Beograd, Ekonomist, Page: 18, 14. jul 2008.
Problems Are Music to Us
Author: Snezana Krivokapic
Ran Starkman, CEO of Plaza Centers company
We believe that Serbia, and especially Belgrade, does not have enough so-called shopping and entertainment centers, offices and hotels. We will focus on the development of these facilities in the next five years.
Several days after being constituted, the Serbian company got as a “wedding present” a promise by Israeli company Plaza Centers that it would invest at least half a billion dollars in the next three to five years.
Ran Starkman, the head of the company met with Serbian President Boris Tadic, Deputy Prime Minister Ivica Dacic and Minister of Infrastructure Milutin Mrkonjic, having promised investment initially of EUR 150 million for a luxury hotel which will be located on the site of the former Federal Ministry of Interior, EUR 105 million for a shopping center in Visnjica and another EUR 60 million in one in Kragujevac.
“Deposits” have already been paid for the locations, the construction of the shopping centers will start on September 1, and the plan is to open similar ones in Nis, Subotica, Novi Sad, Zrenjanin and Leskovac. Plaza has also purchased land in Krusevac, the purpose of which has still not been set.
In an exclusive interview for Ekonomist, Starkman said that Plaza Centers expects their invested funds to be repaid in 10 years at the most. They decided place their headquarters for central and eastern Europe precisely in Serbia, although they have been doing business in the region for 12 years, “because Serbia is in a new era and an excellent future awaits it.” The reason why the Plaza did not invest here was not political, but of a technical nature, he said and added that mainly local labor would be hired on all the projects.
“Between 1,000 and 1,500 people will be hired for the construction of the shipping center,” Starkman estimates, and adds that he is not afraid of the challenges that every investor investing in Serbia faces. One of the first that Plaza faced was obtaining the urban planning permits for building a five-star hotel on the site of the former Federal Ministry of Interior, in Kneza Milosa Street, which they have been awaiting for almost a year.
Did Serbian officials that you met with make you promises that the procedure of issuing these licenses would be over soon?
Ran Starkman: They neither promised us nor committed that this procedure would soon be complted. Actually, we promised that it would be one of our best hotels in central and eastern Europe, and that we would do everything in accordance with the law, as we have done in other counties in the region where we have invested, such as Poland, Hungary and the Czech Republic. We are prepared to invest in the capital, because we want to contribute to the Serbian economy.
Did you do a pre-investment market analysis on what is lacking in Belgrade, and what did these analyses show?
R. Starkman: Before coming to any country we first analyze the market. We believe that Serbia, and especially Belgrade, does not have enough so-called shopping and entertainment centers, offices and hotels. We will focus on the development of these facilities in the next five years. It is our goal to develop as many facilities for such purposes as possible, which implies that we will be building at least 10 shopping centers.
Based on past business experiences in the countries of central and eastern Europe, and based on the analysis for every Serbian city that we are planning on entering, we estimated whether it can “bear” a shopping center. Out starting point is that every city with a population of 150,000 needs one, and every city with a population of more than 200,000 needs two or three shopping centers.
Soon Belgrade will gain Crown Plaza, InterContinental and Holiday Inn. All three hotels will be with five stars, such as the one you are planning on building in Kneza Milosa Street. Isn’t that great competition?
R. Starkman: Do you know how many five-star hotels there are in Budapest? This city has a population of 1.8 million, and as many as 25 high-class hotels. Belgrade is undoubtedly far behind the Hungarian capital, and we are convinced that it needs at least 20 such hotels, of which Plaza Center will build part of.
You have been waiting for the permit for building the hotel for almost a year, while competitors have no problems. Are you afraid that you will loose the market opportunity due to administrative barriers?
R. Starkman: When you buy land downtown, at a location that is important for the entire city, you must know that there would be problems on that road. Once we made the decision to buy this location, and when we succeeded in it, waiting another three months, even half a year is not dramatic. Our company does not do simple projects. It turned out that no one else wanted to buy the building of the former Ministry of Interior. Why? Because other investors were afraid of the barriers. We are positive and we expect that we will soon get the necessary permits.
Do you expect similar obstacles on other projects in Serbia?
R. Starkman: It is our job to build and we are prepared that not everything will go smoothly when it comes to the development of the shopping centers in Visnjica and Kragujevac, or the other locations we have in plan.
Will these be greenfield investments or will you buy and remodel buildings?
R. Starkman: Most of our investments are in the form of greenfield investments. However, if good opportunities emerge, such as the building in Kneza Milosa Street, we will not pass them up.
There are many obstacles for greenfield investments in Serbia, starting with the inability for investors to buy land, through developing infrastructure to the long time necessary for issuing of necessary permits?
R. Starkman: Serbia has its flaws, but those certainly aren’t obstacles that we haven’t faced in other countries in the region where we have invested. These problems are music to us. All the companies that work in the industry for developing and developing shopping and other centers, can bi divided into two categories. To give an example, 95% of them are “white collar” i.e. companies that invest in easy and clear projects that will quickly yield money, without wanting to risk much.
Every town that has a population of 150,000 needs one, and every town with a population of more than 200,000 needs two or three centers.
In the second group of five percent, the “blue collars” includes Plaza Centers. The beauty of such business is that we don’t fear risk, nor whether we work at night or at -20 degrees. We have encountered all kinds of obstacles and problems in our past brininess in this region. It turned out that we successfully resolved them, while others that we enter similar projects with – would give up, because they did not want to deal with the problems.
Will you hire local subcontractors or foreign investors?
R. Starkman: The company always relies on local investors and local workforce for construction. Serbia will not be an exception, where we are planning for 90 percent of the employees, hired on various positions, starting with Architects, planners, engineers, accounts and economists to be local labor.
The local company Multicom is collaborating with the international company that we hired for the design of the interior of the shopping center in Kragujevac. Since we only just bought the land and the projects are in the preparation stage, we still haven’t started negotiations on coloration with any other local company. We will choose them all subsequently through tenders.
Why did you decide for Serbia to be the center of Plaza Centers projects, of all the other countries in central and eastern Europe?
R. Starkman: Because it has great potential. The local people love to live, go out and spend. Serbia is staring to recover from the past, and a real boom awaits its economy. Even though we have been in the region of central and eastern Europe for 12 years, and in Serbia only since last year, the case of his was not the instable political situation, but problems of a technical nature. Our strategy is to invest in “problematic” countries, because we know that we will succeed in them.
Plaza in the region
The Plaza Centers company, part of Israeli group Elbit Imaging, is involved in developing, managing and selling hotels and shopping centers in central and eastern Europe, where it has developed 26 such facilities in the past 12 years, and recently it expanded its activities in India. The first shopping center Danube, was opened in Budapest in 1996, it has invested a total of EUR 2.5 billion.
The Plaza Centers company is listed on the London Stock Exchange (LSE: PLAZ), since November 1, 2006, and on the Warsaw Stock Exchange (WSE: PLZ).
The Plaza Centers purchased the building of the former Federal Ministry of Interior, in Belgrade for EUR 29.1 million
In this, the fourth tender for the complex at 92-94 Kneza Milosa Sreet, with an area of 31.715 square meters, Plazma took part under the name otally Holiday, a firm registered in Serbia in consortium with PPM, the company owned by businessman Zarko Pavlovic.
Immediately after the sale of one of the most recognizable buildings in Belgrade, the building of the Federal Ministry of Interior, which was destroyed in the 1999 bombing, the question was raised what the investor could do with it, and Ekonomist wrote about at the time. Austrian company Soravia Group, which took part in three tenders for the acquisition of the bombed out building, was rejected the last time with the explanation that it was setting conditions outside of the tender, because it requested guarantees that it would be able to tear down the building and obtain construction permits. Soravia director for central and eastern Europe Miroslav Toncev told Ekonomist at the time that the company had dropped out of the competition in the fourth tender because it turned out that according to the present legislation only a “public” building, such as a ministry is permitted on that location. According to him there would not be permitted to tear down the building because it was protected by the city, but the they would only be able to renovate it, as well as that there is an unexploded bomb in the building.
The question also arose how the glass facade announced by Zarko Pavlovic would fit into the almost intact old part of Belgrade. In any case, a year later, Plaza Centers is still awaiting permission from the city authorities to build the hotel.
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