Deloitte is the largest integrated professional services organization, and the company that conducted the very first audit in the world, in the UK in 1845.
In Romania their 2,000 member team provides services in audit, tax, legal, consulting, financial advisory, risk advisory, business processes and technology services. Real estate is a key industry sector, and in collaboration with their legal branch Reff & Associates, Deloitte assisted some of the country’s largest real estate transactions.
You have carved quite the career path over the years, before moving in to head Deloitte’s Romania practice three years ago – what drives you currently?
I leapt into Deloitte in my fourth year of Law School and have been loyal to it ever since – there was always a new challenge to take on, in truth it was fun, and that is such an important driver. I worked for one year in the French office and, after 2001, I started focusing on building the company’s legal branch in Romania, which now comprises over 60 lawyers working across a myriad of industries. I also directed the company’s core fiscal & legal practice for four and a half years, and had various other roles. I currently watch over the business at large in Romania, and keep a place in my heart for M&A, real estate and, of course, law in general.
What was the idea behind setting up Reff & Associates, how does it complement Deloitte’s work otherwise?
Deloitte has been widely diversifying, it’s not uncommon, and a legal ad-on just made sense. We set up Reff & Associates in 2006 as a separate entity, that works in alliance with Deloitte to serve clients who more often than not also need legal counseling, and that also works as an independent law house.
One side of the practice we have been focused intently on is digitalization under the umbrella of what we call legal management consulting. Tech is opening up a new world, so we are assisting clients to optimize their internal processes and embrace new technologies. This involves using solutions like RPA (robotic process automation) and other tools, some specifically tailored to certain industries (retail, property, financial services). For instance, we digitized compliance with regulatory requirements applicable to commercial property owners and retailers, based on a comprehensive inventory of existing regulations and automated features such as self-review, remedial project management and updates based on new legislation, expiration or changes in requirements for permits etc.
Other than the digital tools, what are the main services you provide to the real estate sector and what weight of your business does it occupy?
We are particularly passionate about real estate, no doubt about it and we approach it through a multidisciplinary dedicated team coordinated by Alexandra Smedoiu, Tax Partner at Deloitte Romania and our real estate industry leader. We advise developments and transactions alike.
The fiscal practice is focused on direct and indirect taxation for real estate transactions. In Financial Advisory, we have two teams relevant for real estate, a transaction services team focused on due diligence and advice on sales contracts, and a corporate finance team who are rather “deal makers” and take overall responsibility for structured transaction processes.
In management consulting we also support clients in various ways – one interesting segment is comprised of non specialized real estate owners, such as state institutions or other legacy companies, who own property but need advice on how to strategize around it. There are many very valuable property portfolios (central buildings or lands), breaking even or even incurring losses. The military or utilities companies, for example, have buildings with immense potential provided they find the right investors to repurpose them.
Are there examples of successful PPPs in Romania, and/or talks of joint efforts to upgrade our urban landscape?
Not as much, most are stuck in a stalemate or even controversial situations. Casa Radio was a project with immense potential that could not be developed for reasons which include legal complexity. There is interest amongst our clients to contribute to major urban transformation projects, for example Bucharest’s North Station area, where passengers traffic utilizes a mere 10% of the station’s capacity, hence the potential for redevelopment.
How attractive would you say Romania’s real estate market is at this point in time?
Let’s start with the basics – Romania has some fundamentals that make it a very attractive market for investments. It has been both a NATO and EU member for years, lending it strength and stability. Being still a developing market with growing purchasing power means that demands are not yet met. To make it concrete, in the residential space Romania ranks among the last countries in Europe in terms of living space per person. People are looking to buy bigger spaces and purchase power has doubled in the last 12 years with prices not yet back to the peak level of 2008. Retail capacity has admittedly grown a lot recently, but it is still (particularly outside Bucharest) inferior to what exists in the rest of CEE. Office spaces may be more difficult to fill while companies are redefining their short-term needs under a hybrid work model but, in the longer run, class A buildings may remain insufficient to fulfill demand, particularly as more companies and possibly the state administration would want to upgrade to contemporary standards.
Tax policy has an important impact on property development and investment decision and overall Romania has traditionally enjoyed a fairly stable and advantageous tax regime, which adds to our attractiveness. There are however areas which require improvement, such as limitations to interest deductibility, taxation of sales of non-performing receivables or availability of reduced VAT rate for residential purchases.
Finally, I believe that Romania may currently have the most business friendly government ever, with a former international banker for Prime Minister. Combined with a strong commitment to integrity, they have an opportunity to change the negative perception which has traditionally lowered investors’ appetite for Romanian assets. So I am very optimistic about the upcoming few years. There is so much liquidity on the market now, and Romania should have its share of the pie thanks to its strong fundamentals, better governance and improved perception.
What are some of the main challenges to the sector, if fiscal policy is not among them?
I think it is fair to say that Romania’s fiscal environment has all in all been advantageous to investors, despite some occasional hiccups. Rather, the problem has been one of political credibility and perceived corruption. This is linked to the infamous infrastructure challenges, a hurdle to investments across the board. Likewise, the country has had a hard time attracting capital, be it private, European funds and so on, and access to capital markets is weaker than in Western Europe. On the other hand competition is lower than in investor-crowded Poland or Czech Republic, for instance, and yields are significantly higher. We have clients who want to liquidate Western European assets in order to invest more in Romania.
Do you believe the successful sale between NEPI and AFI will pave the way for other high scale transactions?
NEPI’s office exit to AFI did indeed set a new market record in Romania. We have been advising NEPI for a long time and worked on this transaction for over a year, chapeau to my colleague Irina Dimitriu, who leads Reff and Associates’ real estate practice, and her team who saw it to its successful conclusion despite the crisis that erupted in 2020. I believe this process symbolizes very well how 2020 differs from previous crises – to have a pre-pandemic transaction of this scale carry on despite the troubles in the general economy is testament to the industry’s resilience.
In each crisis we have a letter tracing the line of recovery; 2008’s was W and now K is being used to mirror the divergent paths varying industries are taking, creating multiple crossroads. The retail and office segments are clearly affected in the short to medium term, while residential and logistics are on the rise. But beyond this, there will be successful and unsuccessful players and projects within each of the four segments, based on their respective fundamentals, so I expect divergence within not just between segments of the industry.
What is your outlook for Romania in the coming while and advice for investors eyeing the real estate market?
I believe that investors have all the reasons to see opportunity here – all they have to do is look at the facts. Geography, demographics, global, regional and local political developments, economic and market fundamentals, availability of capital, improved governance, legal and tax climate – they all signal great potential for investors willing to overcome legacy perceptions in search for a good yield.
