You both have extensive experience in real estate. You survived the crisis in 1998 and witnessed this. What is the fundamental difference of the complexities, opportunities were then and now?
Related article: How Virtual Reality Changes Commercial Real EstateR. Turcan: In 1998, I have not worked in real estate. But the consequences caught - just the first wave. And today, comparing, I can clearly see the difference. Now the market is an order of magnitude more advanced. I think if the current market situation was such, as then, would have fared much worse. And if at that time the market was at its present level of development, the very crisis of 1998, we were not so noticeable, because he still wore the local character, rather than global, as it is today. But between 1999 and 2009, there are similarities: rental rates for office space fell from the space $ 75 to $ 25, demand fell sharply and liquidity has fallen.
S. Sergienko: Past crisis we met, as brokers. It was a different responsibility. We have earned their modest fees for the 100-meter "and" 60-meter "transactions, knowing that they are very important for the company. During the current crisis, our consultants are hardly involved in the 100-meter "transactions: they are time-consuming.
The difference between past and present crises - in the scale and causes. In 1998 the crisis came to us from Russia. While Western companies feel more or less normal. They continued to conduct its business in Ukraine, rent offices, - certainly, with the amendment on the state of the local market. But they have a crisis was not. At this time - on the contrary - there was a perfect stop, because the crisis has come from the West. Everyone lost: many foreign companies "blown away", but certainly not disappeared altogether, as the Ukrainian market has become much broader. In late 1990 the 100-meter "deal is good," the 150-meter "- very good. Today, those companies that occupied, for example, 2000-3000 square. m, crossed in an area of 1500 square meters. am agree that it is incommensurable with the premises of 90 square meters. m
In addition, if the market (renters - BB) consisted mainly of industrial forming companies, today we see the normal functioning of different profiles of the enterprise. Of course, the main category of customers - they are representatives of segments FMCG and IT, all the rest occupy a comparatively small share. In the late 1990's warehouse real estate market was not at all, he was absent as such until about 2005. Retail market in the modern sense did not exist then, too - in terms of professional retailers, the presence of international brands, the availability of quality retail space (shopping mall, shopping mall). Everything is limited in the main room street retail.
So, today the market has acquired a completely different scale, hence the scale of the crisis has also changed, and therefore to compare the time and the current difficult. Although track and analyze, to compare trends and patterns can be.
It's a shame that many players in today's market does not learn the lesson from the crisis in the late 1990's and have not applied this knowledge during the current recession. Perhaps, while they have not been in the property market and the crisis has bypassed them by. Or, the operators found the hard times, but they were so passionate enthusiasm that followed, that even the most experienced, large companies that formed at the time the market today, "suck." There was a certain "race" - development, investment and new projects. Large amounts of funding only spurred excitement.
And players are not alarmed by the situation in the West, where the crisis started earlier? After all, foreign capital was attracted quite a lot.
SS: Let's just say there is a certain point of no return, and while it has not reached the market, there was hope: maybe "blow over"?
In 2007 began the first large banks to write off U.S. $ 5 billion, but then nobody thought that the events will take such a scale. First signals appeared in the II quarter of 2007, when they said: "America started some irregularities in the financial system." But in Ukraine, we felt it only in the spring of 2008. And there was no large-scale collapse, but some banks have stopped lending. Point of no return, when all is finally realized that the ship capsizes - September, when Lehman Brothers declared bankruptcy.
To us the crisis came more or less gently. Both we and the Europeans in the summer of 2008 quietly looked into the future, getting more orders, assess. For example, we have had large clients, which at the IPO that summer came with investkonsultantami who consider the situation on world stock exchanges normal. The company "XXI Century" in May 2008 took a huge loan that is repaid ahead of schedule in August. Note that if this company then gave a huge loan, under a huge interest at that time, then the normal development of the market is still expected.
Are there now, investment transactions, sales transactions, and to what extent?
SS: As such transactions occur, but in a mass understanding of the market froze. There are buyers who are in a relatively small funds become objects for themselves. Here in this segment and we are now actively working on. A globally - the shock has not yet passed. While some places in the market, we can already see the beginning of recovery. But, alas, in general, Ukraine is now dropped from the world map of investment operations.
With the advent of the crisis broke out criticism of analysts, economic forecasters. What is the ratio of customers to forecast today?
SS: Predict - generally a thankless job ... Cyclical economy is inevitable, it has not been canceled. After all, when growth begins, all chasing market share. And when there is an unhealthy expansion - there are problems with repayments (loans - BB), and therefore cease to lend, then build, etc. It works so-called multiplier-accelerator effect. This development is inherently a system of free economy, and the only question is when will decline and what will be its scope, and not whether it happens or not.
With regard to pre-crisis events. When I came into this business (consulting, - BB), I wondered: where such growth, if there's nowhere to grow? Because rental rates are much more developed markets, particularly in the markets of neighboring countries, were below our twice or even more.
It is difficult to predict anything, because "everyone fancies himself a strategist ... Now the seller thought it would be better, and the buyer, which is better - no, the sellers position "on yesterday", and the customers - "tomorrow", and before the crisis was just the opposite.
Again, it is very difficult to predict because "Prediction Machine" global. It should also be taken into account: analysts matter how independent they are, have their clients that they crush: "Let's positive forecasts, we need investment, we need to develop our project."
That's where occasionally appear rather optimistic statement that "life has become better, life has become merrier" ...
R. C.: Neither we nor the company as a whole there is no such position. Today's point of view - is "worse not to be."
Other consultants work out the standard practice of intelligence data and make predictions using standard approaches. We are more careful, because we have experience of previous crises. We do not write the forecast to please someone or to assemble a good collection of reviews. And we, incidentally, has been accused of that, their expectations, we "do not raise the" market.
SS: We - the company that officially conducts analysis, asset valuation, portfolio sites. In any case, we can not and do not want to seek some kind of underestimated or exaggerated. It is not in the interests of customers, but for our reputation. Therefore, we provide real data and therefore forecasts.
In our country, estimates are often prepared "to order" of the client. How do you get out of the situation?
SS: If we analyze and see that the estimated value does not correspond to the expectations of clients are forced to give up.
We had a very clear example in March 2009. In the midst of crisis, we have ordered an assessment of the object at the $ 100 million, we analyzed data and made a decision: to assess unrealistic expectations. Although our company can earn on this order and the money we were important. Another international consultant took the order and went to meet the client.
R.TS.: Reputation is created for years, and you can lose it in one day. At these "tempting offers" we do not agree. Unfortunately, this often leads to the loss of such orders.
There are analysts who argue that the market situation has improved markedly in 2011, some colleagues say the restoration until 2013. What about this do you think?
SS: We're in their review of markets usually focus on a specific timeframe. For example, right now our focus is on the question of when is expected to increase rents. Since the first is always going growth rates, and only then begin the boom of development and investment transactions in the property market - is the basic economic theory. When there is a recession, money is withdrawn from the economy and because there is no demand, rents are falling.
Cyclicity of the real estate market covers a very long period of time, much longer than the cyclic development of the economy as a whole. With the economy lagging behind the real estate market collapses, but then goes up much faster, while the economy may not show high growth rates. Can then be another collapse. This is - the scenario is an undeveloped market.
Development of the market fluctuations in the financial running out, development is not inhibited so strongly and does not accelerate so fast, so the waves are much more uniform. I think the next wave (rise - BB) and we will have a uniform. Let's say, a precondition for the next round of growth are, but the question is, how it will be.
When in 2002 the more or less "the dust had settled" after the 1998 default, the market started moving forward - slowly but quite steadily. Nobody thought that rents ever "strikes the ceiling, then mounted in a single office centers (in 1997, rates reached $ 80 per square. M). In 2002-2004, for all of us the $ 80 were as distant past, pushed into oblivion. But this level of recovery rates had to wait is not too long because the real estate market is simply "no time" for economic growth. Let me explain: we talked to investors, developers in 2002-2003: "begin to build!" But then many of them doubted, and the construction of facilities started only in 2004-2006. And when all is "boiling", the economy again went down - the real estate market once again lagged behind the overall trends.
Now there is a complete exhaustion of funding, and is a clear signal that we were again waiting for a sharp turn: nobody builds, and the economy moves, the company expanded, growing consumption. Again, the development of the real estate market will be delayed. And again there will be a reaction ...
Consider the office segment. Now, almost nothing has been built. Consequently, the office space after some time will not be enough even for a standard annual consumption. There are two possible scenarios. The first - vacant, which in 2009 reached huge for our market indices (20-25% or even 30% depending on the segment), will gradually decline. Supposedly, a couple of years will be a deficit. Within two years the rates will start to grow - in parallel with the improvement of the general economic situation - to a level which allows to invest in new construction. For example, at a rate of $ 18 per square. m building does not make sense, but at $ 25-30 per square meter. m and above the financial model is working. Accordingly, after three years we can expect another boom of development. This scenario is possible, subject to available funding, which, anyway, must get back to that time in Ukraine.
The second option - we'll go on nakatannomu path when building is actually smaller than required, the market is strongly developed speculative component, plus there are significant currency fluctuations. This scenario is overheating of the market, and it also has a chance to become a reality: over any high rents, and could happen again collapsed.
Our task as experts and company executives - to predict the possible development of the market for ten forward.
In a crisis, the question becomes relevant as an object. How do you estimate it in our market?
R. C.: For example, offices have already erected easily, developers can adhere to European standards. But still they go on compromises, and the market is filled with these compromises. Not a single office building is not built international developer. Especially, an experienced institutional developer. Yes, there's BC, realized by foreigners, but that does not mean that they automatically become "correct." They just meet the basic parameters of the base, but still most of them laid a particular defect. This means that the value of this object is limited. After all, to build the "right" and "wrong" object is the same.
Often confronted with statements of our respondents on the renewal of the property market. Do you feel it? And in what segments?
R. C.: The Quickening is, at least in the "hottest" properly constructed office buildings. The fall in the last year has stopped. And this year there is a slight increase in rental rates. You can not just say that the segment of commercial real estate is going up - simply because there was a stabilization of activity of the tenants. Market for office buildings, in my opinion, the most complicated and dynamic.
Segment of the warehouse property "is" due to the high vacancy rate. And landlords and tenants are in a waiting position. By the way, expectations of the past is very understated - 30 UAH. per square. m. Professional storage facilities are not available at this price.
The owners agreed to "hold" the price?
R. C.: It's not a conspiracy. Do not give up, because they can not overcome the barrier - so cheap to rent a quality stock. In addition, there is a credit and investment commitments, operating costs, which essentially did not fall. Therefore, in the storage segment and sdelochnaya activity below.
Office real estate market is more or less was settled: the lease are renegotiated at lower rates, more frequent transfers of tenants in other business centers at market rates. Consequently, the activity in this segment is, thus, I believe, vacant way or the other will decrease. Most likely, over time, will form a small deficit - depending on how the economy will recover as a whole.
Also, we can already see the trend growth rate required in new buildings, which were filled to 50% or more. Probably, the deal will still happen in the market range, but not at such a low level of depressive-dumping, as it was last year and the first half of this year.
Among the major transactions CB Richard Ellis have been renegotiating leases. That the company earns on this? And who pays - the tenant or landlord?
SS: This is a specific current activity: the major transaction was smaller, and fairly large proportion of renewal leases. The market is still on the side of the tenant. Therefore, we as consultants are obliged to inform their customers that there are now new opportunities, which should take. Now almost universally tenants save resources previously spent on office rent. Or, even if the economy is not, is a significant improvement in the quality of the office. Provide the client with favorable lease terms for the new economy - our challenge. Naturally, we pay for it tenant. The amount depends on the achieved size savings - whether it's reducing the budget for the new lease term or the initial proposal of the owner and the final deal.
How to react to objects on the owners of this initiative tenants shown with your active participation?
SS: We can not say that our work in this case is somehow detrimental effect on the landlord. Some may be offended that we are making in favor of lowering rates hired us existing tenant. But the bad is not it. Bad when the owner loses a tenant, not accepting the market conditions! Need to balance the interests of both parties. If the deal happens, it means that it is profitable and the owner of the object, and the tenant. No emotion here should not be.
R. C.: The market is kind of average monthly rent. What is it based? Who are most eager to deal? Not tenants - landlords. Especially owners of new and empty premises. There is competition with the owners of already-existing objects - they also want to retain customers. Such an fight for tenants. But it is precisely in this situation landlords can offer a normal condition.
We believe that in representing the interests of the tenant to demand from him a percentage of the transaction were not entirely correct, so practice the percentage of the savings from negotiations. And, of course, there is a minimum fixed rate, which did not always cover the direct costs.
I note that we are ourselves at risk and so can not work - there are different cases. Sometimes a tenant for several reasons it is more convenient to stay than to move. But here we are ready to work with the existing landlord to improve conditions of lease for a client. And the owner goes for it, because otherwise it will have about six months idle facilities, and the new tenant will likely have to take less than the existing one. Of course, there is a reasonable balance of interests between owner and tenant. Object, which is really worth today $ 25 per square. m, one for $ 15 per square. m not pass.
Question from the category of the eternal: what to do? Concentrate on what?
SS: During the crisis, advisers earn their journeys and reducing the space occupied by the tenant.
Now our strategy - business expansion. We focus on property management services. This business is not easy to enter into it, and just not easy to stay in it. But at the same time it is more stable than other activities, is a projection.
The less developed the market, the more difficult to achieve a steady income. Efficiency is important. There are people who perform in the company of supporting function, while others generate business. And we, in principle, no superformuly not. This is a fairly simple things: reduce the inefficient staff administrative costs. Today we have a team there is no man who has not passed the test of crisis, our team is strong, professional and reliable.
It remains only to develop the company. Health, bowing its not a stick to work on those areas that we are for a short period of activity (CB Richard Ellis is present in Ukraine since 2008-BB) were not yet covered.
Your personal development plan?
R. C.: Here, unfortunately, or fortunately, we have chosen roles - our current scope. This is - our company, our business, it is relatively diverse, so as not to miss, interestingly enough intellectually and offers good opportunities for earnings. We were very lucky with like-minded people - managed to gather a great team, it is important not to lose, set new goals and keep them together.