We had the same approach when it comes to glass, aluminum, etc. We even included this in our contracts with labor suppliers, a strict deal that didn't allow losses above 3-5%.
What about the new project you have under works?
I can't give too many details yet but, broadly speaking, it will also be located in the northern part of the city. These past days have been fairly turbulent because the authorities blocked development by cancelling the urban development plans (PUZ), but fortunately we remained unaffected because we have an individual PUZ obtained a while ago.
If we are to compare our most recent two projects (21 Residence and Cloud9), the new one will be a mix between the two. The study we made showed that we can use the same type of high end finishes we used for Cloud9, but at better prices because we found new ways to optimize certain elements in the design phase. We will give up the ventilated facade which increases the costs considerably, but bring other features to compensate.
We also created a buyer profile and came up with the following structure: 70% will consist of two-room apartments, 12% studios and 18% three-room apartments. The price for a two-bedroom apartment is likely to surpass EUR 105,000 so we won't be able to fit into the 5% VAT. I am saying this now, but the project will be finished in two years, so the authorities might come back on their decision and allow the 5% VAT to stimulate the market, an advantage for the local budget if we look at the taxes that would be coming in.
Some of your peers pointed out that customers have become interested in larger apartments, that allow for an office room for instance. Why do you place your bets on two-room units?
The area in which we are developing is suitable for this type of unit. We conducted a study and the conclusion was that our customer is young, often unmarried, buying his/her first home. It is, however, true that we are dealing with a shift in client’s desires. From the beginning of this year we received good demand for duplexes and apartments with gardens. The prices are premium of course, but people have more appetite for a "house" inside the city.
Speaking of the Mayor's decision to cancel urban zonal plans, how would you evaluate the relationship between the industry and public authorities?
We have a good relationship in general, but the administration is rather old in the way it does things. Each mayor promised modernization but failed to follow through. I would like to see a city hall that is digitalized, where correspondence by email is possible. The pandemic brought some good things from this perspective, it showed that it is possible to use these means - ironically this was only the case during the lockdown, now we are back to the eternal paperwork.
What were some approaches that proved efficient in dealing with authorities? Obviously both the industry and the authorities have their own interests to protect, but what were some places where you managed to see eye to eye?
Frankly, I think the business community and the state still have to consolidate a stronger relationship. Take for instance the dynamic surrounding the 5% VAT: developers stand still, authorities don't collect taxes and clients wait for another year or switch to locations they are not fully happy with. Nobody is satisfied in the end. It would be nice to see authorities consulting with business people. Real estate development plays a huge role in community life when it comes to taxes. We need a dialogue, but it doesn't really exist at this point.
All things considered, do you believe that now is a good time to invest in Romania's real estate? And is there still room for new players?
Certainly, it's a good business and there is plenty of room for new players. We have been doing this for 20 years already and we will likely do it for another 20. The market has been growing consistently for many years now, and nobody would continue building if they didn't have someone to buy.
Obviously, we have to be careful at what signals we send out as a country to businesses and foreign investors: overnight changes like the ones with PUZ are not something an investor looks forward to. But even with these shortcomings, I trust Bucharest will continue to build at the same pace for many years to come.
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