Anti-crisis management of real estate in Ukraine

09.12.2009 10:54
In an economic downturn in Ukraine and the world financial crisis, commercial banks are forced to restructure troubled loans secured by real estate. This applies not only loans to individuals for the purchase of housing, but millions of credit and loans to developers to implement large residential, warehouse, commercial and office projects. Arguments in favor of such restructuring are clear. Plead with insolvent clients borrowing in order to recover the mortgaged property, namely retail, office and other buildings in its favor unprofitable. Among the arguments: additional court costs and risks, and in case of transfer of the object on the balance of the bank's additional costs - pay the VAT and the need to increase reserves related increase in the proportion of bad loans.

Yet the restructuring is a temporary solution, or rather deferred its decision. It is, unfortunately, does not answer the main question: "Is the financial crisis and falling rents and property prices only reason that the developer can not repay the loan? Or perhaps the concept of object in the new environment is irrelevant or the management team can not effectively tackle critical challenges. On these and other nuances of real estate management in a crisis, we are talking to managing director of 1849 PLC in Ukraine Robert Velanom.

Journalist: What would you recommend to make the banks and borrowers in this situation? How do you assess the likelihood that rents return to pre-crisis level within the next 1-2 years?

PB: Based on our experience with managing the shopping center "Pyramid" in Kiev, we advise banks and owners of facilities to make every effort to stabilize the net operating income and its gradual growth from internal reserves. I am sure that such reserves are available at each operating site, they just need to tap into.

Count on the fact that rental rates quickly return to previous levels is not necessary. You must be a realist, incomes due to the crisis and devaluation of hryvnia dropped significantly, and without their rental growth rates to rise and will not be. So far, unfortunately, can not see the prerequisites for the resumption of sustained economic growth in Ukraine.

Journalist: What does your company made in order to stabilize the income of the shopping center, which you operate? What reserves were used by you?

PB: It's no secret that before the crisis did not require significant effort in order to rent all the rooms and get the projected income. The fall in rental rates and rising vacancy rates lead to the fact that developers can not return the loans. We managed to avoid this situation through the following actions. First, we strengthened the management team and retrenched "Pyramid". In key positions have come people who are able to act decisively and quickly weighed. This allowed us in the midst of the crisis to negotiate and keep the center of nearly all tenants. Secondly, we have carefully analyzed the operating cost center and reduced them to a minimum. Thirdly, we have gradually improved the collection of tenants in the center by drawing on favorable terms "anchors" such as a food court and a store of beauty, health and comfortable life, etc. Fourthly, we have made, and gradually implement an action plan to improve the quality services, both for renters and for buyers shopping center. As a result, our net operating income has stabilized, and Vacancies equal to 0.

Journalist: What are the advantages of having on-site professional management team? Can this service significantly reduce the loss of developers?

PB: Real estate management - an important service that all professional investors want to get. During the crisis, a skilled management team at the facility means the transparency of all processes, strict financial control and a clear action plan to optimize the operation of the facility. In addition, professional real estate manager is able to make the right decisions on making investments in property in order to increase its value.

Journalist: What initial steps should take a professional manager, by going to the problematic object?

PB: I suggest starting with the audit, which includes cost analysis, the commercial potential of the object, the physical state of the object's internal control procedures and legal documents. Its result should be a plan to stabilize the asset and increase its net operating income, calculated on 1 year, as well as appropriate financial model and sensitivity analysis. After the audit, steps should be taken to reduce unnecessary costs, implement a system of monthly financial and management reporting, pick up the team facility, which will carry out an action plan designed to stabilize and increase the net operating income of the shopping center. Providing full control over cash flow, cost reduction, rapid filling of vacant space for tenants and a set of measures to increase the value of the property - these are the basic competencies of professional managers that ensure the successful execution of its functions to the problem object.

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