You have recently taken over the leadership of the new Central and Eastern Europe division at BLD. Tell us about your background and experience in the industry.
I have been in the real estate industry since 2007 when I started my career as a Finance Project Manager in the Bulgarian office of Arco Vara - at that time one of the leading real estate investment and development groups in the Baltics. In 2010 I took over the management of the company in the country for the next 10 years. During this time we successfully developed and implemented 5 residential projects with a total of 70,000 sqm of GFA, actively managed an office and shopping centre with over 7,000 sqm of GFA and a small side BTR business with 15 apartments, in addition to listing the REIT on the Bulgarian Stock Exchange. In recent years, we acquired the land, created the concept and obtained a Building Permit for what was to be one of the largest mixed-use projects in the country, Botanica Lozen near Sofia, with a GFA of over 120,000 sqm and an expected investment of over €100 million, but the investment was frozen due to the owners' decision in light of Kovid-19. Over the last 2 years I have managed the international business of one of the most high-tech Bulgarian companies, which produces specialized systems for the defense, aviation and wind energy sectors, with projects in over 30 countries. In short, I have been working with foreign investors and on overseas projects for over 15 years, the vast majority of that time in the real estate development sector. I joined the BLD team in late 2022 to launch and organize the company's international expansion with Poland as the initial destination.
How do you feel taking on this new professional challenge and what are your responsibilities as BLD's Head of Central and Eastern Europe?
The feelings are, of course, extremely positive, both in a personal and in a "nation-psychological" aspect: a company from a small and slow-growing country like Bulgaria has created a capacity beyond what its own country offers, has the confidence, the desire and the potential to enter a foreign market, and not just any market. We are talking about a market that is 5-6 times larger in purely geographical and demographic terms, a decade or two ahead in its development (in all aspects), a few years away from developed country status. Personal feelings in this factual setting take a back seat, this is more news of national importance.
Entering a new market entails significant investment and risks. The period of getting to know the market, establishing a network of contacts, researching the local legal, financial, administrative environment, sourcing potential investment projects and evaluating them - all of these things take a tremendous amount of time, during which the company is only spending money. The information, contacts and projects gathered in this process are necessary to carry out an activity, but are not risk-free. My main responsibilities are to minimize the period of "burning" money, to procure projects with investment potential and a measured risk profile, and to create the local structure and team that will be the basis for BLD's long-term presence and development in Poland and, subsequently, for its entry into other CEE markets.
Tell us more about the current situation and current trends in the real estate market in CEE and Poland.
The situation on the Polish and CEE markets is not drastically different from the one in Bulgaria due to the fact that we are all affected by the same global factors - current inflation, rising interest rates and tightening credit, the war in Ukraine, Kovid-19, the expected recession, concerns about the excessively high house prices over the last 3 years. Similar to Bulgaria, the market in Poland continues to be extremely resilient, with no general downturns at the moment, nor a propensity for specific investors to discount beyond the standard 2-3%. However, in Poland specifically, there are 3 additional, local factors that in aggregate distinguish it from both Bulgaria and the rest of the CEE countries. This has led to an aggressive rise in the benchmark interest rate to almost 7% and mortgage rates to date around 10%, which has led to a collapse in new mortgage withdrawals of over 70%. Secondly, more than 2 million Ukrainians fled to Poland because of the war and, given the proximity of languages and cultures, are integrating very successfully into the environment and businesses. It should be noted that a significant number of them have significant assets, which are largely invested in real estate. According to many studies, the majority of them are expected to remain permanently in the country after the end of the war. Thirdly, there is the government's highly proactive and pro-business policy in relation to measures to limit the economic effects of the global crises. Over the last three years, a number of initiatives have been adopted to support the economy, in particular the real estate sector, and the latest and expected one will come into force in the summer of this year - the state will cover the full cost of mortgage interest for first home buyers above 2% annual interest rate. This, combined with the 8% VAT on the primary housing market, is expected to largely offset the effect of the Central Bank's aggressive interest rate policy.
Why didthe company choose Poland as the destination with which to launch its expansion in the CEE region?
The choice of Poland is the result of more than 2 years of market analysis, during which we have been exploring several European countries as potential destinations for our expansion. The reasons are many and complex, but I will try to highlight a few of them, with the caveat of non-exhaustiveness: the Polish market is 5-6 times larger than the Bulgarian one and is characterized by an exceptional level of decentralization, similar to developed Western countries: only 7-8% of the Polish population lives in Warsaw (vs. 30% in Sofia/Bulgaria) and at least 6-7 more highly developed and independent agglomerations with a population of over 400-500 000 people each. In the presence of such decentralisation, investment opportunities are not only limited within the capital, but also in other large regions which themselves have strong economic development and potential. In addition, Poland still has the status of a developing country, so we have higher levels of profitability than in Western Europe. The last 15-20 years have seen rapid economic development, as well as an active policy on the part of the government to attract foreign capital and investment. As a result, today it is difficult to name a major international investor that does not have investments in Poland in one form or another. Investment creates jobs, raises incomes, attracts foreign experts who create demand for more goods, services and property, which attracts new investment, and so on. All of this is a very solid foundation for the real estate sector in the long term, and with world-class projects like ours, I have no doubt that we will achieve a successful realization and status as one of the leading developers in the country. In Poland, there are market segments that do not exist in Bulgaria and provide an opportunity to diversify the Group's investments by entering some of them, as well as acquiring know-how and specific experience. These are for example PRS (Private Rented Sector), PBSA (Purpose Built Student Accommodation), co-living, super luxury housing in skyscrapers, transforming old office buildings into housing, etc. Some of these project types are among the most attractive asset classes for large institutional investors today. As they are not available in Bulgaria, by investing in Poland we have the opportunity to establish contacts and relationships, perhaps joint business with them, which would give us access to significant capital resources with which we could invest in even larger scale projects. It is not to overlook the fact that historically Bulgaria and Poland have excellent relations and the general perception of Bulgarians there is very positive. Our countries also have a very similar culture, traditions, language and, as a matter of fact, construction standards. Although these are far from being factors of paramount importance, they greatly facilitate the establishment of business and contacts there.
What are the company's current position and future development goals in the local real estate market?
To date, we already have a registered local company - BLD Homes Sp. z o. o. and an office in one of the emblematic skyscrapers located in the central business district - Q22 on ul. "John Paul II". Our efforts are focused on establishing contacts with the right local partners - consultants, lawyers, appraisers, developers, architects, builders, through whom we already have a significant number of potential investment projects, the more promising of which we are analyzing in detail, and for some we are actively negotiating with the owners. The goals we have set are to purchase or invest in a first project within the year. Around it we will start to build the local team and to push the BLD brand in the country. Within 3-5 years from now, we plan to have a clearly structured team of professionals, at least 2 projects already completed and a portfolio of other investment properties to develop, after which we will be able to start preparing for expansion to other major cities in Poland and CEE countries. Of course, given everything that is happening in the world, we are closely monitoring the development and attitudes of international markets and investors and adapting our short-term strategy. In the long term, however, we are confident in our own capabilities and expertise, as well as in the potential of Poland and other CEE countries.