Mauricio Mesa Gomez and Nikolina Nikolova: Spanish developer defies market gloom

Property company Hercesa Inmobiliaria starts its Bulgarian foray with 500-million-euro projects

Share prices plummeting, domestic market on the downside of the cycle, financing still hard to obtain and costly and international uncertainty while Europe is on the brink of recession all add to the gloom in the Spanish property sector. Not in all cases, however. While others had to restrain their activities after the blows of the global financial crisis, Hercesa Inmobiliaria is just starting its foray on the Bulgarian market. Hercesa Internacional, its international division, is launching more than 500-million-euro development program in Bulgaria at BalPEx, the Balkan property exhibition this month.

Is it that much different from its struggling rivals?
"It is the only one from the G-14 group, the 14 major Spanish property developers, that is not public," says Mauricio Mesa Gomez, the group’s Regional Manager for Bulgaria and Romania. "It is one of our advantages considering the present market situation," says Nikolina Nikolova, the General Director of Hercesa Bulgaria, the developer’s local subsidiary.
"But our main advantage is our product. Even in the worst times there is always real demand for dwellings. In Spain, in the middle of the crisis we sold almost 50 units during SIMA, the Madrid real estate fair. It is a question of choosing the correct product," says Mr. Mesa.
Hercesa Inmobiliaria owns half of its international division Hercesa Internacional with the other half split between five Spanish savings banks. The origin of the company as a family business remained like this through the years and the core of it is still the same family that started the business 35 years ago.
Now its arm Hercesa Bulgaria intends to build more than 2,200 residential units in Zelenika, its larger project in the country, located between Ovcha Kupel and Gorna Banya residential suburbs in Sofia. More than 400 apartments will be added in another scheme, which is located in Manastirski Livadi, the fast growing residential area along Bulgaria Blvd., between Todor Kableshkov Blvd. and the ring-road.
Zelenika project
will consist of blocks of flats with underground parking lots, commercial area and even its own train station, located on the railway between Sofia and Pernik. Spread on 103,000 sq m, the site has the most of the necessary infrastructure systems, unlike many of the new large-scale developments.
"The project has water and electricity to supply most of the units, if not all, says Mesa. "But we need to bring the gas (supply) from Ovcha Kupel."
The developer has already got approval for "Hercesa Station", a new train station that will connect the complex to the center in 15 minutes. "Transportation is one of the big advantages of the project, brand new trains passing every 30 minutes to the Central Station of Sofia and a new connection with the ring-road," says Mesa. "That will improve accessibility though currently there already are asphalt streets to the site," says Nikolova. The road connection as well as the railway station will be necessary to serve more than 7,000 people who will live in the new quarter once the development is completed. Zelenika will have around 240,000 sq m built-up area 30,000 of which public commercial spaces - office and retail.
It will be developed in several phases. The developer will provide parking and storage solutions for all buyers. "We give every apartment a parking place and a storage room both of which are already included in the price, says Mesa. "Our prices and payment conditions are done to facilitate as much as possible the access to a dwelling for the end customer," he adds.
Future plans
Hercesa Bulgaria also owns 22,000 sq m of land in Manastirski Livadi, the largest construction site in Sofia in the last five years and already home to thousands young families. The project will have around 50,000 sq m of built-up area but its concept is yet to be cleared. But the long-term plans of the developer do not exhaust with these two schemes.
"Hercesa Bulgaria will remain in the country. The idea is not to do business and then leave but to establish local activities," says Mesa. Nikolova adds: "We are always looking to develop new projects."
Besides its business activities, the group also has charity commitments. Back in Spain, it has donated for example a building to "proyecto hombre", an organization helping drug addicts, helped disadvantaged people and is sponsoring around 700 people, most of them kids and teenagers, in different sports.
Business model
The Spanish company prefers large-scale residential developments. Its biggest project is a suburb of Madrid, which spans on some 600 hectares. These projects usually include average apartments for the middle classes. And their scale gives the opportunity to take full control of the environment and the quality of the infrastructure.
"We prefer big developments to small ones. There we can do what we know better," says Mesa.
Local market
A more complicated market environment in the year to come does not discourage the property developer although there are signs that conditions are worsening in eastern-European residential sector following the slumps in the U.S., UK, Ireland and Spain. The market is tough, Mr. Mesa confirms. Nikolina Nikolova adds: "Only quality projects will make it. That’s what we are competing with."
Yet, a slowdown in Romania’s peer residential market has sent the latest worrying signal to the real estate industry in Bulgaria. But Mesa who operates in both countries believes the situation here is different. "The sales we make (in Romania) are less a year before, but still with a very good rhythm. I see the Bulgarian market different because prices in Romania became too high making it normal for the curve to go down. Prices in Bulgaria are still not that high - giving space for some sectors of the market to grow. Comparing prices in both markets we can speak sometimes of fifty per cent differences."
In Sofia, the average price for existing apartments was just over 1,180 euros per sq meter in the second quarter of the year, up 40 per cent on the same period a year ago. Prices for new suburban developments start from around 600-700 euros per sq m. "You will not find big developments in Bucharest for less than 1,000 euros per sq m," says Mesa.
This reaffirms his belief in a local market, which saw prices quadrupling in an unprecedented five-year boom.