Sofia, 6 October 2006, PropertyXpress Newsletter, Interview with Mr. Ivan Mekushin By Petya Kuzmanova

Two months ago the investment fund REEF of Deutsche Bank was the latest one launching business in Bulgaria. Unlike the others, having entered the market, purchasing ready buildings let to tenants, REEF decided to come to the local market by establishing a joint-venture company with a local developer – Winslow Developments. On this occasion Petya Kuzmanova met and talked with the owner of Winslow Developments - Ivan Mekushin, who told her in this exclusive interview how the boom in the real estate market could make an owner of a toys company start investing in luxury vacation complexes and trade centers, why the power of a developer of dwellings is the medium price segment, and also which are the next attractive regions for investments in Bulgaria.

Business card of Ivan Mekushin:

The manager of Winslow Developments, Mr. Ivan Mekushin graduated in Medicine in Sofia. He worked as a Manager of the toy company Limex.

Business card of the firm:

Winslow Developments is a company investing in real estates that actively participates in all stages of the project development – land acquisition, building design, financial procurement, construction, marketing, sales, post-sale support and management of buildings. Until now the company has developed seven projects in the town of Bansko, which are residential houses for seasonal occupation or the so called apartment houses. The biggest of them is a complex consisting of 3 buildings spread over 11.000 sq.m.
In 2006 Winslow Development established, together with RREEF – the investment company of Deutsche Bank, a company for implementation of building projects on the territory of Bulgaria. The first two of them are residential complexes of closed type in the Sofia quarters Manastirski livadi and Vitosha. The total investments plan shall exceed 65 mln. EUR.
The complex in Manastirski livadi will spread over 22, 2 decares. It will have 330 apartments, low-rise buildings, controlled access, and will be located around plenty of greenery. It will offer spa and fitness center services, kindergarten, medical cabinets, etc.
Winslow Developments strive to focus on the design and implementation of investment projects in the area of residential and business properties.

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How did you get involved in the entrepreneurship in general and to the residential properties in particular – you think they are attractive, you think this is the profitable business or you have other reasons?

We turned to this section most of all because of its attractions – not so much from financial point of view or because it is “modern”, but because it is attractive in terms of activity, stimulus and method of work. The very word “development” means to act, to create, which is much more than the purchase and sale of land, the neat investment in finished apartments or in green. There is also creativity. There is challenge.

You buy land, design, build and sell or you manage the investment?

We buy land, hire architects and building companies, we sell then independently or through agencies the ready product “in green”. During the last season in Bansko we started practicing also post-sale service or the so called property and rental management.

Do you plan to invest in large scale business and residential properties?

The goal of our company is to develop projects in these two priority directions, where the residential properties are currently implemented while the commercial properties are future plans. Currently, even if we have some specific ideas, we are still at the stage of investigation of options and terrains to buy.

Where is it that you are looking for terrains?

In Sofia, and next year we will go out of Sofia. It is widely known that most appropriate for the commercial properties is to work where the concentration of people is high, but a town like Bansko has for example also its potential. In any case, we are talking about a very careful assessment where to invest, where it will be enough profitable and not only from the point of view of specific margin but in relation to a sufficient financial reasoning for the implementation of a similar type of project. One big city is good for business projects even just for the high concentration of people, but also the smaller towns with concentration of people with relatively high purchasing ability can offer interesting alternatives.

In the last year quite topical is the building of the mall type of complexes. Would you be interested in such an investment?

Press statistics in Western Europe and the USA show that it is necessary to have an average of 150-200 thousands people to consider a mall sufficiently perspective and efficient as a trading center. As to date, the official data on design and building of malls, both on the territory of Sofia and outside it, are some, i.e. we are still withholding the plans for such an investment. On the other hand – if their number proves to be insufficient in future, I am confident that there will still be chances for other companies to take part in their building.

At what stage is your residential complex in the area of “Manastirski livadi”?

In July our company announced a competition for selection of an architectural solution for the design and we will have our decision about the chosen architect in few days. The concept of the complexes in Sofia is developed together with Deutsche Bank. The common space in these complexes allows people to feel safe enough, not only in material aspect but most of all about their children who will be able to play outside and grown in environment defined by the inhabitants of this complex. These factors are of exceptional importance for the Bulgarian. In the beginning of next year we plan to start construction work that will take about a year and a half.

Is there already demand for the more luxury type of houses and apartments in Bulgaria? Do you offer such properties?

I wouldn’t say luxury because from investor’s point of view it will be difficult to sell a project of about 300 apartments belonging to the luxury segment only. Besides, the term of this investment is not sufficiently long. For this reason our project in Manastirski livadi, also in Vitosha is oriented to the middle level clients. We estimate that our capacity is mainly in the middle segment, as the designs are not only for these two complexes but also for some of our next projects. From luxury apartments demand point of view – yes, it has rather increased, but if we talk about luxury houses – there the prices are serious and it is difficult to talk about a niche in the market.

Shall I rent a house or buy my own property, considering the current market situation? What is your advice?

I think that from financial point of view it is wiser to buy a property, as the prices will continue to increase, especially in the segment varying about 500 EUR per square meter residential space. The value of building will also increase in two years time. Definitely yes, also from the aspect of the Bulgarian mentality – it is most important to have your own home. Everything else will come later.

Still, if we compare the movement of prices in rentals and residential properties in Bulgaria – there are almost no changes on the rental market. Besides, in many European countries people rent houses all their life....

Probably there is a reason for the lack of fluctuation of rental fees – maybe they were overestimated before. If today we calculate a rental fee against the price of an apartment, we can prove that an apartment is paid off in 10-12 years. But when I talk about purchasing of apartment I do not mean buying an apartment to rent out or resell, but an apartment that will be used for personal purposes. In end, it is all about calculations – if someone carries out independent business activity, he will not invest his money in a house, but in his business and probably will gain much more from the business. Another person on the other hand may insist on having a home.

What about the inflation or the interest on credits?

The private property is useful and it is an investment, if you buy it today and expect it to increase its value in future. With profit or not, with interest or no, is there alternative profit – these are matter of calculation. Many people in Western Europe do not live in their own properties, but one of the reasons they don’t is the fact they cannot afford to buy any.

Does it mean that the Bulgarians are rich people?

It seems to be so, if the ownership over a property or apartment is the richness criterion. If the richness criterion is to be able to travel, to have access to information – then they are not. There are so expensive properties in Switzerland or Spain that they cannot be repaid in a lifetime.

Only in Sofia there will be built more than ten complexes of closed type – what will make your complex different?

I cannot say what exactly will make it different, as I don’t know the other project in detail. But in any case we will do our best to make it good enough for those who are looking for a quiet, pleasant, not stressful daily life in this complex. We think that the expertise of Deutsche Bank in other countries will help us improve the quality of the site as a whole – in terms of functionality, architecture, ergonomic distribution, common spaces, access to buildings, communications between buildings and apartments, etc.

Who will be your clients – foreigners or Bulgarians?

Mostly Bulgarians, but we will work also with broker agencies in the UK. We think it is possible the foreigners get interested in our properties in Sofia and specifically in Bansko, where the Bulgarian clients restrictions form much smaller percentage from the total number.

How will you comment the situation in Bansko – is the construction activity in the resort sufficient or excessive?

As a company investing in this resort we already ask ourselves this question. The answer is very important for us as it definitely will determine our future investment plans and the possibility to continue to build and sell in Bansko. Apart from the nine residences, the building of the last still to begin, our idea is to continue with X, XI, XII, etc.
On the one hand it is obvious that there are too many new buildings in Bansko, on the other hand the capacity of the resort facilities is exhausted. Third, if we compare it to some Western Europe resorts, I wouldn’t say it is over-built.


Doesn’t the low capacity of facilities make senseless the future construction works?

There are serious plans and investment plans about Bansko and the region, related to the construction of more transport lines and new ski centers. And this is not by accident. I was born in this beautiful region and I always knew that we have magnificent mountains, but it is only in the last years, after I established contacts with foreigners who come here as tourists or clients buying property and do not hide their great admiration, that I tried to look at Bansko through their eyes. It is really an exclusively beautiful and unique place.

Is there a potential for Bansko to become a year-round resort and what do you think about it?

Currently, a terrain of about 30-40 decares have been already purchased in the municipality of Razlog, including forest appropriate for the construction of a paintball playground. Apart from it I can mention already established tourist attractions, such as breeding and riding horses, possibilities to rent a bicycle, motorbike or buggy, tourist routes in the mountains, of course spa centers – there are already few of them and apparently their number will grow. What is more, if we talk about spa in the real sense of the word, there are two wonderful settlements with mineral springs near Bansko.

Do you plan a similar investment? Are you tempted by spa centers, hotel business?

We would not like to invest in a hotel, as this business is different from ours and currently we don’t have plans in this direction. It is related to a different type of staff, different relations, different type of thinking. Our company is mainly based in the development business and we will continue to develop projects mostly in the residential properties segment.

Apart from Bansko and Sofia, which are the other places in Bulgaria which attract you as investment directions?

One of the places we consider interesting and with potential that we can implement, even if it sounds strange, is the Bulgarian Black sea coast, both North and South part, far from the topical for the moment investment centers.

Many entrepreneurs announced projects exactly in the North and South Black sea coast. Is there a danger of over-building it?

The coast lines of Western Europe, and the examples are not about just one or two countries, are compactly built-up – it is difficult to understand where one resort or town ends and where the next one begins. If we have to compare Bulgaria with these countries, which also have beautiful and suitable for tourism coastline, we have a very serious potential. I would say that the Riviera of Golden Sands is a piece of heaven in comparison to some of the exclusively popular places in Western Europe, in terms of space, natural amenities, in buildings. So what we are interested in as investors are the North, South seacoast and the mountain resorts. Sofia, especially its southern parts, has also serious potential.

The large terrains in Sofia, with possibilities for the luxury type of building, with preserved greenery and sufficient spaces between buildings – are they not exhausted? Is this an issue?

It is absolutely true that they are an obstacle. The issue is about the direct proportional dependence between the big scale investment project, if we talk about the investment as money, and the large terrain. Usually we say it is difficult to find a ready terrain. It must be composed, it is necessary to talk to separate owners, who speculate with the price, etc., unfortunately we have lots of bad experience and other colleagues in the sectors also do. The way to implement a large investment project is to buy a terrain, that is normally not available, or to collect it “piece by piece”, which is very difficult and takes time.

How are you coping with this?

We first look consistently and continuously for new terrains and then we collect and enlarge terrains.

Which of the segments, apart from those you invest in, you can define as especially attractive for the real estate market?

There is future for all directions, I think, because our country will still have to develop. Maybe there was a moment when the demand was much higher than the supply, but in all cases there will always be both demand and supply. We could hardly end up with a reverse trend, even if we delay our entrance to the EU. The market will continue to develop. Maybe not with such acceleration, with demand peaks, and huge profit, but this does not mean that there is not such a business or that it should not grow. We look at the market in long-term perspective.