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Romania’s Real Estate – Old and New Challenges in Transactions

Romania’s Real Estate – Old and New Challenges in Transactions

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A popular meme these days is “<<2020 is the year I am going to…>> 2020: <<Hahaha. No.>>”.

Over EUR 1 billion in ongoing office real estate-related deals was reported at the end of 2019 alone, yields were compressing, and everyone was busy solving traditional transactional issues, such as “will the project be delivered on time,” “how is it secured,” “how do we tackle residual title issues,” “urban planning lacks planning,” and so on. Predictions for the 2020 Romanian economy were optimistic, and in terms of the investment market, the heavy election calendar was expected to be more of a timing nuisance in fulfilling conditions precedent which required input from local authorities than a serious concern for acquisition intentions.

Then Brexit fever hit. The market was concerned less about a direct or significant impact (given how real estate investments are structured in Romania), than it was with “little things” such as title insurance policies that were governed by English law. Insurers seeking to ensure contract continuity were required to invest significant resources in reorganization, to ensure business processes were not disrupted, and to make policy beneficiaries comfortable with the new set up.

And then another kind of fever hit. Focuses shifted rapidly from looking for assets to buy to preserving value and liquidity, while activity in entire sectors stopped and everyone was concerned about personal safety.

For many weeks, real estate owners were in the middle – between tenants refusing to pay rent on one side (either on account of the total shutdown or mass remote working), and banks still demanding loan reimbursement on the other side.

This was more visible in retail, but no field escaped unharmed. Authorities attempted to help, but any overnight solution found (and often changed again overnight) while trying to keep many balls in the air is imperfect.

As always, parties sitting down at the same (virtual) table and negotiating the best compromise for their specific relationship helped more than any legally prescribed off-the-shelf solution.

Surprisingly, and despite certain issues along supply chains, activity on construction sites continued at a fairly good pace. Considering the 450,000 square meters of office under construction in April 2020 in Bucharest alone, this was one of the outcomes making the whole situation slightly more bearable. It seems that landlords will be able to meet delivery obligations to their new tenants … but will the new tenants be able to keep their (minimum) 5-year deals?

Investment activity has obviously slowed, as uncertainty is a considerable disincentive. While the short-term impact of the crisis is still unraveling, everyone is trying to anticipate the long-term impact. Will recovery be fast (and full) or will we see major changes in paradigms affecting the transactional market on the long run?

The last three months showed us that work-from-home is bearable only in the short term, that online shopping is less satisfactory than strolling through malls, that logistics is a critical sector whether we admit it or not, and that everyone is eager to travel – so traditional office, retail, logistics, and hospitality industries are not going anywhere.

Recovery may not be fast, and we have probably not seen the end of the medical crisis, but with some adapting to a new normal, we will be back to discuss Brexit, fire permits, restitution claims, and urban planning in no time. 

By Oana Badarau, Partner, PeliPartners

This Article was originally published in Issue 7.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Peli Partners at a Glance

PeliPartners is a full service business law firm based in Romania.

A team specialising in complex projects that require innovative approaches, the PeliPartners lawyers have a wealth of experience in a variety of fields, including corporate, mergers and acquisitions, financing, competition, infrastructure & concessions, energy, real estate and corporate law – being involved in some of the most important transactions on the Romanian market for the past 20 years.

Areas of practice

Corporate M&A: With a reputation gained in complex transactions across many sectors (such as financial services, healthcare, energy, IT&C and others), the PeliPartners lawyers are regularly called to assist strategic clients, as well as investment funds or entrepreneurs in relation to various corporate projects, including M&A, structuring or restructuring of groups of companies or corporate governance matters. The firm regularly works in cross-border projects and in collaboration with international law firms.

Finance & banking is a strong practice at PeliPartners, whose lawyers advise across various matters, including financing / refinancing, restructuring, performing and non-performing portfolio acquisitions, regulatory. PeliPartners has a well established reputation with banks and debtors alike. The firm is included in the panel of some of the largest banks present in Romania. PeliPartners advises as well on cross-border financing and restructuring transactions.

Competition & Commercial: PeliPartners’ antitrust practice enjoys a fantastic reputation among international and local clients. The firm’s lawyers are thought leaders and have advised in some of the most complex transactions and projects related to this jurisdiction. They advise on investigations, merger clearance procedures, as well as on various compliance matters, helping clients design and implement distribution, franchise and pricing systems and policies. The firm currently assists clients in sectors such as financial services, IT, telecom, retail, healthcare & pharma.

Real Estate & PPP: With a stellar reputation among local and institutional developers and investors, PeliPartners is called to assist in some of the largest transactions or projects on the Romanian market.

Dispute Resolution: This firm’s clients want to be assisted and represented by PeliPartners when disputes arise in relation to their activity. PeliPartners will put together mixed teams of practice experts and litigation lawyers, that can bring an innovative but thorough approach of each matter.

Firm's website: https://pelipartners.com/