Sofia, 04 September 2006, The Stroitelstvo i Gradat, Interview with Ivan Mekushin, joint owner and Managing Director of Winslow Developments by Deyan Todorov

Demand for real estates as a whole is likely to grow and really soon there will be development as the needs of both people and business will be increasing

Recently, the Bulgarian branch of Deutsche Bank has announced that they are entering into the real property market in Bulgaria through their company for managing investments in real estate and infrastructure RREEF. For that purpose the fund manager, part of the Deutsche Asset Management Group, is establishing a joint venture with the Bulgarian construction entrepreneur Winslow Developments. Winslow itself was organized five years ago by the brothers Ivan Mekushin and Yanik Mekushin, whom the Englishman Michael Wellings joined afterwards. In Sofia it has constructed one-family houses, and in Bansko – bigger sites with flats for sale. These are the Mountain Residence apartment buildings. The company has commissioned a total of six sites under this name in the resort town and is now constructing another three, the biggest complex of which will be located in proximity to the first lift station and will lodge 200 apartments. Having realized the investment potential of Bansko, Ivan Mekushin, a physician in education, made his first steps as a construction entrepreneur with the establishment of the company. However, through the joint venture with RREEF, he will try to take it to a quite different level. The newly-organized company, in which the subsidiary of Deutsche Bank will hold a share of 88%, starts with constructing residential buildings in Sofia but will look for more opportunities on the business estate markets – predominantly retail and office premises, including in towns outside Sofia. The main activity of Mekushin is trade with children’s toys under the brand of Limex.

Mr. Mekushin how did you reach to your partnership with Deutsche Bank and what are its objectives?

We decided that to be able to develop our company in the fastest possible way, we needed not only financial support but also another style of work. For that reason, there are several points of view that made us look for partnership abroad. One of them is the acquisition of another corporate culture and way of thinking, of organizing the activity. We did not look for a partner who would merely finance us so that we could invest. We did not establish Winslow with that purpose. But for our company to be able to develop faster, to execute more and bigger projects, we need financing too.

We are executive partners of RREEF and are responsible for management functions under the execution of the projects in Bulgaria. Our joint venture was organized for a period of five years with the possibility to extend that period. The objectives for its start are residential projects in Sofia with a possibility for development in other towns in Bulgaria too, as well as with other sites – not only residential but also with business designation.

We are beginning with two projects – in Manastirsky Livadi and in Vitosha. The total number of flats involved is 650 -700. The idea for them is to be complexes of a closed type and controlled access. At present there is a procedure undergoing for the selection of an architect for the first site which will be situated on 22.2 thousand square meters. We expect its construction permit at the beginning of next year, and the permit for the second one – some while later. Investments in the two sites amount to about € 10 million. We will finance them with funds owned by the partners in the joint venture and bank loans.

But these are merely the projects with which the joint venture starts. The objective of Winslow Developments and Deutsche Bank is to continue the partnership with other investments from the end of this year and the beginning of the next one. The two sites were needed in order to get started. The joint venture itself was established with the purpose of developing investment activities over these five years.

What are the reasons to start exactly with apartments? If they will be for the middle or above-middle market, why did you choose this type of complexes in those regions and not luxury apartment or houses for example?

We think that residential construction in Sofia is perspective for the time being. Analyzing the situation in cooperation with Deutsche bank, we arrived at the decision to look for a spot in the Southern part of the capital, which is more suitable for constructing complexes of this type. Otherwise, luxury real estates are quite a small segment and the possibility for a commercial realization of a large number of apartments in such a complex is highly limited. The number of apartments we could realize in such a type of complexes is much bigger on the middle segment of the market. And we expect them to have good realization and development as they themselves will provide to their owners a different and more secure environment for living than the typical buildings in the neighborhoods of Sofia. The creation of these complexes is part of our new conception to render the optimal solution for providing an affordable for the average Bulgarian cozy and secure home, such as we have seen it in Central and Western Europe. It is for the implementation of this new conception that we looked for a partnership with Deutsche Bank as an institution managing the biggest investment funds worldwide, having long years of experience and large-scale ideas.

The purpose of these buildings is to provide a peaceful way of living to their residents. This is achieved not only through controlled access but also through various conveniences ensured for them and obligatory for this type of complexes – sufficient space and green areas, a nook for children, kindergarten, pharmacist’s, dry cleaning and other service and recreation facilities which facilitate everyday life and create a peaceful and secure family environment. There will be subsequent maintenance and services such as security guarding, maintenance and cleaning of the common areas, etc., and the choice of companies to carry out those services will depend on the owners’ desires.

Aren’t you concerned about the fact that Sofia’s southern parts are the construction ground of the capital and there also is a significant supply of the same quality residential buildings of the same class?

We believe that we can handle it because the demand is not that restricted and the product we are going to offer is going to be good enough. We already have some experience in the construction of residential buildings and also - certain experience in their maintenance and organization of all adjacent activities.

What is the type of purchaser that you expect to be interested in residential buildings in Sofia – investor or end customer, a Bulgarian or a foreigner?

Our desire is that people live there, but by all means there will be people who have an investment intention for the purchase. And this is normal. Whether they are going to let their apartments out or not is another issue. As a principle, our target is the Bulgarian market but we are not going to send back a foreigner, although our sites in the capital are not oriented to the English market, which is also valid for our Bansko projects. We do not rely on these buyers because Sofia and Bansko also, originally rely on the Bulgarian market, the Bulgarian buyers and owners. The foreign buyers in Sofia are hardly able to create a market, in the proper sense of the word.

In what kind of projects are you interested in investing in at the business estates market – offices, trade, production and logistics?

We in particular are interested in commercial and administrative and, especially in commercial buildings. It is not that each of these three market segments doesn’t have development opportunities. The market as a whole is about to grow – both demand and supply are going to grow. It is hard to say in advance whether the supply could go ahead of the demand. But the demand is going to grow, and there will be development in the near future because of the fact that both the needs of the individual persons and the businesses are going to increase.

Our projects are still in their conceptual phase but we think that all of the commercial area niches – molls or shopping centers, big or small ones, three-storey or one-storey buildings, downtown, on in the outskirts or outside the city – all of them will have a potential development.

But there also are a lot of city commercial centers projects – both downtown and in the boroughs. Doesn’t this big supply mean that now it is not the exact moment to make a commercial centre?

By all means, we will bear all of these things in mind and we will take into account the quantity of the implemented and future projects. If for a population of 150 000 persons in Sofia there exists per one sufficiently good shopping mall, we would be hardly willing to make new ones. Nevertheless, we can’t say whether these projects, being under construction and implementation, will be ready and when this is about to happen.

Does Sofia have the place for a big commercial centre around the city given the present purchase power of the population?

Sooner or later this will happen in Bulgaria as well but it will be sooner rather than later. If we look at the time that the other countries need from the moment of establishing the first big supermarket to the establishment of such complexes, this period will by all means be shorter here.

Will you call it easy or will you define it as hard, rather, when it comes to finding the appropriate land plots for your projects? What kind of problems is related to this process? What are your impressions of the prices?

It is hard. We are also facing the same problems that everybody else does. These include problem identification, legal analysis and settling the ownership, the legal basis for the purchase and the purely economic one – everywhere there are problems, which need to be resolved. Some estates really have extremely high prices and they just stay on the market as offers. At the same time, some of the estates which have extremely high price are selling. Whether the price is high or low is a matter of calculation and meeting the interests of the market parties. The point is that the calculations are correct, it is not about the size of the compensation or the price, and it is all about whether the business plan is going to be implemented.

You are close to the Bansko market. What opportunities do you have as an investor?

Given that presently, it has been a winter resort only, we think that not only Bansko but the Bansko region as well, has the opportunity for all-year tourism. The living settlements surrounding Bansko also have development opportunities, as is the whole mountain, and the whole geographic region. Considering the golf playgrounds currently under construction, and the opportunity for other types of sports activities and entertainment, the region capacity has not been exhausted. As it comes to Bansko in particular, the municipality is handling the situation and with the new construction provisions, it will have much better conditions for the tourists. We welcome the decision of the local administration to adopt the new construction indicators.

Is there any opposition between sea and mountains when it comes to the buyers’ preferences?

Over the past one to two years, there has been increased demand for mountain apartments. If in the beginning, the demand targeted the sea only, then the mountains occupied a share of 20 – 30 percent, and now this share is on the increase. This is due to various reasons, it may be also due to the good popularization and presentation of Bansko in England, and further may be due to the over-construction of certain parts of our Black Sea coast but I would like to emphasize that this concerns certain regions, not the whole of the coast. There are clients who are interested in different places.