Tishman International Chairman Alan Levy: Logistics Is Future of Bulgaria Real Estate Development
Interview with Alan Levy, Chairman of Tishman International Companies
What does a businessman of your rank think of Bulgaria? How many times have you been here? What are your impressions of the country?
I've been coming here for about 5 years. Initially, four-five times a year. Now I am here every month. About half of my time I am in Europe, and most of that time I am here. The other half I am home. I have seen the country progress and improve, and grow, and change over the years. Some good, some bad things but that happens everywhere, of course. But I think that as a result of the recent election has brought a big change,and hopefully that will be good for the country, good for the citizens. I think everybody is looking forward to a new bright light.
What sort of impressions do you have of the new government, and the new Prime Minister, Boyko Borisov? What are your expectations of them as a foreign investor?
Well, I've known Boyko for 2-3 years, as Mayor, of course, and saw him be very proactive in many areas, controversial in other areas, certainly determined, and a man of his own convictions. I think if he can do even half of what he suggests he can do, or promises he can do, I think it would be wonderful.
I think that politicians are pretty much the same. Politics are the same - during a campaign a lot of campaign promises are made, and well-intentioned, and it turns out sometimes that for various reasons it can't be implemented. But I think he is very determined, he has a very interesting cabinet. A lot of good professionals, a lot of new people to bring new ideas and then some business ideas to it, and it is obviously too soon to tell but I think it portends a very good future.
Could you describe briefly the investments of Tishman International in Bulgaria? The Sofia Airport Center is the best-known. What activities do you have in Bulgaria besides that?
We are looking for others. When we first came here, we had a joint venture with Lindner. And Rosen (Bulgaria's new Regional Development Minister Rosen Plevneliev - editor's note). So we have known him for a long time. He is a good man, he understands the business. All the problems that developers could have encountered, he has encountered. So I think that to the extent he recognizes he would be able to make great strides to improve the desirability of the country for foreign direct investment.
But having done that, when they were doing Residential Park Sofia, and we then bought the Sofia Airport Center, and the land, and after much discussion it was decided between the two of us, they would continue with the residential park, we would continue with our business park. We parted very good friends, and have remained so ever since.
But as part of that parting we purchased from them the TNT building close to the Airport that Rosen developed. So we've known him a good long time, and I hope that he will be able to bring his experience, and expertise, and his knowledge to his new position.
But we have looked at other investments. Right now we are not looking so much because of the market. But we would like to expand within the country so far as development and acquisitions of income producing property as well as represent clients or consulting, or development management services as well.
How has the economic crisis specifically affected your plans for investments in Bulgaria?
Well, you know, most if not all the banks have lost the combination to their vaults so it's difficult if not impossible to get financing today. Fortunately, we have a very good financing from a very strong bank. We have a good joint-venture partner, General Electric, who we know from the States, we have done a lot of business with them there so it is a symbiotic relationship between the two of us.
But there is no secret, the downturn has put on hold many of tenants that we target, who are primarily international tenants. They put their expansion or relocation plans on hold to ride out the crisis, and see what happens. So that is obviously going to affect the pace of lease. Although, having said that we are talking to several large prospects now, and we will continue to lease, although at a slower pace that was very robust initially.
The real estate sector was the engine of the Bulgarian economy in the last couple of years but has been affected severely by the crisis. What do you think are its prospects? Is it possible that it would take off again to fuel the Bulgarian economy? Or should Bulgaria focus on another sector?
Optimistically, I hope, as I am sure that everybody does that the world would be a better place much sooner than later. Will it ever be what it was before we've gotten the problems? Probably not because I think that everybody has learned some lessons.
There has been a huge amount of overbuilding, particularly residential and hotel developments in Bulgaria, and I think until that gets absorbed or converted - meaning until some of the hotels along the Black Sea are converted to residential units, perhaps a better or higher use is found for them - and until some of the other results of the overbuilding sometimes without very good planning are absorbed - I think the residential market will be impacted severely, at least for a while.
Commercially, a lot of the projects have stalled, or have decided not to go forward so there is many fewer coming into the market now.
The positioning of Bulgaria in Southeast Europe makes it ideal for warehouse space, for logistics and transportation, and I think that that sector will remain strong, and regain its strength to the extent that it has lost some of it throughout the country. Once companies who were eying Bulgaria for expansion and relocation, once they understand what the world situation is going to be, I think that interest will be rejuvenated, and it will start to fill the available stock of office space but it will take longer than otherwise would have.
Bulgaria is generally seen as a cheap property investment destination. What would it take to attract more companies like Tishman International to Bulgaria, i.e. more upmarket, high-profile investments? Are the Tishman investments in Bulgaria more of an exception or the rule?
We have developed in the Czech Republic right after the revolution so we know what it is like to work at an emerging economy in a country coming out of socialist and communist domination. So that is not particularly new to us.
Each country, of course, has its own idiosyncrasies in laws and customs. A lot of them here are very frustrating. Some of them have gotten changed. I suspect maybe now with some professionals who understand the difference between ways of doing business here and ways of doing business elsewhere in the West - from the Finance Minister on down - and hopefully, some of the regulations would be "westernized", or I would say, would be reconsidered and made more attractive to attract the FDI.
That's the important thing for the country now, not necessarily for the real estate where the bucket is full the moment. But for manufacturing, for distribution, for products which can be created here, and exported which obviously helps on a tax basis, as well as creates some FDI from the people coming in, and if people understand what it takes to attract a large manufacturer - for example, not necessarily subsidies but tax forgiveness and attractiveness as other countries, and states in America do in order to get employment and production in their particular area, they create ways that are attractive to investors to come in. That I think is something that needs to be focused on here.
What would be your one major recommendation for the new Bulgarian government in the economic sphere?
Reduce the debt, improve the budget situation, and be creative in ways to attract FDI in various sectors, and create jobs, which, you know, all of the run-off from that is good for the economy and good for the people.
Speaking more globally, what is your forecast - how long is the crisis going to be around? How effective has the bailout aid been especially in the USA?
It has helped the banks get back on their fee, make big profits, and give huge bonuses again to the shivering of many, obviously. I think the final verse on that tale has not been told yet, and it remains to be seen how things shape out. The market sales have doing well, and Americans are very optimistic people.
So I think if America can get itself turned around, then hopefully the rest of the world can. Yesterday, the UK banks posted big profits so they are said to be back on the road to recovery. So there are good positive sides, who can say what is going to happen? I remember years ago on a marketing course that I took, there was a great retailer in Philadelphia called John Wanamaker, the department stores Wanamaker. One of his favorite sayings was - if I can only buy tomorrow's newspaper today, I would be very happy. So who knows what tomorrow will bring.
Do you expect that this crisis described by many as the greatest crisis since the Great Depression will have a society changing effect?
I think it already has, hasn't it? People are looking at what they do, how they do it, and probably a lot of college students are refocusing their majors and deciding which industries they want to specialize in, and where the future is going to be for people of their age with their background and education, and that's very important.
Bulgaria is very strong in education, and always has been. Most of our people here have graduate degrees, multilingual. And I think that is prevalent in the age group of 20s to 40s. It is very good, and stronger I than many countries, and some of the surrounding countries so that will portend well. But I think people need to rethink some things like their spending habits etc. And you know, people are people. They survive in crises many times - some don't but most do by making some adjustments.
What do you think of the Obama plan to bring about universal health care in America? Do you think it will work, do you think it is dangerous for the economy as the critics say?
I think we have, on balance, the best level of health care in the world that I am aware of. There are some injustices there. A lot of people do not have coverage, and that needs to be corrected. I am not sure the plan that makes it mandatory and some of the other provisions that are talked about are best serving the entire population. There is lots of controversy to extending it to all people living in America - legal, illegal, whatever. That's a social problem I won't get into.
But I think that if it can be worked in such a way that people can continue to have private insurance, and to see the doctors of their choice, and extent services to those that otherwise don't have it - I think its separating those two, and amalgamating them together would be an ideal solution. However, three-four-five administrations have been trying to do it, and thus far unsuccessfully, so we will see what our officials will come up with.
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