Welcome spirit of glasnost
3 May 1996
Boom time has come to the Moscow property sector and Guy Fitzmaurice finds UK and US firms are well placed to cash in
Central and eastern Europe continue to offer opportunities for the more adventurous property market players and their advisers. Privatisation and restitution are keeping the region attractive, with properties that were restored to their original owners a few years ago coming onto the market and privatised businesses beginning to change hands, many involving a property aspect.
However, lawyers complain that bureaucracy still bedevils deals. Steve Jones of Theodore Goddard comments: "There are not that many office developments in Poland. They are difficult to get away because it is a long bureaucratic process."
And Anthony Lewis, property partner at Taylor Joynson Garrett, which has an office in Romania, says: "The market is relatively embryonic. Everything takes a long time."
But the talk is of times of plenty, particularly in Moscow. Peter Burrows of Norton Rose's Moscow office says: "The scenes in Moscow are reminiscent of London in the 1980s. There are cranes everywhere."
He adds: "Most of the activity is in Moscow and St Petersburg. There is no real spec- ulative development elsewhere and most westerners still head for the capital."
The knock-on effect of this Moscow boom is brisk business for US and UK firms that have offices there. Jacky Bau-don, partner in the Moscow office of Freshfields, says: "The market in leased office space is booming."
At Baker & McKenzie's office in Moscow, three associates and a partner work full time, with one part-time associate, on property transactions.
Adrian Moore of Baker & McKenzie says: "There is a lot of work on offer. Traditionally, it has been of an inward investment nature.
"The firm is currently advising foreign and Russian development companies, and multi- national companies setting up factories and offices. We have done hundreds of commercial leases."
The Moscow office of Frere Cholmeley Bischoff - with 14 fee earners, four of whom specialise in Russian property work - acts in association with local law firm ALM Consulting. Christopher Digby-Bell of Frere Cholmeley explains: "It is a formal association, not a correspondent relationship. ALM is a well-established Russian firm and it gets equal billing on our notepaper."
He adds: "As a law firm, we are very glad to be in Russia. In Moscow, there are boom conditions for property developers." He believes Moscow is the focus of commercial property activity in Eastern Europe.
A growing area of work for western lawyers has been the provision of advice to western banks, and they are in great demand for reports on title. Western banks such as Chase Manhattan, Dresdner Bank and Credit Suisse are beginning to appear in the Russian market. And the 1994 Civil Code has given lenders added protection.
This is a bonus for property developers for whom Russian bank finance - traditionally only available for short-term funds, a maximum of 18 months, at high interest rates - has never been an option.
The majority think the coming presidential elections in Russia will not be de-stabilising. Digby-Bell comments: "Westernisation has gone so far that it will be impossible to turn back the clock whatever the political hue of the party that gets into power." For most lawyers, the worst-case scenario is that activity by foreign developers will slow down for a while.
These tales of plenty are not restricted to Russia. To varying degrees, similar stories can be heard in most of post-Communist Europe. As one lawyer put it: "Budapest and Prague are up and running in a big way."
Christopher Smith, head of Lovell White Durrant's office in Prague, says: "We are handling a very substantial amount of work in various sectors, from routine leases to some complex development leases on hotels and new industrial sites with a project finance basis. There is a shortage of warehouse space, and a lot of activity in retail and residential.
"We are now seeing the early stages of an investment market. Yields are generous compared with Germany and they are expected to fall, with the prospect of significant capital gains."
Smith adds: "US law firms tend to be more active in Prague than UK ones, perhaps because historically there has been more US investment into the country. However, at the estate agency level, most of the action is British. For instance, Healey & Baker, Rydons and Jones Lang Wootton are all active there."
The Czech market is benefiting from a reasonably stable economy and a convertible currency. Baker & McKenzie's Moore reports similarly thriving real estate markets in Warsaw and Budapest. "There's a bright future ahead," he says.
If UK lawyers and property agents are making the most of opportunities available in central and eastern Europe, it is no thanks to UK property developers who have been a lot slower on the uptake.
Taylor Joynson Garrett's Lewis says: "The Germans and the Austrians are so used to doing business in the region that it is second nature to them, but UK developers are noticeable by their absence. We seem to be good at the service industries, but not so good at putting capital projects together."