Emil Mechikyan, General Manager of Arco Invest:Successful projects depend on their make and management

There are true luxury properties already on the market but their concept is not fully realized yet

Emil Mechikyan is General Manager of Arco Invest, a subsidiary of Estonian real estate company Arco Vara Group. Recently, the developer announced its new project in Sofia, L!VD Apartments, located in the area of Manastirski Livadi. Its first project, the BLVD Residence, a luxury residential building of 112 apartments and retail space, located on Madrid Blvd., is now under construction and is expected to open in mid-2009.

Mr. Mechikyan, how do you see Bulgaria’s real estate market amid the global financial turmoil?
- A real estate market is quiet in its usual state. In the past years it has seen an unusual activity so when things are getting back to normal this might look like a collapse. What is happening now would have happened anyway disregarding the state of the global financial markets. The credit crisis has simply accelerated this process. The real estate market should come back to its typical activity levels, which are normal and rather low. However, we should not mislead ourselves - the situation of 2005-2007 will never repeat.
And here is one very simple economic fact - there is direct relation between profits and risks in a business. Operations that produce the lowest risk are least profitable and vice versa. Real estate investment returns around the world are relatively low. During the past couple of years we have seen in Bulgaria returns nearing 100%, which automatically turns the real estate business into a risky one. On the other hand, real estate is usually perceived as a low risk investment. This controversy should have signaled that the market was unstable.

How is the prime market performing?
- If we speak of residential buildings, prime properties have just emerged in the past couple of years. The concept of what exactly a prime project is is not yet fully realized. Leaving aside the respective level of finishing works, a building should be luxury in any other aspect from design, through all the installations and systems, fire protection, insulation, energy efficiency, etc. The level of operational services is quite essential - whether the quantity of the electricity, water, thermal energy and gas supplies is enough; or whether there are filters for recycling drinking and waste water, etc. These things cannot be seen with the naked eye but facilitate the provision of comfort. Most clients are already interested in them and even hire consultants who ask the right questions.
The old location rule is supplemented by infrastructure and whether the latter is able to meet the building’s needs. The whole life-cycle of a property should be taken into account.
In Bulgaria, we strive to implement a simplified model of a scheme, which already exists abroad. For instance, there is no condominium ownership in Estonia and people only possess their apartments while the land, infrastructure and common areas belong to the developer. The latter has to take care of all everyday and repair issues. Thus the relations between neighbors are also solved.
We are renting out two floors of offices and one of retail space in our project on Madrid Blvd. Thus we remain qualified owners of the greater part of the building. In the sales and rental agreements we commit to provide operation-related services for the whole complex. These are not separate services, which are offered in some projects, but an integrated solution, i.e. the integral facility management of the building. We aim to provide our customers with all the maintenance services plus a one-stop-shop for administrative payments and current expenses.

This is something other companies do too.
- This is correct, but if these companies assign these tasks to several structures, we integrate them in one. Let’s not forget that this service starts with the project management and also includes the property management. Successful examples of prime real estate emphasize on materials and their maintenance, duration and quality. Operational costs of a building for a period of 30 years exceed construction costs 4 times, i.e. if there is no professional service to back the project and its maintenance, these costs would turn out to be a very serious expenditure item.
We are innovative also at the level we sell our apartments to end clients. Units are completely finished but without furniture. We have interior designs developed and clients are also able to select the pricing level of the finishing works and the particular colors from a special catalogue. In a separate catalogue we have prepared the interior solutions developed by our designers. These designs are paid in addition. We sell apartments in three pricing levels - standard, comfort and luxury. Clients of such apartments do not usually look for a studio, but prefer to have separate bedrooms, study-rooms, guest-rooms, things that have been considered in the plans. Even the lower end standard apartments offer high level because of the nature of the project. A number of people purchasing prime properties would like to move into them without having to deal with everyday and routine issues. That is why we sell entirely turnkey completed apartments with home appliances included.

Which are the successful niches in this market?
- Most of all, Bulgarian people perceive properties as good investments. The financial crisis will stimulate migration processes, which on their part will cause an activation of the market. Many people who were purchasing properties for investment will start to sell their apartments. Prices will become more dependent on location. Projects of low-budget houses located in the outskirts of cities will be successful. Lately many buyers prefer to buy such homes once they have sold their properties in the inner cities.
As for Sofia and the prime property segment, there will be clients for projects with quality implementation, maybe not that profitable for developers but with higher commitments to buildings. The problems, however, concern the rest of the projects, which don’t meet these criteria. Developers have to think of proper property operation as clients are becoming more demanding and ask for services and maintenance. Buyers' requirements are changing so we have to be prepared and accept it as something natural and regular.