Smart Cities Asset Management Strategy ROMANIA Reimbursable Advisory Services Agreement on the Constanta Urban Development Program (P164198) Deliverable 3.1 Smart Cities Asset Management Strategy June 2019 DISCLAIMER This report is a product of the International Bank for Reconstruction and Development / the World Bank. The findings, interpretation, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of the World Bank or the Municipality of Constanta. The World Bank does not guarantee the accuracy of the data included in this work. This report has been delivered in June 2019, under the Advisory Services Agreement on the Constanta Urban Development Program, signed between the Municipality of Constanta and the International Bank for Reconstruction and Development on October 9, 2017. It represents Deliverable 3.1 part of Output 3 under the Advisory Service Agreement 2 ACKNOWLEDGEMENTS This report has been delivered under the provisions of the Advisory Services Agreement on the Constanta Urban Development Program and prepared under the guidance and supervision of David N. Sislen (Practice Manager, Social, Urban, Rural and Resilience, Europe and Central Asia) and Tatiana Proskuryakova (Country Manager, Romania and Hungary). This report was drafted by a team of experts from Jones LaSalle, under the coordination of Dean Cira (Lead Urban Development Specialist), Gary Claude Goliath (Urban Development Specialist), Valerie Joy Eunice Santos (Senior Urban Development Specialist) and Marcel Ionescu-Heroiu (Senior Urban Development Specialist). Support was provided by George Moldoveanu (Information Assistant), Maria-Magdalena Manea (Editor), Adina Vintan (Operations Specialist), and Ioana Irimia (Communications Specialist). The team would like to express its gratitude for the excellent cooperation, guidance and timely feedback provided by the representatives of the Municipality of Constanta, in particular to Mr. Decebal Făgădău, Ms. Ani Merlă, Mr. Mihai Radu Vanturache, Ms. Mihaela Stan, Mr. Noni Niculae, Ms. Paula Băcanu, and the multitude of local and regional stakeholders that have helped with the elaboration of this report. 3 LIST OF ACRONYMS BPO Business Process Outsourcing ANCPI The National Cadaster and Real Este Agency CEE Central and Eastern Europe CPI Consumer Price Index DYI Do it yourself EU European Union FX Foreign Exchange rate GDP Gross domestic product GDV Gross Development Value GLA Gross Leasable Area ILO International Labour Organization IT Information Technology IT&C Information technology and Communications PPP Public–private partnership UN United Nations VAT Value added Tax 4 CONTENTS Chapter I. Background ........................................................................................................................... 8 1 Instructions .............................................................................................................................................................. 9 1.1 Engagement ......................................................................................................................................................... 9 1.2 Sources of Information .................................................................................................................................... 10 1.3 Assumptions ...................................................................................................................................................... 10 1.4 Content of the Report...................................................................................................................................... 10 Chapter II. Executive Summary .......................................................................................................... 11 2 Executive Summary ...............................................................................................................................................12 2.1 Current situation .............................................................................................................................................. 13 2.2 Commercial Real Estate Perspective ............................................................................................................ 15 2.3 Approach ............................................................................................................................................................ 16 Chapter III. Macroeconomic overview .............................................................................................. 17 3 Macroeconomic Overview ................................................................................................................................... 18 3.1 Romania .............................................................................................................................................................. 18 3.2 Constanta Background .................................................................................................................................... 20 3.3 Constanta Economy ......................................................................................................................................... 22 Chapter IV. Real Estate Fundamentals ............................................................................................ 27 4 Office Market ......................................................................................................................................................... 28 4.1 Overview ............................................................................................................................................................. 28 4.2 Office Stock ....................................................................................................................................................... 28 4.3 Office Demand ................................................................................................................................................... 31 4.4 Rents ................................................................................................................................................................... 31 4.5 Forecast & Conclusions ................................................................................................................................... 31 5 Retail Market ......................................................................................................................................................... 32 5.1 Overview ............................................................................................................................................................. 32 5.2 Ownership & Developers ................................................................................................................................. 32 5.3 Retail Supply ...................................................................................................................................................... 32 5.4 Conclusions ........................................................................................................................................................ 34 6 Residential Market ................................................................................................................................................ 35 6.1 Main areas .......................................................................................................................................................... 35 6.2 Trends, Stock and Price .................................................................................................................................. 36 6.3 Residential Case Studies ..................................................................................................................................41 6.4 Conclusions .........................................................................................................................................................41 7 Hotel Market .......................................................................................................................................................... 42 7.1 Overview ............................................................................................................................................................. 42 7.2 Constanta Hotel Market .................................................................................................................................. 43 7.3 Conference rooms............................................................................................................................................. 47 7.4 Constanta Hotel Rates .................................................................................................................................... 47 7.5 Conclusions ........................................................................................................................................................ 49 8 Investment Market ............................................................................................................................................... 50 Chapter V. Public Facilities and Specific Market Analysis ...........................................................52 9 Local Development ............................................................................................................................................... 53 9.1 Development areas ........................................................................................................................................... 53 10 Public Facilities and Other Markets .................................................................................................................. 55 10.1 Framework ......................................................................................................................................................... 55 10.2 Transportation Infrastructure ....................................................................................................................... 55 10.3 Public Facilities .................................................................................................................................................. 57 10.4 Sport facilities ................................................................................................................................................... 58 10.5 Green areas and recreation ............................................................................................................................. 59 10.6 Case studies .......................................................................................................................................................60 Chapter VI. Land Plot Analysis .......................................................................................................... 63 11 Land Plot Analysis ................................................................................................................................................. 64 11.1 Site Overview..................................................................................................................................................... 64 11.2 Tenure ................................................................................................................................................................. 65 11.3 Planning .............................................................................................................................................................. 66 5 11.4 .............................................................................................. 69 Chapter VII. Site Development........................................................................................................... 72 12 Site Development Analysis ................................................................................................................................. 73 12.1 Market fundamentals in the analysed area ................................................................................................. 73 12.2 Development Framework ................................................................................................................................ 74 12.3 Development Functionalities .......................................................................................................................... 76 13 Site Development Scenarios ............................................................................................................................... 78 13.1 Proposed Development Scenarios Version 1 Mixed use with blended uses of hotel, amenities, apart-hotel and green areas ........................................................................................................................................ 78 13.2 Proposed Development Scenarios Version 2 Residential with parking and green areas ................ 79 13.3 Proposed Development Scenarios Version 3 Community Center .......................................................80 13.4 Considerations for the Municipality Strategy ............................................................................................. 81 Chapter VIII. Appendices .................................................................................................................... 82 14 Appendices ............................................................................................................................................................. 83 LIST OF TABLES Table 1: Romania summary table: economic growth forecast ..................................................................................... 18 Table 2: Evolution of main economic indicators .............................................................................................................. 22 Table 3: Constanta - main companies by number of employees ................................................................................. 23 Table 4: Housing affordability: Romania vs. Constanta................................................................................................. 26 Table 5: Housing affordability in Romania and Constanta county applying the residual income assessment used by the U.S. Department of Housing and Urban Development............................................................................. 26 Table 6: Main speculative office buildings in Constanta ............................................................................................... 29 Table 7: Main Shopping Centers & Retail Parks - Existing ............................................................................................ 33 Table 8: Constanta Key Residential Indicators ............................................................................................................... 36 Table 9: Average residential sale price as at second half of 2018 per submarket ................................................ 38 Table 10: Average residential rent price as at second half of 2018 per submarket ............................................. 39 Table 11: Average residential rent price as at second half of 2018 per submarket .............................................. 40 Table 12: Romania - Number of hotels and apart hotels (including local hotels) ...................................................... 42 Table 13: Romania - Overnight stays considering the hotel type ................................................................................ 43 Table 14: Romania - Overnight stays evolution by hotel type preferences ............................................................... 43 Table 15. Constanta County number of beds existing in hotel and apart-hotel accommodations ................... 44 Table 16. Overnight stays in hotel and apart-hotel accommodations - Constanta County................................... 45 Table 17: Constanta - hotel fees per one night ................................................................................................................ 47 Table 18: Constanta apart-hotel fees per one night ................................................................................................... 48 Table 19: Major Retail Investment Deals during 2017-2018 ......................................................................................... 51 Table 20: Recent Hotel Investment Deals during 2017-2018 (100% purchase)........................................................ 51 Table 21. Prime Yelds in Romania, Q4 2018 ..................................................................................................................... 51 Table 22: Suitable uses for the proposed development................................................................................................. 76 Table 23: Unsuitable uses for the proposed development ............................................................................................ 77 LIST OF FIGURES Figure 1. Subject Property and Surroundings .................................................................................................................. 13 Figure 2. Current PUZ ............................................................................................................................................................14 Figure 3. GDP Growth Forecast 2019 ................................................................................................................................ 18 Figure 4. Unemployment rate 2018 ................................................................................................................................... 19 Figure 5. Location of Constanta in the national context of Romania ......................................................................... 20 Figure 6. Romania and Constanta County GDP evolution ......................................................................................... 22 Figure 7. Unemployment rate 2018 ................................................................................................................................ 23 Figure 8. Employment sectors - Constanta ..................................................................................................................... 24 Figure 9. Net average wage evolution Constanta County vs National Average .................................................... 24 Figure 10. Constanta Offices ............................................................................................................................................... 30 Figure 11. Main Cities Shopping Centers Stock and Density ..................................................................................... 33 Figure 12. Constanta Shopping Centers Map ................................................................................................................... 34 6 Figure 13. Constanta main districts ................................................................................................................................... 35 Figure 14. Residential stock evolution Constanta City ............................................................................................... 36 Figure 15. New residential supply in Constanta City (1990-2017) .............................................................................. 37 Figure 16. Building Permits issued in Constanta City evolution for the last fifteen years .................................. 38 Figure 17. Romania number of hotels and apart hotels (including local hotels) ..................................................... 42 Figure 18. Constanta County existing number of hotels and apart-hotels ............................................................ 44 Figure 19. Constanta County number of beds existing in hotel and apart-hotel accommodations .................. 44 Figure 20. 2018 - Overnight stays in hotel and apart-hotel accommodations - Constanta County ................... 44 Figure 21. Constanta City 2018 overnight stays ...................................................................................................... 45 Figure 22. Constanta number of overnight stays in hotel accommodations ......................................................... 46 Figure 23. Hotel capacity Constanta number of beds ............................................................................................. 46 Figure 24. Historic investment volumes in Romania (thousand euros over 18 years) ............................................. 50 Figure 25. Constanta Infrastructure ................................................................................................................................. 54 Figure 26. Constanta road infrastructure European / national and county roads ............................................... 56 Figure 27. Constanta railway infrastructure and Port of Constanta with fluvial connections ............................. 56 Figure 28. View of Constanta maritime port and river port ......................................................................................... 57 Figure 29. Main sport fields in proximity of the Subject ............................................................................................... 58 Figure 30. Main parks proximity of the Subject .............................................................................................................. 59 Figure 31. Vicinity of the Subject ........................................................................................................................................ 64 Figure 32. Cadastral database eTerra ANCPI macro view ...................................................................................... 65 Figure 33. Cadastral database eTerra ANCPI site view ........................................................................................... 65 ...........................................................................................................66 ................................................................................ 66 .............................................................................................. 68 ................................................... 69 Figure 38. Main parks proximity of the Subject .............................................................................................................. 70 Figure 39. Main parks proximity of the Subject ............................................................................................................... 71 7 Chapter I. Background 8 1 Instructions 1.1 Engagement The Municipality of Constanta is interested in redeveloping a 1.16 ha strategically located, sea-facing site in the Mamaia area – a touristic hub within the city. The subject site is situated on the southern end of the Mamaia peninsula, approximately 4.5 km from the center of Constanta. The site is surrounded by predominantly high-value residential functions. As a result, the site has potentially high financial value for the city. However, the city is eager to explore the potential for other civic uses that could enhance the economic development of this touristic area. Several developments have been proposed in the area including the revitalization of a nearby fish market, and the creation of a seaside promenade. Despite its relatively small size, the site may therefore have strategic value in connecting and creating synergies among these developments in such a way that enhances local economic development and exceeds the direct financial value of the site. The objective of this real estate market assessment is to support the City of Constanta to establish the real estate potential for the site, given its city and neighborhood dynamics, and use the information to decide its desired redevelopment strategy for the site. This Report has been prepared for the purposes of assisting the Municipality of Constanta with a site-specific real estate market assessment to understand the real estate market conditions in particular, the demand and the asset classes that should likely be targeted in the proposed development. The study is prepared to inform about potential market which will support the Municipality to decide development strategies to adopt for the site. This is part of the redevelopment strategy of the site, aligned to their respective city’s goals. 9 1.2 Sources of Information The current study is based on the information provided (electronic, hard-copy or interviews-based) from the Municipality of Constanta and the World Banks publications, all complementary to support the scope of works. 1.3 Assumptions For the purpose of this study, the site is assumed as freehold, without easements, right of passing or other issues which may impact legally to the potential development. It was assumed that the site is not the subject of any listing and does not lie in a conservation area. Other than those discussed, it was not mentioned any development proposals in the immediate vicinity that may have an impact upon the value of the property in the foreseeable future. It was assumed that local regulations, ordinances, governmental policies or similar as not having any negative consequences to arise and influence the site development. 1.4 Content of the Report Chapter II comprises a Summary of this report including conclusions and commentaries related to the Subject site development and the reasoning which is further detailed into various analysis of the general and particular markets and projects which may have an impact to the Subject development. The following Chapters III and IV present a macro analysis of the specific economic and real estate markets with some indications and commentaries in conjunction with the Subject Site development. The Chapter V – Public Facilities and Specific Market Analysis provides a macro analysis of the location and various markets, including the public infrastructure, facilities and projects. The Chapter VI – Land Plot Analysis discusses the actual situation; real estate markets and elements affecting the Subject development and provides guidelines for specific development detailed in the Chapter VII – Site Development. 10 Chapter II. Executive Summary 11 2 Executive Summary The Municipality of Constanta controls a 1.1ha, vacant, sea-facing property in Faleza Nord, Mamaia which is surrounded by high-value residential properties in the popular tourist area of Mamaia. The site is currently under-utilized, and the Municipality of Constanta has sought the assistance of the World Bank to determine how best to bring this property into productive use. This report represents a real estate analysis of Constanta and Mamaia micro-location to determine the potential usefulness and real estate value of the site. This potential of the site was analyzed to determine which benefits are suitable for the site, and how the Municipality of Constanta could leverage this potential to achieve its objectives. The real estate analysis assessed the market dynamics of the Municipality, and then the specific opportunities and challenges for the subject site. Based on the analysis the most suitable market uses for the site would be either residential, hotel or apart-hotel – or a combination of the three. Based on the current market dynamics, retail, office and other market uses appear to have little demand in this location based on a combination of access challenges, market saturation in the case of retail, and inferior location for office. More detail on this technical analysis is provided in the document below. The Municipality of Constanta has several objectives for the site, which should be seen in the context of the holistic development of Mamaia area. The Municipality is eager to enhance and support Mamaia’s tourism offering as it is a critical economic development driver for the city. To this end, several initiatives have been undertaken by the city over the preceding years – the beach and other public open spaces have been extended in several places, a promenade with extended sidewalks has been constructed in Faleza Nord to facilitate mobility, and several resort and residential developments have been developed. These improvements have all been undertaken to the south of the Municipality’s vacant site – the subject property. To the north, little development has been realized - key road connections are incomplete, limiting access to the northern part of Mamaia, and improvements to the historic fish market and adjacent beach are incomplete. With the promenade abruptly ending to the south of the site, connections between the south and north of Mamaia are disrupted. The city is therefore eager to use the site’s development as a catalyst for development to the north. The zoning regulations for coverage and height on the site limits its market value because market demand for hotels and apartments exceeds the site’s allowable development rights. This limits development values to an estimated EUR 35m. As a result, adding further development rights to the site would increase its value. Given all the infrastructure and building improvements that the Municipality of Constanta would like to see in the vicinity, a change in zoning should likely be explored by the city. The additional value that the rights would generate could be used to pay for the required infrastructure – if not in full, then at least in part. Globally, many cities use their zoning powers to create real estate value by changing property zoning to better match market demand. This ‘upzoning’ should be done in reference to existing urban plans to ensure the cohesiveness of the urban space. The additional value generated from this upzoning can be used by cities to finance infrastructure. As the technical report shows, the market dynamics for this subject site allow for this cross-subsidization. The report does not, however, assess the potential costs of upgrades to infrastructure that the city requires. The costs of the promenade extension and fish market, road access and beach upgrades were not considered in this report; and as such, the extent to which the site’s value is able to fully finance this infrastructure is uncertain. 12 It is evident that the value of the site is not solely its market value. In fact, given its location at the intersection of several future urban projects, the strategic value of the site as a landmark and place-making instrument should be seriously considered. The beachfront of Constanta, and Faleza Nord in particular, lacks a distinct urban and architectural anchor that helps define its character. The development of the site is therefore an opportunity for the Municipality of Constanta to create a development that is a landmark, multi-functional space for both tourists and residents. Examples of landmark public spaces, such as the Guggenheim in Bilbao (Spain), the Moesgaard Museum in Aarhus (Denmark) abound globally. High visibility public spaces are also used as a place- making tool by cities – the High Line in New York City (USA), Millennium Park in Chicago (USA) or the promenades of Puerto Madero in Buenos Aires (Argentina) and Thessaloniki (Greece). The strategic urban value and the more immediate real estate value of the city’s site should both be considered when planning a future development. This will likely require that the city trades some short- term financial gains to pay for infrastructure upgrades and other placemaking improvements. This report analyzes the real estate sub-markets which are relevant to the Municipality of Constanta to consider when developing the site or soliciting development proposals. The report is intended to inform the city of the site’s financial potential only. The city must now determine which combination of fiscal gain, infrastructure upgrades or placemaking initiatives would be the most suitable use of this financial potential. 2.1 Current situation ■ It was noticed that Municipality of Constanta holds the right over a site of 11,600m2 – Subject Property. As part of this report, it was assumed the legal issues, if any, as solved. Specialist Legal advice should guide the entire process including: solving, if any, legal issues, present the legal risks arising from all steps of implementation and assist with solutions and estimation of cost and time to solve the previous mentioned. The Subject site is not connected with the main access roads for vehicles. The site is not directly accessible by car but accessible from several alleys developed for the residential compounds from vicinity. Presented in Section 11. Land Plot Analysis. Figure 1. Subject Property and Surroundings Source: JLL, Google Earth 13 ■ Immediate vicinity is a mix of high-rise with low-rise residential compounds with public institutions, a sea food market, beach and promenade. The residential areas and student housing are located along the Black Sea coast and to the rear side of the low-rise residential area. Low-rise premises in the vicinity include the compound developed in partnership between the municipality and an Italian investor – Santa Maria Bay. High-rise residential premises in vicinity include the newly developed Spectrum Residences raised during 2007-2009 with the ground floor and twelve upper floors and the “FZ” blocks raised around 1990. Many public authority offices and institutes are situated in the area along Mamaia Boulevard to the afore-mentioned residential compounds within 400m distance from the subject including: National Institute for Research and Development on Marine Geology and Geo- ecology, National Institute for Marine Research and Development “Grigore Antipa”, Dobrogea Regional Meteorological Center, Environmental Police Office, CERONAV – marine training center, Student Campus of Ovidius University. ■ Several developments have been proposed in the area; behind this plot, the City Hall also held a stretch of land connecting it with the Pescarie (Fish Market) up to Pescarilor Street. The Municipality intends to create a seafront promenade (for pedestrians and cars), connecting the existing promenade in the neighboring residential project to the south with the Fish Market and Pescarilor Street in the north. Bordering this promenade there should be some restaurants and cafés. However, currently this is only an intention, and this would require financing. The city hall also wanted to create a marina, the ‘Diamant project’ next to it, where the dike is. Public sources mentioned that a port in Pescarie area is within the priority list no. 3 in the Government Decision 558/2017 as a project of national importance. The legal status of the peninsula land plot is rather uncertain but assumed this would not affect the Subject project. ■ The zoning urban plan (“PUZ”) applicable to the Subject area was approved by the Local City Hall Decision 45/2011 providing an indication of maximum usage land coefficient “CUT” meaning the ratio of gross build area to site area of 2.2 and a footprint of maximum 17%. It is not known how this zoning urban plan is aligned to the other regulatory bodies such as coastal area plans but it was assumed that the current as being valid. Figure 2. Current PUZ Source: Constanta City Hall 14 2.2 Commercial Real Estate Perspective ■ The commercial analysis in Section 3. Macroeconomic Overview examined the demographics, macro economy and Constanta more generally. ■ Considering the fabulous view over the Black Sea coast, the Subject site has an excellent potential for residential and/or hotel development including various amenities; as the research has shown these are the functionalities that would maximize the residual value. The obvious use for the land plot is residential and developers would be happy to take on such development after adequate roads and utilities are in place. It was considered that the Subject site could attract developers once road connections to the main streets are in place. This should be the initial step that the Municipality takes to unlock the potential of the site. This is discussed in Section 11. Land Plot Analysis below. ■ Constanta has very good transportation infrastructure and tourists can reach the city – for leisure or business - mainly via A2 motorway, by railroad with a station at 5km south from the Subject site, or by air with Kogalniceanu international airport at only 20km north from the Subject site. Constanta has improved its public infrastructure with projects on three axes of interest for: investors, tourists and residents where the city has huge potential. Presented in the Section 10. Public Facilities and Other Markets; ■ Low-rise and high-rise residential compounds are in the vicinity, as part of Faleza Nord residential submarket, between the entry to Mamaia (north), Tabacarie Lake (west), the Black Sea (east) and Soveja Street (south). It has been examined relevant case studies and data, including the rental market and sale evidence and used this information as a starting point for the development scenarios. Please see Section 6.3 Residential Case Studies for details. It was also analyzed the Constanta residential market and the area delimited from a real estate perspective within “Faleza Nord - Trocadero - City Park Mall - Capitol - Delfinariu” of which Faleza Nord is a part - and the most expensive submarket. Please see Section 6. Residential Market for details ■ Based on the market analysis, It has been concluded with the following financial outcomes: – Apartments in the area are currently selling at an average price of around €1,700/m2; – Office rents would be around €8 /m2 and would be useful to attract especially flex offices or the Municipality to directly provide and manage these premises; – Keeping in mind the increasing interest on the local market for acquiring similar projects, the achievable yields in the area will be around 9% and 10.5% for the office and hotel elements respectively. Please see Section 8. Investment Market. for details along with the explanation of General Real Estate Terms within the Appendix 2 – Terminology. – The ground floor, mezzanine ant the top floors are offering amenities to an area which benefits from a beautiful perspective to the Black Sea coast. Seizing the opportunity, hotel and residential occupiers would enter the area, paying rents expected to be at least €8 /m2, renegotiated in line with the market evolution; – As the project takes shape, the apartment and/ or hotel should be developed with a proper view to the coast. However, this would limit views enjoyed by the existing high-rise residential area. Whether developed as hotel or residential, the development should allow for underground parking covered by a green area and outdoor relaxation and park areas with direct access to the walking promenade, open terraces, bars and boutiques. Please see Section 12.3. Development Framework for details. 15 ■ However, delays in providing the infrastructure or a weakened project image (for whichever reason) may impact the quality of the investors and the interest of potential occupiers or buyers. This will negatively affect the income return and development values. 2.3 Approach ■ The development was detailed in three Scenarios introducing two of the most probable uses – hotel and residential with amenities assuming the existing zoning urban plan constraints. Calculation details and scenario results are provided in the Section 13. 1 Scenario 1 Mixed use with blended uses of hotel, amenities, apart-hotel and green areas, and 13.2 Scenario 2 Residential with parking and green areas. ■ Analyzing several benchmarks, including apartment compound, hotel or condo-hotel units situated at the beach with direct exposure to the sea in regional cities, as detailed in the Section 10.3 Case Studies. These case studies are characterized by a mixed structure of apartments, generally high- quality standard - 5-star ranking, often with turn-key finishing, offering numerous additional amenities, such as SPA, swimming pools fitness clubs, etc.; conference center with a capacity of nearly 1,000 people. ■ A hotel operator would be preferred, in which case the return would be the rent for the buildings (if held by the Municipality). ■ Please note that in all scenarios, It has been provided the Gross Development Value (“GDV”) as an indication of the final capital value of the development upon completion. This is not a measure of costs. Please see the definition within the Appendix 1. A1. It should not be confused with the cost of the development. ■ Scenario 1 Mixed use with blended uses of hotel, amenities, apart-hotel and green areas: Gross Development Value of 36.2 million Euro; estimated timeline of around 3 years, including lead-in/pre- construction period of one year. ■ Scenario 2 Residential with parking and green areas: Gross Development Value 33.5 million Euro; estimated timeline of around 2.5 years, including lead-in/ pre-construction period of one year. ■ Scenario 3 is a mix of Community Services to provide the area with a relaxation and meeting facility. This alternative would significantly limit the financial return but will provide some public benefits and avoid public conflicts related to a high-rise residential or hotel premises, as for the previous scenarios. Moreover, the site coverage allowable per the PUZ is 17%, which results in a very low residual value. It is understood that the Municipality may amend this. However, as noted above, this scenario may offer non-financial public benefits, which are not accounted for in the financial model. 16 Chapter III. Macroeconomic overview 17 3 Macroeconomic Overview 3.1 Romania Romania registered in 2018 a GDP growth of approximately 4.3%, coming on the back of a strong 2017, when GDP increased with 6.8%. This was the eighth consecutive year of growth. Retail sales, which registered in 2018 one of the highest growths in EU (the 4th highest value registered in EU), continue to be the main driver of the economy, fueled by the increase in net average wages. Table 1: Romania summary table: economic growth forecast Key Macro-Economic Indicators: 2012- 2013 2014 2015 2016 2017 2018 2019F 2020 GPD (% growth) 3.3 3.5 3.9 4.8 6.8 4.3 2.8 Consumer spending (% growth) 2.7 3.9 5.4 8.0 10.0 3.7 3.5 Construction - gross value added (% growth) 2.8 4.1 1.8 13.0 (1.1) (4.1) 2.9 Total population (thousands) 19,974.6 19,899.4 19,801.7 19,687.8 19,560.6 19,427.9 19,296.6 Working force population (thousands) 13,011.2 12,886.7 12,710.5 12,575.2 12,433.7 12,297.4 12,166.8 Unemployment rate (%) 7.1 6.8 6.8 5.9 4.9 4.2 4.2 Retail spending (% growth) 5.3 5.1 6.2 9.0 12.3 7.3 6.9 Central Bank interest rate (%) 4.0 2.8 1.8 1.8 1.8 2.5 3.0 Consumer price index (% growth) 4.0 1.1 (0.6) (1.6) 1.3 4.6 3.1 Industrial production index (% growth) 7.7 6.2 2.7 3.1 8.6 4.9 3.6 Exchange rate (EUR/RON) 4.4 4.4 4.4 4.5 4.6 4.7 4.6 Exchange rate (USD/RON) 3.3 3.3 4.0 4.1 4.1 3.9 3.9 Exports (% growth) 18.7 8.8 4.3 8.1 10.4 5.4 3.1 Imports (% growth) 8.7 9.0 7.6 9.6 12.0 8.1 2.1 Net average wages (% growth) 7.5 8.2 8.8 10.1 14.3 13.6 9.3 Source: Oxford Economics Forecast, CNP Figure 3. GDP Growth Forecast 2019 Source: Oxford Economics, January 2019 According to Oxford Economics, growth was broad-based, but driven mainly by domestic demand. After an expansion of 9% in 2016, retail sales registered a strong 12.3% growth in 2017 and by 7.3% in 2018, one of the highest values in the EU (the 4th highest value registered in the EU). 18 The National Bank of Romania increased its policy rate to 2.50% in May 2018, from a historic low of 1.75% set in May 2015, considering the rise in inflation and the high economic growth. This will result in slightly higher interest rates for borrowings in local currency, however, it is expected an increasing number of credits offered by the local commercial banks. In November 2018, the National Bank of Romania Board decided to keep unchanged the monetary policy rate at 2.50%. The FX rate has been very stable despite the recent turmoil across EU and United States, holding steady in the range of 4.39-4.66 Ron/Euro in the last 5 years. Romania is still aiming to join the Euro zone, but no clear date has been set after postponing the previous 2019 target. Moody's, Fitch and Standard & Poor's are unanimously assessing Romania as recommended for investment with a stable to positive perspective. Prospects for the local economy are dependent on the EU, which takes over 70% of the Romanian exports. Romania is influenced by the status of the Eurozone economy, which can become a drag. 3.1.1 Inflation According to data published by the National Bank of Romania on trends in consumer prices, during August 2017 – August 2018, the consumer price index reached 5.06%, a high value after a period of deflation, caused mainly by the recent VAT cuts the government introduced. According to Oxford Economics, the inflation is forecasted to remain around 3% in 2019. 3.1.2 Unemployment The unemployment rate in 2018 was estimated to be around 4.2%. Over the longer term, it is quite possible that Romania could suffer from skilled-labour shortages, while the government is trying to create 640,000 new jobs by 2020. In several counties, especially in the west of the country as well as in Bucharest the unemployment rate is below 2 or 3%, due to the significant foreign investment, especially in services, IT and the manufacturing industry. In the longer term the already low unemployment rates in the Romania are forecasted to decrease even though they are now significantly below the European average. According to Oxford Economics, ILO unemployment is forecasted to further decrease in 2018. Figure 4. Unemployment rate 2018 Source: Oxford Economics, January 2019 19 3.2 Constanta Background 3.2.1 Location and Population Constanta County is located to the south-eastern part of Romania, in Dobrogea region, being the most important Black Sea entrance / exit gate. The county is bordered by Calarasi and Ialomita Counties to the west, by Tulcea and Braila Counties to the north and by Bulgaria to the south. The county area amounts 7,071 sq. m. The county’s population is reported to be around 680,000 inhabitants and the majority of the population is formed of Romanians, followed by Turks and Tatars. The economy fields are: chemical and petrochemical industry, ship building industry, construction materials, mechanical components industry among other. Agriculture is an important part in the county's economy, with Constanta being the county with the largest irrigations systems in the country, cereals being the most important products. Also, the county is famous for its wines from the Murfatlar region. Figure 5. Location of Constanta in the national context of Romania Source: JLL A nuclear power plant is present at Cernavoda, with two reactors, covering over 15% of the country's power demand. Constanta Harbor is the largest port in Romania and one of the most important on the Black Sea. It is linked with the Danube by the Danube-Black Sea Canal - the widest and deepest navigable channel in Europe. The Black Sea littoral represents the main destination for summer holidays in Romania. The resorts are: Navodari, Mamaia, Eforie, Costinesti, Olimp, Neptun, Jupiter, Cap Aurora, Venus, Saturn, Mangalia, 2 Mai and Vama Veche. Constanta is the administrative centre of the county with the same name. The city is located on the Black Sea coast, having a beach length of 13 km. Mamaia, the largest and most modern resort on the Romanian coast, is administratively a district of Constanta. In the vicinity there are mineral springs, and the sea-bathing also attracts many visitors in summer. 20 According to the 2011 census, the population of the municipality was 283,872. After Bucharest, the country capital, Romania has a number of major cities that are roughly equal in size: Constanta, Iasi, Cluj-Napoca and Timisoara. None of them exceeds 325,000 inhabitants. The Port of Constanta is the largest on the Black Sea and the fourth largest in Europe. The city also has a large shipyard. Tourism has been an increasingly important economic activity in recent years. Due to its proximity to other major tourist destinations, Constanta receives a significant number of visitors every year, who discover and visit the city's monuments and attractions. Also, Constanta is a centre of commerce and education, both of which significantly contribute to the local economy. The railway network is dense, with connections within the country. Constanta is served by RATC, the local transportation company that ensures the urban transportation necessities with buses. The closest airport is Mihail Kogalniceanu International Airport (located 20-25 km north-west). 3.2.2 Tourism Mamaia is north-east of Constanta’s city centre, between Siutghiol Lake and the Black Sea. It lies on a strip of land of about 8km in length and about 350m in width and it has almost no full-time residents, being populated mostly during the summer period. Mamaia is Romania’s most popular and expensive seaside holiday resort. However, there is a threat for the Romanian seaside is the southern side of the Black Sea beach. The Bulgarian seaside resorts are well organised with good quality of the services including entertainment and all-inclusive, generally considered at affordable prices. The summer period is at its best between July and August. Main tourist attractions in Mamaia area are: Mamaia Beach, Aqua Magic Mamaia, Telegondola Mamaia, the holiday village, Tabacariei Lake and Tabacariei Park, the Museum of Natural Sciences Constanta (includes horse riding, dolphinarium, aquarium, planetarium, etc) among other. There are numerous nightclubs, dance places and beach parties as well. Mamaia Beach Mamaia is Romania’s most popular and expensive seaside holiday resort. Aqua Magic Mamaia It is a waterpark with slides, games and play areas for kids and it also has a pool bar. Gondola Mamaia A ride of 2km with gondola can be a pleasant experience for the tourists that come to Mamaia. The travelling time is of approximately 8 minutes. The holiday village It is a popular place among tourists who spend their holiday in Mamaia resort. The main attraction of this place is the amusement park “Luna Park” full of light and colorful games. Tabacariei Lake and Tabacariei Park It spreads around Tabacariei Lake. The vegetation of the park consists of various species of trees such as: willow trees, red oaks, poplars, chestnuts and birches among other. 21 Museum of Natural Sciences Constanta It includes horse riding, dolphinarium, aquarium and planetarium among other attractions. Nightclubs This is a well-represented sector in Mamaia. Nightlife in Constanta is among the best in the entire country for those in search of a good time. 3.3 Constanta Economy Constanta is part of the South-Eastern region of Romania, which contributes with approximately 11% to Romania’s GDP. Constanta County contributes with 4% - 5% to Romania’s GDP, while it accounts for circa 3% - 4% of the country’s population. Figure 6. Romania and Constanta County GDP evolution 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2014 2015 2016 2017 2018 2019* Constanţa County National average Source: National Commission of Prognosis December 2018 The main economic indicators of Constanta County are summarized in the following table: Table 2: Evolution of main economic indicators Constanta County 2014 2015 2016 2017 2018 2019* GDP (million €) €6,233 €7,864 €7,903 €8,578 €9,446 €9,888 Real GDP evolution (% y-o-y) 4.20% 0.70% 6.10% 5.10% 6.00% 5.40% GDP per capita (€per year) €9,083 €11,525 €11,623 €12,665 €14,008 €15,225 Unemployment rate (%) 4.00% 3.60% 3.50% 3.10% 2.90% 2.80% Net average wage (€per month) €355 €390 €417 €463 €504 €526 Source: National Commission of Prognosis - December 2018; *Forecast 22 According to the National Trade Register Office, as of the end of 2018, the number of active companies registered in Constanta County increased by 6% when comparing with the number of active companies registered as of the end of 2017, amounting to a total number of 35,253 companies. In terms of turnover, the most important companies that have their headquarters in Constanta County (a part of them may also have subsidiaries in other localities within Romania) are as follows: Rompetrol Rafinarie SA, Ameropa Grains SA, Daewoo-Mangalia Heavy industries SA, Brisegroup SRL, Monsson Trading SRL, Black Sea Suppliers SRL, E-Distributie Dobrogea SA and Compania Nationala “Administratia Porturilor Maritime” – SA. Constanta, Raja SA among others. In terms of number of employees, the most important companies that have their headquarters in Constanta County (a part of them may have subsidiaries also in other localities within Romania) are the following: Raja SA, Daewoo – Mangalia Heavy Industries SA, Deltrans SRL, Polaris M.Holding SRL, Rompetrol Rafinarie SA, Santierul Naval Constanta SA, Oil Terminal SA among others. Table 3: Constanta - main companies by number of employees Number of Company Industry employees 1 Raja SA Drinking water supply and sewerage treatment ~2,100 2 Daewoo – Mangalia Heavy Industries SA Shipyard - ship construction and repairs ~2,000 3 Deltrans SRL Water transport ~1,900 4 Polaris M.Holding SRL Sanitation services ~1,400 5 Rompetrol Rafinarie SA Petroleum refinery ~1,000 6 Santierul Naval Constanta SA Shipyard ~1,000 7 Oil Terminal SA Petroleum company ~900 Source: Market research, http://www.mfinante.ro/infocodfiscal.html, Note: Number of employees as specified reflect the employees working in Constanta and the branches for those with headquarters in Constanta. Figure 7. Unemployment rate 2018 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: National Commission of Prognosis December 2018 According to the National Commission of Strategy and Prognosis, the unemployment rate registered in 2018 in Constanta County was of 2.9%. 23 3.3.1 Labour Force Figure 8. Employment sectors - Constanta Wholesale & retail trade 20.1% Manufacturing 14.7% Agriculture, forestry & fishing 14.6% Transportation & storage 11.1% Construction 8.2% Public administration & defence 5.1% Human health and social work 4.4% Education 3.8% Accommodation & food services 3.4% Electricity, gas & water supply 3.4% Other services 2.5% Administrative & support activities 2.3% Professional, scientific & technical activities 1.8% Information & communication 1.5% Financial & insurance activities 1.3% Mining & Quarrying 0.8% Arts, entertainment & recreation 0.7% Real estate activities 0.5% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% Source: Oxford Economics According to Oxford Economics, in 2018, the wholesale and retail trade was the largest employment sector in Constanta (20.1% of all jobs), followed by manufacturing (14.7%), agriculture, forestry & fishing (14.6%) and by transportation and storage sector (11.1%). Figure 9. Net average wage evolution Constanta County vs National Average 3,500 lei Constanta - Lei National average wage - Lei 3,000 lei 2,500 lei 2,000 lei 1,500 lei 1,000 lei 500 lei 0 lei 2014 2015 2016 2017 2018 2019 Source: National Commission of Prognosis December 2018. * Forecast The evolution of the net average wages in Constanta County are below the national average. As Constanta County registered in 2018 wages that are by ~12% below the national average and ~36% below Bucharest Municipality, there are many people that prefer to work in Romania’s capital, Bucharest, or in another country. Confronted with significant deficit of specialist labour force, the hospitality sector struggles to find people willing to work in this sector, fighting limited interest and increasing costs. This situation has an impact on the quality and price of the services. 24 According to the National Institute of Statistics, in 2011, approximately 70% from the total population of Constanta County represented the working age population (15 – 64 years), while 16% of the total population was represented by children aged 0-14 years, and ~14% was represented by the elderly population. 3.3.2 Rental affordability estimates While there is no universally agreed measure on what constitutes an ‘affordable house’, according to the United Nations program UN Habitat, there are some common measures, which are associated with two components: housing costs and household income. The first is house price to income ratio, or the ‘Median Multiple’. The ratio is calculated by dividing the median house price by the median household income. It basically shows the number of annual median salaries it takes to buy a median priced house. The second measure of affordability is the residual income assessment. It is represented as a percentage of household income spent on housing-related expenses and demonstrates a household’s ability to financially service housing without compromising on necessary non-housing expenditure. Although there is no universally agreed percentage, housing is generally deemed affordable when a household spends up to 30 per cent of their income on housing related expenses, such as mortgage repayments (for owner-occupiers), rent payments (for tenants), and direct operational expenses such as taxes, insurance and service payments, according to the same source. Governments worldwide use their own definitions on what constitutes an affordable house. For example, the UK government considers that an affordable house on the rental market is one that costs no more than 80% of the average local market rent. In the USA, as defined by the U.S. Department of Housing and Urban Development (HUD), affordable housing is any house that costs an owner or renter no more than 30% of gross household income, including utilities. Another benchmark used to define housing affordability at the international level is the one proposed by Demographia International Housing Affordability Survey, using the ‘Median Multiple’. It measures housing affordability by dividing median house price by median annual gross pre-tax household income. A ratio of up to 3.0 is considered for an affordable home, a ratio between 3.1 to 4.0 is considered moderately unaffordable, a ratio between 4.1 to 5.0 is seriously unaffordable and a ratio of more than 5.1 is considered ‘severely unaffordable’. Applying this ‘Median Multiple’ taking into account Romania’s purchasing power gives us the following figures: Considering that in January 2019 the gross average earning per employee in Romania was 4.837 Lei, according to the National Institute of Statistics, or the equivalent of 1,028 Euro. Taking into account two employed people in each household, then an affordable home in Romania should cost no more than 74,016 Euro. Above 125,827 Euro a residential unit is ‘severely unaffordable’ for the average Romanian. For Constanta county, gross earning per employee is lower in comparison with the Romanian average. In January 2019 it stood at 4,191 Lei, or the equivalent of 891 Euro. Considering two employees per household, then an affordable house in Constanta should cost no more than 64,152 Euro. Above 109,058 Euro a residential property is ‘severely unaffordable’. More details can be found in the table below including a comparison between Constanta and the national average, using Demographia’s ‘Median Multiple’ considering data from January 2019. 25 Table 4: Housing affordability: Romania vs. Constanta Country vs. Gross average Affordable home Moderately Seriously Severely county income per price unaffordable home unaffordable home unaffordable employee price price home price Romania €1,028 ≤ €74,016 €76,483 – €98,688 €101,155 – €123,360 ≥ €125,827 Constanta €891 ≤ €64,152 €66,290 – €85,536 €87,674 – €106,920 ≥ €109,058 Source: JLL Research, applying the methodology used by Demographia International Housing Affordability Survey Below, it has been applied the residual income assessment for Romania, employed as well as by the U.S. Department of Housing and Urban Development. As previously mentioned, it states that one should pay for an affordable house no more than 30% of gross household income. For Romania, using the same figures in terms of earnings as above, an affordable home should cost no more than 617 Euro per month. This figure includes the mortgage or the rent, but also all the other expenses associated with the property, meaning utilities, taxes, and insurance. Applying the same procedure for Constanta County it gives us a total cost of up to 535 Euro per month for an affordable home. Table 5: Housing affordability in Romania and Constanta county applying the residual income assessment used by the U.S. Department of Housing and Urban Development Country/county Gross average income per Total monthly cost for an employee in January 2019 affordable home* Romania € 1,028 € 617 Constanta € 891 € 535 *Includes mortgage or rent, plus utilities, taxes, and insurance. Source: JLL Research, applying the methodology used by the U.S. Department of Housing and Urban Development. The above affordability calculations can also be applied for lower-end properties and higher-end properties as well. 26 Chapter IV. Real Estate Fundamentals 27 4 Office Market This Section summarizes the current office market conditions that are found in Constanta, with information regarding stock, major existing office buildings, as well as comments on demand and rents in the area. This information is useful to understand the potential of the office development and whether there would be interest for the subject site in terms of building and renting and if yes, who may be potential developers and occupiers and what rents would be achievable. 4.1 Overview Bucharest modern office market had a stock of over 2.65 million m² GLA as of the end of 2018. Major office markets outside of Bucharest include Timisoara and Cluj-Napoca, both with a modern office stock of around 250,000m2 GLA, followed by Iasi and Brasov. Constanta is a secondary market regarding the office sector, with a limited stock as well as limited annual demand. The majority of the modern office stock was delivered after 2005, whilst most of the former bank headquarters built before 2,000 have seen some renovation during the last ten years. There is limited interest and activity on the market, with no major developments or deals happening. The city does not represent a target for large office tenants, most of the occupiers being in search of small areas. 4.2 Office Stock Constanta currently registers a speculative office stock of around 50,000m² GLA, considering only buildings of above 1,000m2. These buildings are concentrated more alongside Mamaia Boulevard, followed by Tomis Boulevard, and have areas varying between 1,000 – 5,000m2, none of them exceeding 5,000m2. Floor plates provided are also small, of between 200-500m2 on average. On top of the above stock the current offer includes also a limited number of smaller office buildings of under 1,000m2, as well as small office spaces of up to 200m2 as part of residential buildings (blocks or villas). There are also owner-occupied buildings, the largest being BCR on 68 Traian Street, with an approximate area of 4,000m2. Some of the buildings which were former banks headquarters have now joined the speculative stock or are partially owner occupied, renting some areas to tertiary tenants. No information have been provided of any large office scheme currently in pipeline in Constanta. There was a mixed-use project named World Trade Center Constanta, announced to be developed before the crisis. The scheme included a four-star hotel, a mall, an office building, entertainment area, a contemporary art institute and an underground parking, all spread on a total area of 130,000m2. The works started years ago, but stopped, and then restarted in 2013, after six years of having been put on hold, and then were stopped again. The project has not come to fruition. 28 Table 6: Main speculative office buildings in Constanta Development Location/Address GLA Comments GSS Offices 158 Mamaia Blvd. 4,900 sqm LGF+GF+9; tenants: Biochem (6th floor) Tomis Mall - 36-40 Stefan cel 4,049 sqm Owner: Willbrook offices Mare Street Medlife / Tomis Blvd. 3,667 sqm LGF + GF + Mz + 6 Telekom Tenants: Medlife (tenant 65%); Telekom (25% owner occupied); others (10%) Owned by Telekom Traian 51 51 Traian Street 3,200 sqm LGF+D+GF+3; known as Constanta Business Center (former Raiffeisen Bank) Heka Hospital 1 Decembrie 1918 2,750 sqm GF+4; Heka Hospital - private hospital Blvd., No.21 Millenium 135-137 Bd. 2,550 sqm 5,900m2 total built area; - LGF + GF+8 Business Center Mamaia - they offer office space, 26 hotel rooms for rent (3 stars), & Hotel and restaurant; minimum office for rent 68m2 - 30 exterior parking places for rent at €35 per parking per month - commercial spaces of 120m2 at €14-€17/m2 Tenants: Patria Bank, Raiffeisen Bank, Gamesa Wind, PwC Romania, Unimasters Logistics, Status Marine, Hertz, Danol Protect, Real Pro Imobiliare Mamaia 243-245 243-245 Mamaia 2,500 sqm GF+5 (Unicredit) Blvd. CEC building Bd. Duca I. G., 18 2,500 sqm Tenants: ANAF; owned by CEC Telekom Rascoalei Street 2,458 sqm LGF+GF+1/2; owned by Telekom Mamaia 208 208 Mamaia Blvd. 2,500 sqm LGF+GF+4 (Regina Maria) Tomis Business 152 Mircea cel 2,000 sqm 1 month - minimum lease period Center Batran Blvd. 55m2 - minimum area for lease Source: JLL The majority of the speculative stock was developed and is owned by local developers/ investors . With international notoriety It can be mentioned Willbrook, which has invested in Tomis Mall refurbishment, offering both commercial spaces and offices for rent. Main developers acting also on office market in cities outside of Bucharest are Ceetrus, Iulius Group (operating in Cluj, Timisoara and Iasi on both retail and office market), Prime Kapital (very active on retail, developing small retail parks in secondary and tertiary cities, currently is developing Silk District, its first mixed-use scheme in Romania in Iasi, including 100,000m2 of offices to be delivered by 2024) and NEPI (largest owner of shopping centres in Romania, owns currently a number of 12 office schemes across Romania however they are looking to sell this portfolio). 29 As such, apart from local developers, from the main national and international developers present in Romania, Ceetrus, Iulius Group or Prime Kapital could be potentially interested in Constanta market, but on long term, as currently no interest was shown for Constanta area. Figure 10. Constanta Offices Source: JLL 30 4.3 Office Demand At national level, the development of the business sector corroborated with the IT&C, BPO & SSC sectors expansion, as well as large occupiers consolidating their activities, represented the main sources of office demand. Currently no major interest was shown from major tenants to enter Constanta market. These have focused on Cluj and Timisoara, the two markets being the two most developed out of Bucharest and sought after by tenants. Iasi and Brasov, and more recently Sibiu, follow Cluj and Timisoara markets in terms of interest from developers and tenants. The largest office occupiers in Constanta are represented by the financial sector, namely banks (BCR, ING, Raiffeisen Bank, Alpha Bank, Patria Bank, Credit Europe Bank etc.), insurance companies and financial services or consultancy (PwC Romania). Other important occupiers are also companies involved in the shipping industry. In recent years it has been seen also private clinics entering the local market, such as Medlife and Heka Private Hospital. Estimated vacancy level for the speculative stock in Constanta is above 15%. 4.4 Rents Current average rents in Constanta, for modernized offices, are between €8-€11/m2/month, with some exceptions. The ground floor of the office buildings is generally leased at higher rents as used as commercial. There is no significant different in rents in terms of location (Mamaia Boulevard, Tomis Boulevard, or other semi-central areas in the city). 4.5 Forecast & Conclusions Interest from both developers as well as major occupiers for Constanta office market is likely to remain limited on short-medium term. The main speculative buildings are located either alongside Mamaia Boulevard, centrally or semi-centrally. There are no office buildings located right near the sea. Closest office building from the subject site is Yardenni center of around 1,200m2. Given the local market represented by limited interest, It is not likely that the subject site to present a good opportunity for a large office development. 31 5 Retail Market In this Section It has been analyzed briefly the retail market in Constanta. The aim is to understand whether a retail development, what type and what rent would be achievable for the subject site. Given the current market and characteristics of the subject site, It is not likely that a retail development represents its best use. 5.1 Overview With a long tradition in the retail, Constanta is one of the well-supplied cities in Romania. The modern retail stock is estimated around 191,350m2 GLA in six large retail schemes. International and national retailers are very well represented in all main sectors, the city having been targeted by all the major international retailers active in Romania. The largest retail concentration is in north-west, along Aurel Vlaicu Boulevard - Tomis Boulevard. The area includes the dominant VIVO Maritimo SC, anchored by Auchan, hypermarket with galleries (Tom Center- Carrefour), cash & carry (Metro, Selgros), DIY units (Brico Depot, Leroy Merlin, Dedeman), supermarkets and discounters (Carrefour Market, Mega Image, Penny Market, Profi, Lidl) as well as other boxes like Decathlon, Jumbo (former Real), Elvila. 5.2 Ownership & Developers The most common form of shopping centre ownership in Romania is freehold. The Romanian land registry lists all encumbrances on the property, and as such, title of ownership is rarely an issue. Historically, the market has been driven mainly by local or regional developers, but in the recent past there has been increasing interest from international institutional players. The top five retail owners in Romania have together more than 45% of the total shopping centres stock in the country. The largest is NEPI Rockcastle, with approximately 20% of the entire stock. The South-African investment fund was very active in the recent years, both in terms of acquisitions and development. Other major owners in the country are Iulius Group, Argo Capital, Immofinanz and AFI Europe. 5.3 Retail Supply With a stock of 191,350m2 GLA, Constanta appears currently to have the second largest shopping centre density in Romania, of around 675m2 GLA per 1,000 inhabitants. Opened in 2002, Tomis Center, owned currently by Willbrook, was the first shopping centre in Constanta, previous department store of the city. Located close to the city center and the seaside, it offers approximately 20,000m2 GLA and is anchored by Mega Image. The next step in the retail market of the city was the completion of Tom Center, in the north west of the city, a shopping centre with retail park which offers close to 34,000m² of retail space. The largest shopping centers in Constanta are City Park Mall, owned by NEPI, offering 52,100m² GLA, located close to Mamaia, the main seaside destination in Romania in the north of the city and VIVO (former Maritimo) Constanta, owned by Immofinanz, offering close to 51,000m² GLA of retail space in the west of the city. 32 Figure 11. Main Cities Shopping Centers Stock and Density 1,200,000 Retail stock 1,200 Retail Density 1,000,000 1,000 800,000 800 600,000 600 400,000 400 200,000 200 0 0 Source: JLL Table 7: Main Shopping Centers & Retail Parks - Existing Shopping Retail Total Centres Opening No. Scheme Parks Anchor tenants sq m GLA date sq m GLA sq m GLA 1 VIVO (Maritimo 51,250 51,250 2011 Auchan Shopping Center) 2 City Park 52,100 52,100 2008 Cora 3 Tom Center 34,000 24,000 10,000 2006 Carrefour, Brico Depot 4 Tomis Mall 20,000 20,000 2002 Mega Image 5 Cora 18,000 18,000 2013 Cora 6 Auchan City 16,000 16,000 2006 Auchan Total GLA (existing) 191,350 181,350 10,000 Source: JLL The shopping centre stock includes also two small comparison-based shopping centres, namely hypermarkets with galleries, anchored by Cora and Auchan. With the exception of the extension of City Park Mall in 2016, no new major deliveries took place in Constanta in the last 2 years. We were not informed of any main retail scheme currently in pipeline in Constanta. The retail warehousing sector is well represented by stand-alone units (DIY, cash & carry, supermarkets, discounters, etc.) as well as units adjoining shopping centres (such as Brico Depot, Decathlon). 33 Figure 12. Constanta Shopping Centers Map Source: JLL All major tenants are represented, out of which are listed the following: ▪ Cash & Carry – Metro, Selgros ▪ Hypermarkets – Cora, Auchan, Carrefour, Kaufland ▪ DIY – Dedeman, Leroy Merlin, Brico Depot ▪ Discounters – Penny Market, Lidl ▪ Supermarkets – Mega Image, Profi, Carrefour Market ▪ Furniture - Elvila, JYSK, Casa Rusu, Staer, Mobexpert ▪ Toys – Jumbo 5.4 Conclusions ▪ The city has already a well-developed retail market, all major international and national tenants being present here. ▪ The shopping center density is the second highest in Romania. Moreover, It was noticed that the subject site, located on the seaside shore, will not maximize its value through the development of a retail scheme. 34 6 Residential Market This Section provides a brief introduction to the residential market in Constanta city, focused on the existing developments, evolution, trends, price per areas. This would provide an indication for the financial model including a residential component, specifically an indication of the Gross Development Value. 6.1 Main areas Constanta is the fifth largest city after Bucharest, Cluj-Napoca, Timisoara and Iasi considering the city population with the fourth largest residential stock after Bucharest, Cluj-Napoca and Timisoara. The main residential stock (as in all the other cities of Romania) was delivered before 1990. Figure 13. Constanta main districts Source: JLL from public information using Google My Map 35 6.2 Trends, Stock and Price 6.2.1 Stock Table 8: Constanta Key Residential Indicators 2012 2013 2014 2015 2016 2017 Existing Stock (units) 124,915 127,203 128,537 129,600 130,946 132,324 Density (units/1,000 pop.) 440.0 448.1 452.8 456.5 461.3 466.1 Average Surface/Unit (m2) 52.9 52.7 52.7 52.7 52.6 52.6 New Supply (units) 1,906 2,410 1,419 1,172 1,445 1,454 New Supply Growth (%) 46% 26% -41% -17% 23% 1% Construction Permits (number) 317 293 273 229 149 115 Construction Permits (area-m2) 125,127 104,377 140,598 137,830 114,187 115,307 Source: Base on data of the Romanian National Institute of Statistics (as at 2017) The latest information issued by the National Institute of Statistic as at 2017, provides an indication of 132,324 units as being the stock of residential units in Constanta. This represents approximately 1.47% of the national dwelling stock whilst Constanta concentrates 1.41% of the total population of Romania. Figure 14. Residential stock evolution Constanta City 130,000 125,000 120,000 115,000 110,000 105,000 100,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Database of National Institute of Statistics The stock was quite flat in-between 1990-2005, the average stock being around 114,000 units. Starting with 2008, the number of units has increased, reaching a maximum in 2017, when was reported a number of 132,324 units. 36 6.2.2 Trends Constanta had limited volumes of new development over the first fifteen years after the communist era due to limited demand for new but more expensive premises. The demand and subsequently the new offer increased over the last eighteen years due to the legal framework of the mortgage loan. The volume increased significantly after 2005, stimulated by the governmental program “Prima Casa”, which started in 2009. Prima Casa program was supporting the sales at even higher level and the buy-to-let demand increased in central and sub-central locations. High sales pace continued in H1 2016, driven both by low interest rates, increased price limits for both Prima Casa and preferential VAT rate and by good consumer mood caused by increase of income. Figure 15. New residential supply in Constanta City (1990-2017) 3000 2500 2000 1500 1000 500 0 1992 1990 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Database of National Institute of Statistics After 2015, the demand was supported on the one hand by the decreasing mortgage interest rates combined with Prima Casa loans, on the other hand by record-high GDP growth and fast increasing incomes. The mortgage interest rate has stabilized at the historically lowest level of 4.0-4.5% in 2015 but slightly increased at the end of 2017. Analyzing the above graph, it can be observed a maximum point reached in 2013 for new residential units, followed by a drop in 2014 and 2015. In 2016 and 2017 the number of delivered units was constant. 37 Figure 16. Building Permits issued in Constanta City evolution for the last fifteen years 500 400 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 According to official sources, Prima Casa program will continue at least until 2021 with allocation of around RON 2 billion per year for the years 2018-2020 ceiling to reach RON 1.5 billion in 2021. Starting with 2012 the number of building permits issued has decreased constantly from year to year. However, in 2018 the number of building permits has increased with more than double, from 115 in 2017 to 243 in 2018. 6.2.3 Price For the purpose of this analysis, it has been divided the residential market in two categories, low-raised residential premises and apartments with ten main sub-markets for the apartments. It was considered for the analysis, the price per square meter as resulted from the real estate database of imobiliare.ro depending on the location and each into older units - those apartments raised before the year 2000 and newer if raised after 2000. Table 9: Average residential sale price as at second half of 2018 per submarket Submarket Type * studio one-bedroom two-bedroom three-bedroom Average €/m2 apartment €/m2 apartment €/m2 apartment €/m2 €/m2 Poarta 6 Newer 980 960 760 900 Km 4-5 - Km 5 Newer 910 1,060 1,030 1,000 CET - Anda Newer 1,000 1,000 Casa de Cultura - Tomis Plus Newer 1,160 1,120 1,060 1,100 1,110 Gara - ICIL - Abator Newer 1,180 1,130 1,050 1,120 Tomis Nord - Inel II - Inel I - Newer 1,170 1,150 1,100 1,100 1,130 Primo - Far I. C. Bratianu - Bratianu - Newer 1,230 1,150 1,070 1,150 Energia Central - Ultracentral - Newer 1,250 1,220 1,230 1,200 1,225 Peninsula Tomis III - Dacia - Tomis II - Newer 1,210 1,240 1,380 1,130 1,240 Brotacei - Tomis I Faleza Nord - Trocadero - Newer 1,360 1,340 1,400 1,170 1,318 City Park Mall - Capitol - Delfinariu 38 Submarket Type * studio one-bedroom two-bedroom three-bedroom Average €/m2 apartment €/m2 apartment €/m2 apartment €/m2 €/m2 CET - Anda Older 980 1,000 960 920 965 Km 4-5 - Km 5 Older 950 1,020 980 950 975 Poarta 6 Older 1,020 980 940 960 975 I. C. Bratianu - Bratianu - Older 1,090 1,040 1,040 980 1,038 Energia Central - Ultracentral - Older 1,050 1,110 1,090 1,090 1,085 Peninsula Gara - ICIL - Abator Older 1,130 1,070 1,060 1,110 1,093 Casa de Cultura - Tomis Plus Older 1,160 1,130 1,090 1,030 1,103 Tomis Nord - Inel II - Inel I - Older 1,140 1,140 1,100 1,090 1,118 Primo - Far Tomis III - Dacia - Tomis II - Older 1,310 1,170 1,150 1,150 1,195 Brotacei - Tomis I Faleza Nord - Trocadero - Older 1,290 1,260 1,250 1,240 1,260 City Park Mall - Capitol - Delfinariu Source: Database of imobiliare.ro; * newer: apartment built after the year 2000, older: apartment built before the year 2000 The average sale price for newer residential apartments built over the last 18 years are from € 900/m2 at the periphery area to around € 1,200/m2 within the central areas and up to € 1,200/m2 in Faleza Nord. The average price for the older stock is around € 50-150/m2 under this level. Table 10: Average residential rent price as at second half of 2018 per submarket Submarket Type * studio one-bedroom two-bedroom three-bedroom Average (€ ) apartment (€)2 apartment (€) apartment (€) (€ ) Poarta 6 Newer 150 n.a. n.a. n.a. n.a. CET - Anda Newer n.a. 280 n.a. n.a. n.a. I. C. Bratianu - Bratianu - Newer 170 270 400 n.a. n.a. Energia Tomis Nord - Inel II - Inel I - Newer 230 300 400 n.a. n.a. Primo - Far Gara - ICIL - Abator Newer 230 390 370 n.a. n.a. Tomis III - Dacia - Tomis II - Newer 240 280 500 n.a. n.a. Brotacei - Tomis I Casa de Cultura - Tomis Plus Newer 250 350 450 n.a. n.a. Km 4-5 - Km 5 Newer 270 450 n.a. n.a. Faleza Nord - Trocadero - Newer 250 400 550 800 500 City Park Mall - Capitol - Delfinariu Central - Ultracentral - Newer 210 300 650 950 528 Peninsula Poarta 6 Older 150 240 280 n.a. n.a. Km 4-5 - Km 5 Older 150 230 300 n.a. n.a. CET - Anda Older 150 230 270 300 238 39 Submarket Type * studio one-bedroom two-bedroom three-bedroom Average (€ ) apartment (€)2 apartment (€) apartment (€) (€ ) I. C. Bratianu - Bratianu - Older 190 250 350 n.a. n.a. Energia Tomis Nord - Inel II - Inel I - Older 180 250 300 350 270 Primo - Far Tomis III - Dacia - Tomis II - Older 200 270 350 390 303 Brotacei - Tomis I Gara - ICIL - Abator Older 200 250 350 430 308 Casa de Cultura - Tomis Plus Older 220 280 340 450 323 Faleza Nord - Trocadero - Older 200 300 380 500 345 City Park Mall - Capitol - Delfinariu Central - Ultracentral - Older 170 260 350 650 358 Peninsula Source: Database of imobiliare.ro; * newer: apartment built after the year 2000, older: apartment built before the year 2000 The average rent price for newer studio or one-bedroom residential apartments built over the last 18 years are from € 150-280 at the periphery area to around € 400 within the central areas and Faleza Nord. The average price for the older stock for studios and one-bedroom apartments is around € 50-100 under this level. The monthly rent for new apartments with two and three bedrooms starts at € 350/m 2, for average quality locations to € 650-950 quotation for the best premises. The old stock for good quality locations is quoted lower, from € 300 to around € 650. Table 11: Average residential rent price as at second half of 2018 per submarket Submarket Houses raised before Houses raised after Land price 2000 in €/m2 2000 in €/m2 €/m2 Km 4-5 - Km 5 640 720 70 Gara - ICIL - Abator 940 n.a. 120 CET - Anda 660 960 130 I. C. Bratianu - Bratianu - Energia 710 780 200 Tomis Nord - Inel II - Inel I - Primo - Far 840 980 230 Casa de Cultura - Tomis Plus 980 1,100 230 Central - Ultracentral - Peninsula 950 1,030 380 Tomis III - Dacia - Tomis II - Brotacei - 910 1,000 400 Tomis I Faleza Nord - Trocadero - City Park 1,000 1,080 470 Mall - Capitol - Delfinariu Source: Database of imobiliare.ro The average price for new houses starts at € 720/m2, for peripheral area quality locations to € 1,100/m2 for better locations. The old stock is quoted by € 80-120/m2 lower, to around € 640-1,000/m2. The average price for land prices in Constanta is from around €70/m2, for peripheral locations up to around € 470/m2 for better locations but the asking price can even increase for the most sought-after sites. 40 6.3 Residential Case Studies Faleza Nord District, spreading in between the entry to Mamaia (north), Tabacarie Lake (west), the Black Sea (east) and Soveja Street (south), includes GF+4 and GF+10 blocks built from 1975 and new developments. The main residential developments from the analyzed area are: Spectrum Residence (apartments), Santa Maria Bay (villas), Blue Marina (apartments), Orion Residence (apartments). In the Faleza Nord area, closer to the city center, it can be also named Belvedere-Rotterdam, Ariadna Residence, Belvedere street area. Spectrum Residence Santa Maria Bay Compound Address: 82, Pescarilor Street Address: 19, Ctin N. Sarry Street Description: 140 apartments Description: 89 villas Status: completed Status: completed Completion Year: 2007-2009 Completion Year: ~2013 Availability: 0% Availability: n/a Prices: 1,500-1,900 Euro/m2 useable Prices: 1,500-2,000 Euro/m2 GBA Developer: Five Holding SA Developer: FinCoGeRo Block of Apartments Block under development Address: 65C, Pescarilor Street Address: 5, Studentilor Alley Description: D+GF+11F, +40 apartments Description: D+GF+5F Status: completed Status: under construction Completion Year: 2018-2019 Completion Year: planned for 2021 Availability: n/a Availability: n/a Prices: n/a Prices: n/a Developer: Local Developer: Local Source: developer websites and public information, *n/a data not available 6.4 Conclusions ▪ Residential is the most developed real estate market in Constanta; ▪ Residential market has the best absorption and until now, the highest transactional volume and number between the real estate markets from the Romanian seaside; ▪ The limited availability of residential premises shows both a good absorption but still high potential; ▪ Expensive properties mainly located near the seaside, Faleza North and Mamaia; ▪ Rental market attractive within the summer period but less interesting over the other periods of the year. 41 7 Hotel Market Hotel Market analysis is conducted in order to provide an indication of the attractivity of this market in Constanta and the presence of plenty of hotels in the Subject area. The analysis starts with an overview of the hotel market of Romania in terms of units and overnight stays and it continues with details about the existing number of hotels and apart-hotels in Constanta County with a focus on the hospitality market from Constanta City and Mamaia (the preferred vacation period for tourists, number of rooms, number of beds). Also, it was presented the average rates for 3, 4 and 5-star hotels. 7.1 Overview The Romanian hospitality market has currently about 16 International hotel chains which activate in 16 Romanian counties. These international hotel chains have around 60 hotels within Romania, most of them being 4 Star Hotels which activate in Bucharest. At least 15 new hotels affiliated to international hotel chains are planned to be opened in Romania in the next two years, out of which 7 in Bucharest (planned to have around 1,056 guest rooms), 2 in Otopeni (303 guest rooms), 2 in Brasov (around 232 guest rooms), 3 in Timisoara (420 guest rooms) and 1 in Sibiu (around 85 guest rooms). Also, the recently opened Ibis Styles Bucharest Erbas Hotel (2018), located in Otopeni, plans to extend its capacity with 40 additional rooms in the following years. The total number of hotels located in Romania (including the local ones and those affiliated to an international hotel chain), increased from a number of 1,319 hotels in 2011 to 1,633 hotels in 2018 . Table 12: Romania - Number of hotels and apart hotels (including local hotels) Romania 2011 2012 2013 2014 2015 2016 2017 2018 Hotels 1,308 1,384 1,429 1,456 1,522 1,530 1,577 1,613 Apartment hotels 11 16 16 17 23 21 20 20 TOTAL 1,319 1,400 1,445 1,473 1,545 1,551 1,597 1,633 Source: http://statistici.insse.ro:8077/tempo-online/#/pages/tables/insse-table Therefore, apart from that, the city is mainly regarded as a corporate destination, leisure tourism is gaining momentum, as increasing numbers of young travelers perceive Bucharest as a good and affordable city break destination. Figure 17. Romania number of hotels and apart hotels (including local hotels) 2018 2017 2016 2015 2014 2013 Hotels 2012 Apartment 2011 hotels - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 Source: National Institute of Statistics Romania 42 Overall, across the country, in 2017 a percentage of 23% from the total number of overnight stays in hotels were represented by foreigners. More details are presented in the following table: Table 13: Romania - Overnight stays considering the hotel type 2017 5-star 4-star hotel 3-star 2-star 1-star Unclassified 5 star 4 star 3 star Total hotel hotel hotel hotel hotel apart- apart- apart- hotel hotel hotels Romanians 35% 65% 84% 95% 96% 98% 15% 42% 72% 77% Foreigners 65% 35% 16% 5% 4% 2% 85% 58% 28% 23% Romanians 424,962 4,052,896 6,732,711 3,991,600 300,671 23,252 1,633 19,638 37,054 15,584,417 Foreigners 797,607 2,227,511 1,242,022 205,935 13,254 359 9,397 27,653 14,760 4,538,498 TOTAL 1,222,569 6,280,407 7,974,733 4,197,535 313,925 23,611 11,030 47,291 51,814 20,122,915 Source: National Institute of Statistics Romania As statistics shows, preference of foreign people goes towards 4-5 Star Hotels and Apart hotels. As such, in 2017, foreigners’ occupancy represented 65% from the total overnight stays at the 5 -star hotels, and 85% from total overnight stays at the 5 star apart-hotels. In 2017, in terms of hotel type preferences, the highest amount of overnight stays was registered at the 3-star hotels (39.6% from the overnight stays in 2017). The number of overnight stays at the 3-star hotels located in Romania (including international hotel chains as well as local hotels) reached 7.9 million, out of which 1.2 million were represented by foreigners (16%) and 6.7 million (84%) by Romanians. Table 14: Romania - Overnight stays evolution by hotel type preferences Hotels 2011 2012 2013 2014 2015 2016 2017 5 -star hotel 6.0% 6.0% 6.2% 6.4% 5.8% 5.7% 6.1% 4 -star hotel 18.6% 20.7% 22.9% 24.0% 26.4% 28.5% 31.2% 3 -star hotel 31.9% 34.7% 39.1% 39.8% 39.9% 39.4% 39.6% 2 -star hotel 39.7% 35.0% 29.1% 26.9% 24.5% 23.8% 20.9% 1-star hotel 3.0% 2.3% 1.9% 2.1% 1.9% 1.8% 1.6% Unclassified hotel 0.6% 0.6% 0.7% 0.7% 0.5% 0.2% 0.1% Subtotal 99.8% 99.4% 99.8% 99.8% 98.9% 99.4% 99.5% Apart-hotels 2011 2012 2013 2014 2015 2016 2017 5 -star apart-hotels 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.1% 4 -star apart-hotels 0.0% 0.4% 0.0% 0.0% 0.5% 0.2% 0.2% 3 -star apart-hotels 0.2% 0.1% 0.2% 0.2% 0.6% 0.4% 0.3% 2 -star apart-hotels 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Subtotal 0.2% 0.6% 0.2% 0.2% 1.1% 0.6% 0.5% Total 100% 100% 100% 100% 100% 100% 100% Source: National Institute of Statistics Romania 7.2 Constanta Hotel Market 7.2.1 Constanta County Many tourists come to the seaside by car, by plane or by train among other means of transportation. Mihail Kogalniceanu International Airport (situated 26 kilometers north-west of Constanta) is the main airport of Dobrogea region and it provides access to Constanta County, the Port of Constanta and the Black Sea resorts. In 2018, it had a total of 129,000 passengers. According to the latest data available on the Ministry of Tourism’ website, Constanta County has a number of 373 hotels and 9 apart-hotels. The following graph shows the hotel supply within the Constanta County. 43 Figure 18. Constanta County existing number of hotels and apart-hotels 128 Hotels 101 Apart-hotel 100 88 50 20 15 2 5 7 4 4 3 2 1 1 1 0 Constanta Mangalia Eforie Costinești Năvodari Limanu Techirghiol Cernavodă Medgidia 23 August Mihail Kogălniceanu Source: Ministry of Tourism website (data updated on 10th of May 2019) http://turism.gov.ro/web/autorizare-turism/ Figure 19. Constanta County number of beds existing in hotel and apart-hotel accommodations Constanta 5% 2% 4% Mangalia 32% 18% Eforie Costinești Năvodari 39% <1%-2% 23August, Techirghiol, Limanu, Cernavoda, Medgidia, Mihail Kogalniceanu Source: Ministry of Tourism website (data updated on 10th of May 2019) http://turism.gov.ro/web/autorizare-turism/ Table 15. Constanta County number of beds existing in hotel and apart-hotel accommodations Type Constanta Mangalia Eforie Costinesti Navodari Others (<1%) TOTAL Hotel – no. of beds 22,688 27,893 12,865 3,342 1,749 2,525 71,062 Apart-hotel – no. of beds 150 48 48 1,602 1,848 TOTAL 22,688 27,893 12,865 3,342 1,749 2,525 71,062 % 32% 39% 18% 5% 2% 4% 100% Source: Ministry of Tourism website (data updated on 10th of May 2019) http://turism.gov.ro/web/autorizare-turism/ Figure 20. 2018 - Overnight stays in hotel and apart-hotel accommodations - Constanta County 3% 2% 1% Constanta 4% Mangalia 18% 37% Eforie Navodari Techirghiol 35% Costinesti < 1% Medgidia, Cernavoda, Ovidiu, 23 August, Limanu, Mihail Kogalniceanu Source: National Institute of Statistics 44 According to the National Institute of Statistics, in 2018, Constanta County reached a total number of around 5,000,000 overnight stays in all existing accommodations, out of which around 87% were in hotel accommodations and 1.6% were in apart-hotel accommodations. 7.2.2 Constanta City From the total number of 373 hotels, Constanta City has a number of 128 hotels and 2 apart-hotels of 3-star each. The existing hotel accommodation offer is of 11,577 rooms or the equivalent of 22,688 beds while the existing apart-hotel accommodation offer has a number of 66 rooms (the equivalent of 150 beds). Table 16. Overnight stays in hotel and apart-hotel accommodations - Constanta County Location Hotel type Number of hotels Number of rooms Number of beds Constanta County Hotels 373 35,606 71,062 Apart-hotels 9 775 1,848 Constanta City Hotels 128 11,577 22,688 5-star hotel 3 247 502 4-star hotel 37 3,271 6,315 3-star hotel 67 5,729 11,304 2-star hotel 18 2,171 4,246 1-star hotel 3 159 321 Apart-hotels 2 66 150 3-star apart-hotel 2 66 150 Source: Ministry of Tourism website (data updated on 10th of May 2019) http://turism.gov.ro/web/autorizare-turism/ The stock is largely composed of units developed during the communist period. Constanta City includes 26 hotels of over 150 rooms (out of which 25 units are part of Mamaia Resort), 24 units of 100 – 150 rooms, 18 hotels of 50 – 100 rooms and 60 hotels with less than 50 rooms. Figure 21. Constanta City 2018 overnight stays Hotels 1% 8% Apart-hotels Other accommodations 91% Source: National Institute of Statistics According to the National Institute of Statistics, in 2018, in Constanta City, the number of overnight stays in hotel and apart-hotel accommodations reached 1,617,545, representing 32.5% from the total number of overnight stays in all existing accommodations in Constanta County. In 2018, Constanta City registered 37% from the total number of overnight stays in existing hotel and apart-hotel accommodations (part of Constanta County), with 32% from the total number of existing beds in hotel and apart-hotel accommodations. In 2018, all existing accommodations in Constanta City reached 1,767,115 overnight stays, out of which 91% were in hotel accommodations, about 1% in apart-hotel accommodations and about 8% in other accommodations. These data do not include private apartments offered for rent by locals during the summer period. 45 Figure 22. Constanta number of overnight stays in hotel accommodations 600,000 500,000 400,000 300,000 200,000 100,000 0 2015 2016 2017 2018 Source: National Institute of Statistics The graph above, highlights the hotel demand during the summer season, when hotels record high occupancy rates. Figure 23. Hotel capacity Constanta number of beds 321 502 5-star hotel 4,246 4-star hotel 6,315 3-star hotel 2-star hotel 1-star hotel 11,304 Source: Ministry of Tourism website (data updated on 10th of May 2019) http://turism.gov.ro/web/autorizare-turism/ From the total number of existing hotels in Constanta City, 3 hotels are affiliated to international hotel chains as follows: ▪ Ibis hotel (a 3-star hotel); ▪ Ramada hotel (a 4-star hotel) and ▪ Zenith Hotel – Conference and Spa hotel (also a 4-star hotel). 46 7.2.3 Occupancy Rate Table 9: Constanta Occupancy Rate Constanta Municipality 2010 2011 2012 2013 2014 2015 2016 2017 2018 Occupancy Rate 32% 32% 36% 35% 36% 39% 42% 40% 43% Source: National Institute of Statistics The Occupancy Rate is deducted as ratio from the total number of stays overnight to the tourist accommodation capacity in function during that period. The arrivals or the accommodated tourists reflects the number of tourists accommodated in tourist reception units – all persons (Romanians and foreigners) who travel outside the locality where they normally reside, for a period of less than 12 months, and spend at least one night in a tourist accommodation unit in the areas they visit within the country; the main reason of the journey is other than to carry out a remunerated activity in the visited places. The nights or overnight stay represents each night for which a person is registered in a tourist accommodation unit, whether or not he is present in the room. 7.3 Conference rooms The existing hotels located in Constanta, Mamaia and Mamaia Nord have over 100 conference rooms and their maximum capacity exceeds 8,500 seats. Hotel Del Mar Mamaia has 5 conference rooms and a maximum capacity of 1,425 seats. Also, Zenith Hotel Mamaia, Caraiman Hotel - Voila Mamaia have a maximum capacity of the conference rooms of 600 - 700 seats, followed by Malibu Hotel Mamaia, Iaki Hotel Mamaia, Riviera Hotel Mamaia with a maximum capacity of 400 - 500 seats. 7.4 Constanta Hotel Rates It has been examined the rates at hotels located in Constanta, in the area of the subject site and made an analysis of the double rooms, both for 3-star hotels, as well as for 4 and 5-star hotels. Table 17: Constanta - hotel fees per one night No. Name of the hotel Week period Weekend period Type of hotel (4 - 5 June 2019) (8 - 9 June 2019) Price (€) Up to (€) Price (€) Up to (€) starting from: starting from: 1 Arena Regia Hotel & Spa - €100 €266 €100 €231 5-star hotel Marina Regia Residence 2 Vega Hotel €109 €321 €103 €321 5-star hotel 3 Phoenicia Royal Hotel €122 €208 €122 €674 5-star hotel 5-star hotel rates €100 €321 €100 €321 4 Malibu Hotel €119 €173 €119 €168 4-star hotel 5 Del Mar & Conference Center €100 €211 €100 €211 4-star hotel 6 Bulevard Hotel €84 €161 €84 €161 4-star hotel 7 Parc Hotel €63 €169 €63 €169 4-star hotel 8 Bavaria Blu Hotel €55 €261 €55 €261 4-star hotel 9 Golden Palace Hotel €48 €99 €48 €99 4-star hotel 10 Nevada Hotel €50 €80 €50 €80 4-star hotel 11 Zenith - Top Country Line - €74 €123 €107 €132 4-star hotel Conference & Spa Hotel 47 No. Name of the hotel Week period Weekend period Type of hotel (4 - 5 June 2019) (8 - 9 June 2019) Price (€) Up to (€) Price (€) Up to (€) starting from: starting from: 12 Ambasador Hotel €68 €126 €68 €126 4-star hotel 13 Ges Hotel €60 €72 €70 €96 4-star hotel 14 Opera Mamaia Hotel €129 €406 €133 €406 4-star hotel 15 Queen Vera Hotel €58 €104 €60 €104 4-star hotel 16 Alcor Beach Hotel €100 €100 €100 €100 4-star hotel 17 Phoenicia Luxury Hotel €116 €354 €92 €354 4-star hotel 18 By Tony Hotel €99 €146 €99 €146 4-star hotel 19 Richmond Hotel €72 €145 €72 €145 4-star hotel 4-star hotel rates €48 €406 €48 €406 20 Scala Hotel €29 €40 €29 €40 3-star hotel 21 Maryiotis Hotel €36 €42 €36 €42 3-star hotel 22 Golden Rose Hotel €47 €75 €47 €75 3-star hotel 23 London Hotel €31 €50 €31 €50 3-star hotel 24 Merty Hotel €29 €75 €38 €49 3-star hotel 25 Dacia Sud Hotel €54 €93 €54 €93 3-star hotel 26 Klein Hotel €42 €56 €42 €56 3-star hotel 27 Mihaela Hotel €65 €94 €75 €104 3-star hotel 28 Megalos Hotel €33 €73 €42 €73 3-star hotel 29 Havana Hotel €46 €59 €46 €101 3-star hotel 30 Perla Hotel €30 €44 €30 €44 3-star hotel 3-star hotel rates €29 €94 €29 €104 31 Dobrogea Hotel €39 €47 €39 €47 2-star hotel 32 Cora Hotel €24 €45 €24 €45 2-star hotel 2-star hotel rates €24 €47 €24 €47 Source: https://www.booking.com/; Market research as at 14th of May 2019 Table 18: Constanta apart-hotel fees per one night No. Name of the apart- Week period Weekend period Type of apart-hotel hotel (4 - 5 June 2019) (8 - 9 June 2019) Price (€) Up to (€) Price (€) starting Up to (€) starting from: from: 1 Pacific - Constanta €39 €71 €44 €71 3-star apart-hotel 2 Tomis Garden - €115 €132 €115 €132 3-star apart-hotel Constanta 3 Carmen - Eforie €56 €87 €56 €87 2-star apart-hotel 4 White Tower Mamaia €140 €324 €140 €324 4-star apart-hotel - Navodari Source: https://www.booking.com/; Market research as at 14 th of May 2019 The minimum number of nights for which an apart-hotel from Phoenicia Holiday Resort (Navodari) can be booked is of 3 nights and the rates range in between €390 - €540 per apart-hotel. 48 7.5 Conclusions ▪ Despite the huge potential historically demonstrated, there is a limited interest for hotel investment to the seaside area compared with other, more appealing submarkets and sectors across the country side; this is caused by the limited season period to produce income at full capacity, due to a less effective and targeted promotion of services, not properly adapted to a more educated demand. ▪ However, the hotel market across the Romanian coast is a developed market in term of real estate stock, due to hotel raised in the communist era and some recent hotel improvements, better services and improved infrastructure. ▪ The interest from the main group of stakeholders – the local investors, appears to change over the last years to adapt services from looking to maximize a short-term profit using a minimum of investment; the Bulgarian model would be a model to follow, but it requires more promotion and hotel operators interested to sale services and increase the performance; this is possible with the support of well-known Tour Operators. ▪ Constanta County has a total of overnight stays of foreign tourists around 4.54 million from the total registered number of 20.12 million, which is still low and mainly oriented to the 4- and 5-stars hotels; an increase of this demand would boost the interest for high-value investments against the typical low-size investment and the actual demand, mostly oriented for budget rooms. Mamaia has better fundamentals compared to the other areas of the Romanian seaside, as it proved to have attracted the main investment slice and benefits from an increased interest. 49 8 Investment Market This Section summarizes the recent activity in the real estate market, supported by transactional volumes in the three major commercial sectors – office, retail and hotel. An industrial evidence would not be considered of relevant interest at this scale, as the worth of the Subject site is significantly higher than an industrial development. This is particularly relevant as provides capital values indications and yields evidence to calculate the worth of the development for a financial model introducing an indication of the Gross Development Value. At the last real estate peak of the market, in 2008, Romania had a very liquid real estate investment market with total volumes of over €2 billion and €1 billion respectively, despite the limited availability of modern product at the time. Romania was then the third largest investment market in terms of deal flow in CEE (after Poland and the Czech Republic). Between 2009 and 2013, volumes have decreased significantly, as the number of active players plunged sharply. Transactional activity picked up in 2014, when ca. €1.17 billion was transacted (including a number of unique, very large deals) and the increasing trend continued in 2016 and 2017, when close to €0.9 billion and €1 billion were transacted after a 2015 of €0.67 billion. Given its size in terms of population and forecasted GDP, It is expected that Romania should be second only to Poland in CEE in terms of investment volumes at some point over the coming years. In 2018, the property investment volume for Romania is estimated at circa estimated at circa €900 million, a value slightly below the one registered in 2017 (€963 million) with a number of deals in different stages of negotiations that will most likely be concluded further. The number of transactions decreased, however, the average deal size increased to around €31 million. Bucharest accounted for over 78% of the total investment volume, mainly due to 2 very large office transaction, which was closed in Q2 and Q3. Market volumes were dominated by office transactions (50%), while retail accounted for ca.35%. Figure 24. Historic investment volumes in Romania (thousand euros over 18 years) 2500 Office Retail Industrial Mixed Residential Hotels 2000 1500 1000 500 0 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Jones Lang LaSalle The largest transaction registered in 2018 was the acquisition of The Bridge (phase 1&2), a 58,000m2 office park in Centre-West sub-market of Bucharest by Romanian Group Dedeman. This marked the entrance on the real estate market of the group, who achieved fame as the most successful DIY retailer in Romania. 50 Table 19: Major Retail Investment Deals during 2017-2018 City / Property Date Seller / Buyer GLA (m2) Price (Mil. €) Price (€/ m2) 50% from Parklake Bucharest 2018 Caelum Dev./ Sonae Sierra 73,000 125* 3,425 Militari Shopping Center 2018 AERE/MAS REI 51,400 95 1,848 Bucharest Atrium Mall Arad 2018 Cosmovia Holdings Limited/MAS 28,600 40,5 1,416 REI Festival Mall Sibiu 2018 Primavera Development/NEPI 43,000 21 488 Rockcastle 50% from vVarious / Intercora 2017 Intercora / Mitiska 30,000 18 600 Portfolio Botosani/ Family Center 2017 Real4you / Immofinanz 6,200 5 806 Bucharest/ Obi Pallady 2017 Dan Petrescu/ Kika 12,000 10 833 Braila/ Armonia Braila 2017 Geelan Imprex/ Glorious Electric 36,580 20 547 Corporation 50% from various/ Iulius Group 2017 Iulius Group/ Atterbury Europe n/a 175 n/a Portfolio Various/ 4 Real Hypermarkets 2017 Metro / Terazone n/a 15 n/a Iasi/ Felicia Iasi 2017 CBRE GI / CPI 11,318 29.5 2,606 yield: 10.3% 40% from Iasi/ ERA Iasi 2017 Argo/ Prime Kapital 50,000 35 n/a Various//Alpha Group 2017 Alpha Group/ Mitiska 55,000 60 1,091 Source: Jones Lang LaSalle A notable office transaction in Romania was the acquisition of Oregon Park, a 68,500m2 office park in the Floreasca Barbu-Vacarescu, north sub-market of Bucharest by Lion’s Head Investment, a fund created by a JV between South African fund Old Mutual Property and AG Capital in Romania. The largest retail transaction of the year was the acquisition by Sonae Sierra of 50% stake in the Parklake Shopping Center, owned by Irish real estate developer Caelum Development. Militari Shopping Center of Atrium European Real Estate was acquired by MAS Real Estate for €95 million, and the acquisition of Festival Shopping Center project of Primavera Development in Sibiu by NEPI Rockcastle for €21 million w as another significant retail transaction concluded in 2018. Table 20: Recent Hotel Investment Deals during 2017-2018 (100% purchase) Year Hotel Name Price € Price €/ room, yield Vendor Buyer GLA / Rooms 2018 Mercure Unirii 11.4 ~99k East Balkan Properties Orbis fund 110 rooms 2018 Sport Cluj 3.7 ~27k SIF Moldova Private local 136 rooms 2017 Radisson 163.5 7.75% Elbit Revetas / Cerberus 86,000 2017 Angelo 13.7 n/a Warimpex U City Public n/a Source: Jones Lang LaSalle The yield spread between Romania and Poland, Czech Republic and Hungary remains close to or at record levels. Liquidity has improved, but is still significantly below potential, mainly because of the limited availability of quality product for sale in open market processes at realistic pricing expectations. Prime office yields are at 7.25%, prime retail yields are at 7.00%, while prime industrial yields are at 8.25%, all have compressed by 25 bps over the year; there is still a very soft downward pressure on yields, except for retail. Table 21. Prime Yelds in Romania, Q4 2018 Prime Yields Office Shopping Centers Industrial Romania - Q4 2018 7.25% 7.00% 8.25% Source: Jones Lang LaSalle 51 Chapter V. Public Facilities and Specific Market Analysis 52 9 Local Development This Section presents the main development areas in Constanta City, a general view of the existing infrastructure and the potential of the city which may catalyze more businesses compared to the current performance. Given the existing facilities and the size of the subject, it is little potential to develop non- market uses such as parks, cultural uses, however could be of interest a public space to promote and support inter alia local businesses environment and tourism in a well-placed conference center. 9.1 Development areas Constanta is part of the Romanian Riviera, situated at the east side of Romania, in the north of Bulgarian Riviera. It is placed along the Black Sea coast, including also other unique attraction in Europe – the natural delta of Danube, all along 275km of coastline. Mamaia is the most important resort within this area, situated to the north of Constanta as a belt of land surrounded to the east and west by the water: the Black Sea respectively Siutghiol Lake. Mamaia is a top destination for the summer period, popular for the atmosphere and lifestyle with recent infrastructure investments. Looking to the proposed development, increasing interest for the real estate markets in the region and other measures to be implemented, Constanta has a great potential of development, over the current performances. According to a project for the urban planning development specification a set of actual and further development discussed beneath. The neighbourhoods of the city have as specific character of the mix between the social area, the public space, services and green spaces, with architectural identity elements and spatial segregation. The central area is an attraction for residents, tourists and business people due to its representativeness, as one of the most important resource of the city, a testimony of its millenary existence at the intersection of several cultures. There is a mix of archaeological and architectural monuments, worship places, the old harbour and the city's landmark – Constanta Casino. Mamaia area, a district to the north of Constanta is the main tourist destination in the city with numerous hotels and leisure elements and beautiful beach, considered the most appealing destination in Romania for the summer season. Tabacariei Park the second important tourist pole is shaped by the presence of the dolphinarium and the museums. The connection between the tourist area in the north and the center is via Tomis, Lapusneanu and Mamaia Boulevards which are the main tourist and commercial poles. The second pole is Stefan cel Mare and Ferdinand Boulevards, the main routes from the city center to the railway station. The City Hall aim is to enrich the tourist offer of the city with a rapid transportation road linking the port and passenger terminal area with the city center and to contribute to regenerate and using better the built heritage from the old city center. There are also archaeological elements of industrial use – Saligny silos situated within the port area. There is a large industrial area within the city with a part of the industrial platforms being abandoned or less efficient, however provided with the utilities required and such sites will have a special attention for further development of the city with the new general urban plan. The Municipality intend to study to identify ways of achieving functional intermodal centers connecting various means of public transport such as the airport, the railway station, port and passenger terminals as well as to allow the storage of bicycles to encourage the use of this means of transport. 53 Figure 25. Constanta Infrastructure Source: City Hall website scope of works for the new PUG 54 10 Public Facilities and Other Markets This Section analyses the current needs in terms of public amenities in the wider area, focusing mainly to the public sector, entertainment & leisure. This analysis is required to provide an indication of the existing facilities and the required ones and how this may support the development for the Subject. 10.1 Framework Constanta City Hall developed initiatives to improve the public infrastructures to support sustainable development of Constanta metropolitan area: ▪ Constanta Tourism Development Strategy, a strategic view providing guidelines to adapt Constanta tourism development to the local, national, European and global initiatives and evolutions; ▪ The Integrated Development Plan, issued in 2010 has selected a number of 112 priority projects to boost the development to three main areas: “Constanta for the investors” with eighteen projects valued at €1.06 billion, “Constanta for the tourists” with twelve projects valued at €1.42 billion, and “Constanta for the residents” with 82 projects valued at €6.13 billion; ▪ Sustainable Development Plan for Constanta providing a strategy and an action plan with a portfolio project. 10.2 Transportation Infrastructure Constanta has a good road infrastructure with the main A2 Motorway of the Sun, of around 212km, linking with Bucharest and merging into A4 Motorway of 21.76km, now mainly a bypass for Constanta but planned to link the Bulgarian border to the south and Tulcea and Braila towards the north. It is part of the Pan- European Corridor IV. European roads E60, E81 and E675 are linked to the bypass of Constanta whilst E87 connects the north exit to Moldova Republic in Giurgiulesti with the south border with Bulgaria in Vama Veche, via Constanta. According to Roads and Bridges Constanta Regional Directorate DRDPC, it is in own administration, a number of thirteen road classified as national have a total length of 456km and eleven bridges ease the accessibility within the network, mainly for crossing the Danube and its three channels. According to the data from the County Road Administration RAJDPCT, other twenty national roads with a total of 847km support as road infrastructure within the county. The inner transportation service is served by the main local public transport operator RATC operating bus lines whilst the tram lines were not used over the past decade. The International Airport Mihail Kogalniceanu links Constanta with several European capitals (London, Istanbul, Tallinn) or with distant Romanian cities (Satu Mare, Cluj-Napoca) through charter or regular flights mainly during the summer season. It is located 20km north-west from the Subject site via European road E60. It was built in 1955 as military airbase, opened for civil operations in 1960. It has 778,766 passengers in 1979, when foreign tourism to the Romanian Riviera was at a high level showing its real potential; it handled in 2017 127,635 passengers, 35% increase from 2016. The railway network to Constanta has good connections as part of the main railway network with a totally renewed network from Bucharest to Constanta, which provides competitive transit times and easier access to the Central European markets. 55 Figure 26. Constanta road infrastructure European / national and county roads Source: Public sources: DRDPC (for the County roads), RAJDPCT and public information (for the European/national roads) Constanta has railway, port with ferryboat interconnections, part of the 4th Pan-European Transport Corridor and TRACECA. The port offers direct access from every terminal to the national and European railway network, through around 300km railroad network only across the port area. The fluvial transport has the port of Constanta on the route of Danube-Black Sea channels, Danube Rivers crossing the Europe capitals, Rhine–Main–Danube Canal to the port of Rotterdam in the North. Figure 27. Constanta railway infrastructure and Port of Constanta with fluvial connections Source: National Company of Railway Infrastructure Management CN CFR SA and Port of Constanta Report 2017 56 Constanta has maritime and river ports. The Maritime port is a hub for the container traffic in the Black Sea, for cereals in Central and South-East Europe fueled by a good connection via all means of transport including pipelines. It benefits from modern facilities for passenger vessels and has availability for future expansion. From 2007, the Port of Constanta become a Free Zone. Similar to important European and international ports it allows the accommodation of tankers with capacity of 165,000 dwt and bulk-carriers of 220,000 dwt. Figure 28. View of Constanta maritime port and river port Source: Port of Constanta Report 2017 Constanta River port links with the Danube river through the Danube-Black Sea Canal, a principal key point of Constanta Port. Due to low costs and important cargo volumes that can be carried, the Danube is one of the most advantageous modes of transport, a sustainable alternative to the European congested road transport. 10.3 Public Facilities According to the School Inspectorate data, Constanta city has a total of 107 premises of public education including 52 kindergartens, 32 middle-schools and 25 high-schools. This is around a quarter from the county’s level, with a total of 484 units are public and other 41 private with kindergartens as the main component. As of 2018, a total number of over 109,000 students were enrolled in one of these formats, including 33% in primary schools, 23% in middle schools and 21% in high schools. Excluding the kindergarten, an average of 390 students per school is a balanced rate between rural and urban across the county. A number of 34 hospitals and clinics are within Constanta county with the majority with clinics 21 within the main city – Constanta including four main hospitals. There are also several private medical clinics. The County Administration signed in 2006 a 20 years financing contract to build Constanta Exhibition Center at 331A, Mamaia Boulevard, to enable exhibition and meeting business partners. The Center was opened in 2009, with a gross build area of 7,894m2 to the ground floor and the upper floor including two elevators, a large exhibition area of 2,439m2 to the ground floor, other large area of 1,256m2 to the upper floor, conference rooms and smaller offices. It was noticed that a public tender was held in September and November 2017 for renting the ground floor with eight offices, an aggregated area of 480m2 was marketed 57 for a minimum net of VAT price within 9.7-10.6 €/m2, or €59 per conference room per day or €15 per conference room per hour. Tomis Center is a business center situated at 32nd Nicolae Titulescu Street, raised by the Municipality based on 2013 project, in order to promote the development of tourism services. Several tender procedures to rent premises in this building, were scheduled for May 2019. The leasing terms differs due to different office specification, either situated to the underground or upper floor with a starting price is within 4.1-5.3 €/m2, or if different market conditions with starting price from 8 €/m2. The rent is on double-net basis, usually leased for 1-3 years with possibility to extend. There is a limitation for tenants either if SME, NGO, Agencies, Associations or other institutions but working in the field of tourism or providing assimilate services. 10.4 Sport facilities Constanta is the place of birth of remarkable personalities from various sports: the Olympic champion gymnasts Simona Amanar and Catalina Ponor, the bronze medal swimmer at 2004 Summer Olympics Razvan Florea, the WTA year-end No. 1 in 2017 and 2018 Simona Halep, Gheorghe Hagi the biggest Romanian football player and one of the best attacking midfielders in Europe during the 1980s and '90s. In terms of size, the largest-size facilities for sport in Constanta cover the main domains: football, tennis, athletics, handball, nautical and rugby. The city has several small to medium size sport stadiums including the most important, Farul – a multipurpose sport arena with 16,000 places for spectators. A significant investment in the field is Gheroghe Hagi Academy which provides young football talents to its first league Viitorul and the national team. Figure 29. Main sport fields in proximity of the Subject Source: Overlay in Google My Maps from public information 58 Constanta has many tennis fields which benefits of constantly increasing interest from the young people in general in Romania and particularly, in Constanta, with the professional tennis player Simona Halep as model. There are several football clubs, including FC Viitorul playing in the Romanian first division and Farul Constanta. There are two rugby teams in Constanta, one of the top Romanian handball clubs, HCD Constanta. Constanta, as summer holiday resort, is the host of the ETU Triathlon European Cup, annually since 2014. 10.5 Green areas and recreation Constanta has not completed yet the Green Registry, a database that includes the green areas and the vegetation. The city has several small and medium size parks with the largest one Tabacarie, of around 0.5km2 representing about ten times more compared to the following two parks – Garii Park and City Hall Park. According to the National Statistical Institute, the area including parks, public squares, public gardens, sport facilities, cemeteries has around 1.5km2 for the total city population resulting the incidence of the green area at a very low limit, looking at Bucharest at around 23m2 per inhabitant and a EU minimum required of 26m2 per inhabitant; however, the city enfolds also undeveloped sites to the west part of the E87 – ring road, large a water surface which is not counted. Figure 30. Main parks proximity of the Subject Source: Overlay in Google My Maps from public information 59 Large amounts of dust in the city come mostly from the surrounding areas, the city being surrounded by three parts of degraded land, unsheltered crops, but also surface mining. Constanta is located in an area where precipitation is to an average of under 0.5 l and the temperature has high values, background to contribute to the desertification process of neighboring lands. Therefore, the Municipality projected a low- density windbreak of 2.5 million m2 along with the city’s ring road. A significant area, more than the entire green area, centrally located, has still an industrial use inside the city but it is assumed in medium-long terms this will be integrated with other uses. Tabacariei Lake is an enclosed lake within the administrative area of Constanta at only 500m west from the Subject. It has a high potential but still underused, as it also the other, larger lake of Constanta – Siutghiol Lake. Tabacariei Lake is the host of nautical sports whilst for Siutghiol l Lake, the City Hall has an intention to create new attractions like docking facilities to contribute with more added value for the city. The Municipality refurbished and equipped the old cinema Republica to the new events facility for young people “Jean Constantin” opened in 2016 with an eventful calendar for public. 10.6 Case studies This is not an advice of the best legal strategy to follow. Generally, the partnership contract for a hotel could be: ▪ Franchised – Hotel is owned and operated by an owner under a third-party brand name and the owner will pay a brand licensing fee to the brand owner. ▪ Managed – Owner of the hotel will use a third-party manager to operate the hotel on its behalf and will pay the manager management fee. ▪ Leased – Owner – operator of a hotel does not have outright ownership of the hotel but leased it from the owner of the property. ▪ Owned – Owned and operated by an owner who bears all the costs associated with the hotel but benefits from tall of the income. ▪ Franchised or Managed model requires low capital investment comparing owner-operated hotels. It has been analyzed and presented below several projects developed across Europe near the sea side. A. Baltic Park Molo – Świnoujście, Poland Location: Świnoujście, between the beach and the main city promenade; Developer: Zdrojowa Invest; Year of construction: 2016-2021, third phase under construction; Land size: ~20,000m2; Project Details: Four buildings with around 570 units (majority of them in a condohotel system); Services and Retail area in size of ~2,000m2; Conference centre with a capacity of 1,200; Phase 1: building C and D, 61 apartments – finalised; 60 Phase 2: building A - hotel with 340 units – just finalised; Phase 3: building B - hotel with 170 units – planned to be developed; Building A and B – condo-hotels with scattered ownership; The hotels will receive a five-star ranking; Building A will operate under the international brand Radisson Blu Resort; Others: An important and recognizable part of the project will be a pier. B. Diune Hotel & Resort– Kołobrzeg, Poland Location: – Kołobrzeg, right by the beach and near a park; Developer: Zdrojowa Invest; Year of construction: 2008-2010, modernised 2015- 2016; Land size: ~20,000m2; Project Details: Three buildings: A & B (apartments) and C (condohotel); 246 apartments; Two restaurants, café, spa zone, A complex of Finnish baths and swimming pool, fitness club; Children’s playground; 1,000 m2 of conference rooms for 900 people; C. Sheraton Hotel Sopot – Sopot, Poland Location: Sopot, between the beach and the main city promenade; Developer: n/a; Year of construction: 2007-2008, subsequently upgraded; Land size: n/a; Project Details: One building, 190 rooms; Building size ~15,000m2; 11 meeting rooms; Large conference centre; SPA with swimming pool; Restaurants and retail space; Five-star ranking; The hotel is subject to hotel management agreement under the Sheraton Brand of Marriott International; Others: An important and recognizable part of the project will be a pier. D. Mixed residential and hotel project – Costa del Sol, Spain Location: Costa del Sol, Spain, on the beach; Developer: n/a; Year of construction: under construction; Land size: ~20,000m2; Project Details: One building, 127 rooms; Building size ~23,500m2; Large conference centre; SPA with swimming pool; Restaurants and retail space; Could be a future Ritz Carlton branded hotel. 61 As a general conclusion, all the presented investments are: ▪ located near the beach and most of the units have direct exposure to the sea; ▪ characterized by mix structure of types of planned buildings – building with apartments and hotel/condo-hotel units; ▪ in a high-quality standard – 5-star ranking, often with turn-key finishing; ▪ offering numerous additional amenities, such as SPA, swimming pools fitness clubs and other; ▪ provide a conference centre with a capacity of nearly 1,000 people each. ▪ In many cases, a pier was designed. The pier became an attraction point including for tourists accommodated at other hotels or for travelers. 62 Chapter VI. Land Plot Analysis 63 11 Land Plot Analysis This Section provides a brief introduction to the Subject area highlighting those elements which were considered having an impact in further redevelopment of this site. Should be taken into consideration the limited information regarding the tenure, technical elements and restrictions. A full analysis will be performed by a specialist before starting the development. 11.1 Site Overview The site area is of 11,600 m2. The site is not directly accessible by car from Mamaia Boulevard but accessible from several alleys developed for the residential compounds from vicinity. The site has a strategic location, sea-facing site in Mamaia area – a touristic hub within the city. The subject site is to the southern end of the Mamaia peninsula, around 4.5km east from the city center of Constanta. The immediate vicinity is formed of a mixture of high-raised and low-raised residential compounds with public institutions, a sea food market, a beach with promenade. The residential areas and student housing are located along the Black Sea coast and to the rear side of the low-residential area. An insertion of public authorities and institutes are in the area from Mamaia Boulevard to the afore-mentioned residential compounds. Low-raised premises in vicinity include the compound developed in partnership between the Municipality and an Italian investor – Santa Maria Bay. High-residential premises in vicinity include the newly developed Spectrum Rezidences raised within 2007-2009 with the ground floor and twelve upper floors and the “FZ” blocks raised around 1990. Figure 31. Vicinity of the Subject Mamaia Boulevard Subject Santa Maria Bay FZ blocks Spectrum Rezidence Public Student institutions Housing Source: 3D Google satellite imagery Several developments have been proposed in the area including the revitalization of a nearby fish market, as well as a seaside promenade. Despite its relatively small size, the Subject site may have strategic value in connecting and creating synergies among these developments in a way that enhances local economic development. 64 11.2 Tenure According to the public cadaster database, the following information are available for the subject area: Figure 32. Cadastral database eTerra ANCPI macro view Source: Constanta Municipality data Figure 33. Cadastral database eTerra ANCPI site view Source: Constanta Municipality data A land book extract was not provided for the subject and it is assumed that the total site area is of 11,600m2. 65 11.3 Planning A new general urban planning is under tendering procedure therefore it was used the existing information. According to the public information from Constanta City Hall database the following information extract from the PUG are available for the subject area below. The area appears part of the “UTR 32” area. It was noticed that several zoning urban plans were approved in the past, supplementary to the general urban plan. Figure 34 Source: Constanta Municipality data Extracts of zoning urban plans are provided as indication for further development basis across the area. Figure 35 Source: World Bank from the Municipality data According to the interview with the representatives of the City Hall Constanta - the chief architect, several elements resulted, as follows: 66 ▪ The PUZ for the site is the same as for the residential project nearby, built on land in concession from the City Hall. However, the City Hall can initiate another urban plan if required. In any case, the residential vicinities are more important and should be considered. ▪ It was considered that the land plot belongs to the City Hall. Although it appears on ANCPI like a ‘4’ shape, the small plots of land completing that ‘4’ shape also belong to the city hall, the size is of around 11,600m2. ▪ Currently, as with the neighboring residential project to the south, which was part of a larger plot, including the subject plot, the POT is currently 17% and the CUT 2.2. ▪ Beyond this plot, the City Hall also owns a stretch of land connecting it with the Pescarie (fish Market) up to Pescarilor Street. The City Hall wants to create a seafront promenade (for pedestrians and cars), connecting the existing promenade in the neighbouring residential project to the south with the Fish Market and Pescarilor Street. Bordering this promenade there should be some restaurants and cafés. However, currently, there is no concrete project, but an intention, and would require financing, but not from the local budget. ▪ The City Hall intends to create a coastal road connecting the 3 Papuci beach further to the south all the way to Mamaia beach; this is under juridical and financial constraints; therefore, Pescarilor Street would be rather the main access for the Subject as the west of the plot, towards Mamaia Boulevard, there are only three or four degree roads – local alleys which are not suitable to support heavier traffic; they are connected via Unirii Street to Mamaia Boulevard. ▪ The construction of the new access road appears to be very costly due to the protection walls, which must be raised and the dykes to the sea; there is no beach in the front and the street would be in direct action of the strong waves. ▪ It is not expected to see issues from an archaeological perspective. ▪ The new PUG is under a preliminary phase of the tender procedure, so it may take two or more years. In any case, it is possible to discuss updates from the actual prescriptions, which might be obsolete. ▪ The City Hall also needs some spaces for its own use, as an authority office should have a good visibility to wide arteries; ▪ The City Hall envisions two business incubators to the north-west to the south-west; ▪ The City Hall intend to continue the development of the marina port in front of the fish market. ▪ The existing roads on the low-residential projects to the south will be connected with the roads on the subject plot. ▪ The oil terminal located in the center of the city, next to the Railway station, including Anghel Saligny tunnel connecting this site to the port not currently in use, in the new PUG is expected that a large part, privately owned could be converted in a new business and service district. This would require soil decontamination, costly to clean. ▪ In the new PUG, they will like to further develop the NW part of Constanta, where there are still large land plots available inside the city. ▪ The City Hall has projects for development of the infrastructure, like the new road along the seaside. 67 Figure 36 Source: World Bank from the Municipality data The PUZ applicable currently to the Subject area was approved by the Local City Hall Decision 45/2011, providing an indication of maximum “CUT” or the ratio of gross build area to site area of 2.2 and a footprint of maximum 17%. It is not known how this zoning urban plan is aligned to the other zoning urban plans such as coastal area plans but it was assumed that the current as being valid. Several zoning urban plans (“PUZ”) were developed within the subject areas. In the vicinity, a plan touristic port combined with a high-raised residential was approved in 2007 with a usage land coefficient “CUT” of 4.2 and a footprint area of 60% from the total site area. Peninsula PUZ is for a private residential project, with high apartment blocks. 68 The City Hall also wanted to create a marina next to it, where the dike is, the Diamant project. However, the legal status of the peninsula land plot is rather uncertain, but it is assumed this would not affect the Subject project. Figure 37 Source: Constanta Municipality data Public sources mentioned that a port in Pescarie area is within the priority list no. 3 in the Government Decision 558/2017 as a project of national importance. 11.4 Relevant Facilities with Looking to the surroundings, it has been identified within only 700m distance west and north from the Subject site, several public institutions, research institutions and local initiatives for sea-related facilities, including: ▪ National Institute for Research and Development on Marine Geology and Geo-ecology – GeoEcoMar, under the co-ordination of the Ministry of Scientific Research represents the focal point of national excellence in research and consultancy on marine, coastal, river and lacustrine geology, geophysics and geo-ecology, as well as a reference centre for Marine and Earth Sciences; ▪ National Institute for Marine Research and Development “Grigore Antipa” is the technical operator of the national network of physical, chemical and biological monitoring and coastal erosion surveillance, involved in basic research and applied technology, crucial for the understanding, protection and management of coastal and marine environment in the economic exclusive zone of Romania at the Black Sea coast. It represents Romania in the field of marine science with different organizations and expert groups of international conventions it is part in; 69 ▪ Constanta Exhibition Center – discussed within the previous section; ▪ Dobrogea Regional Meteorological Center; ▪ Environmental Police Office ▪ CERONAV – marine training center; ▪ Student Housing – Ovidius University; ▪ A Seafood Market with the role of providing fresh sea food; ▪ A touristic port is partially developed to the north of the site – Diamant. Figure 38. Main parks proximity of the Subject Source: JLL from public information Within 1.5km west and south, other recreation and leisure elements are present including: ▪ Thematic parks (Dolphinarium, Aquarium, Gravity, Amusement), ▪ Tabacariei Lake and Park – the largest in Constanta ▪ A dominant mall – City Park held by NEPI, with a total area of 52,100 m² GLA, located close to Mamaia, which is the main seaside destination in Romania in the north of the city whilst VIVO (former Maritimo) Constanta is to the west of the city; ▪ Sport premises: sport stadium, tennis fields ▪ Telegondola, a 2km straight circuit placed 50m above the ground with a beautiful panorama to the Black Sea and the resorts in Mamaia, working on both ways between the hotel Perla and the hotel Cazino with one-way track completed in eight minutes; ▪ Numerous hotels and leisure elements in Mamaia, the most sought-after summer resort in Romania, to the north of the Subject; 70 ▪ Looking to Mamaia beach and Mamaia Boulevard, the area is mostly residential with blocks with semidetached houses to the south area. Figure 39. Main parks proximity of the Subject Source: JLL from public information It was taken into consideration the specific development objectives with impact to the studied areas as part of the City Hall development strategies, including: ▪ Tomis Riviera – a transport infrastructure improvement with a modern road linking the old city center with Mamaia Bay and the improvement of the coast infrastructure of the North Esplanade; ▪ Improving the touristic offers within Tomis – Mamaia area; ▪ Increase the attractiveness of the tourism potential of Tabacarie Lake; ▪ Expansion of the North Esplanade promenade; ▪ Mamaia touristic port. 71 Chapter VII. Site Development 72 12 Site Development Analysis It has been summarized in this section, first the fundamentals of the target markets along with the conclusions pertaining to the Subject site development resulting a set of functionalities. This information would be the background of three development scenarios which should meet the city’s requirements for, inter alia, urban form, development mix, open space requirements and propose realistic estimates for build-out time, potential sales and return. The aim is to improve the economic development of the touristic area, to connect and create synergies with other developments to enhance the local economic development which would normally exceed the direct financial value of the site. On the other hand, it is deliberated that the City Hall will debate the approval and development of a high-raised building to the Subject site to directly increase the direct financial value, due to various limitations including: coast restrictions, residential neighborhood in immediate proximity, possible public opposition, etc. 12.1 Market fundamentals in the analyzed area ▪ Residential Market is the most developed real estate market in Constanta and for the subject are – “Faleza Nord - Trocadero - City Park Mall - Capitol - Delfinariu” the average for apartment sale prices in €/m2 are: Stock: Studio and one-bedroom Two and three-bedroom After 2000: 1,340-1,360 1,170- 1,400 Before 2000: 1,260- 1,290 1,240-1,250 ▪ The rent prices for apartments within the subject area – “Faleza Nord - Trocadero - City Park Mall - Capitol - Delfinariu” are higher compared to the other areas the average rent prices in € per month, are: Stock: studio one-bedroom two-bedroom three-bedroom After 2000: 250 400 550 800 Before 2000: 200 300 380 500 ▪ The sale prices for typical houses within the subject area – “Faleza Nord - Trocadero - City Park Mall - Capitol - Delfinariu” are higher compared to other areas within the city, with an average of 1,080 €/m2 for those raised within the last eighteen years; ▪ The land price in Constanta seaside area depends on the accessibility, immediate vicinity with an average for the entire area “Faleza Nord - Trocadero - City Park Mall - Capitol - Delfinariu” higher compared to other areas within the city to around 470 €/m2; variations from this average depends from the potential to develop, usually expressed with “CUT” parameter and due to specific restrictions; specifically ▪ Comparable analysis based on the land price evidence show land with opening to the seaside and potential development of five or more floors within 450-700€/m2, usually with size of 3,000-5,000m2 and some offers up to 920-1,000€/m2. Some evidence is attached within the Appendix 3. Other evidence. This evidence is still an asking price and could prove to have a large gap from this higher value and significantly lower residual value; 73 ▪ A compound immediate to the Subject is Santa Maria Bay including villas of ground floor plus an upper floor and mansard. The asking sale price for less expensive villas in this compound with 320- 340m2 of gross build area and the land plot of 330 to 530 m2 is of around 1,500€/m2 and the rent price within 3,000-3,500€/month or an equivalent of around 9-10€/m2; The asking sale price for the most expensive villas in this compound, with 430-470 of gross build area and the land plot of 420 to 800 m2 is of around 2,000€/m2 and the rent price within 3,500-5,000€/month or an equivalent of around 8-10.5€/m2; all the prices are net of VAT and the lease terms include a minimum period of two years with furnished kitchen and bathroom; the rents and capital values, reflects a return of the gross investment within a period of around 25-30 years; ▪ Other apartment blocks immediate to the Subject is Spectrum Residence, compound of five blocks with the ground floor and twelve upper floors. The asking sale price is within 1,600 to 1,800€/m2 of useable area, for one bed apartment whilst the rent price is an equivalent of around 5-7€/m2 with areas usually exceeding 90m2; the rents and capital values, reflects a return of the gross investment within a period of 20-25 years; ▪ Constanta has a big potential in the hospitality market but the interest in hotel investment is less appealing compared to investments in other cities and sectors due to limited activity mainly during three months season; ▪ The market has a large real estate stock with 128 hotels in Constanta city whilst the entire county has 373 hotels; most of these raised in the communist era and some recent hotel improvements ▪ A must-do is to continue to increase the quality of the services and to improve the infrastructure as well as better promotion both direct and with tour operators; ▪ Mamaia has better fundamentals compared to the other areas of the Romanian seaside as proved to attract the main investment slice and benefit from an increased interest; ▪ Looking to the case studies presented in the Hotel Market section including near the beach locations with direct exposure to the sea, they are characterized by mix structure of apartments and hotel or condo-hotel units, generally high-quality standard - 5-star ranking, often with turn-key finishing, offering numerous additional amenities, such as SPA, swimming pools fitness clubs, etc; A conference centre with a capacity of nearly 1,000 people each is a must and in many cases a pier was designed. The pier became an attraction point also for tourists accommodated to other hotels or for traveler. 12.2 Development Framework ▪ It has been studied the markets which could be of interest for the particular subject location. The information has been filtered in order to comply with the Municipality’s request to propose a real estate development that could improve the economic development of the touristic area, connect and create synergies with other developments to enhance the local economic development. It is assumed that such requirements would exceed the direct financial value of the site ▪ It will be debated whether to develop a high-raised building toon the Subject site to directly increase the direct financial value, due to various limitations including: coast restrictions, residential neighborhood in immediate proximity, possible public opposition, etc.; ▪ It have been identified several public interventions with real estate fundamentals created in the area of the Subject, in order to form an added value and benefits for the city in various fields: tourism, business environment, research & development, student housing, entertainment. Specifically, the 74 sea-food market, the exhibition center, research & development institutions and several authorities have real estate premises in the immediate vicinity of the Subject; ▪ Many of the City Hall initiatives across the Metropolitan area of Constanta are focused to improve the local tourism development, to attract more businesses and therefore the tax return as well for improving the local various infrastructures; ▪ The local economy performs well but it appears to not benefit from all the advantages from the strategic location of the city to the Black Sea coast including the regional port and tourism facilities; ▪ The downsize for the tourism businesses across the Black Sea coast is caused by the limited summer period of around three months per year; an extension of this period would be particularly possible in Constanta due to business tourism; ▪ With a fabulous view over the Black Sea coast, the Subject site has an excellent potential for residential and/or hotel premises; ▪ Assuming the facility would integrate other elements like conference, restaurant and events areas at high quality, it could become a landmark within the area. ▪ An initiative to promote interest within a unique structure, such as the recently proposed within the World Bank study – Investment Promotion Agency (IPA) may effectively benefit from a landmark building situated within probably the most suitable location to the Black Sea coast which provides integrated facilities, support for business events, conferences, flexible office space, accommodation and restaurant; ▪ In terms of specific development, a concept would be the option “belvedere” area including public alimentation facilities, accessible by foot as part of the promenade, with a public square with park and public spaces, lower in height, with a community center where people can meet, eventually with a parking place; They would like an underground parking accessible from the seaside promenade and maybe with a secondary higher access towards the west side. This option would have less residential premises or tall buildings on the plot with an already densely populated area therefore would not maximize the financial benefits and even would decrease the land residual value. On the other hand, this would provide other facility in the benefit of the city; ▪ With an immediate area with six high-raised blocks, the subject site requires a green area to improve the living quality; ▪ It was considered that would be useful to integrate more the local businesses with a business incubator or / and flexible offices; this could be done either privately operated or in concession; ▪ Also, there should be conference halls to integrate ad-hoc group initiatives, project based including the IPA initiatives; ▪ A milestone for developing the Subject site is to have a proper road accessibility including with vehicles. When at least one access road for vehicles would be effective, the Subject project can start. 75 12.3 Development Functionalities According to analysis, It has been considered several potential markets to include for the Subject development: Table 22: Suitable uses for the proposed development Considered suitable Residential Functionality Figures Residential The residential component would be a It has been targeted a level sustained by the price block straightforward approach assuming an evidence for the specific area, expected within a interest to maximize the financial prevails. range of 1,600-1,700 €/m2. Commercial Functionality Figures Hotel The hotel market is appealing but the It was assumed a four-star hotel with an average majority of the hotels in Mamaia are opened fee of €100 per day during the season period from May to October with July as the peak. In Constanta, the hotels benefit also from the business tourism and opened full year. Offices Office demand is limited in Constanta and The rent for modernized offices is between €8- the main stock is formed by small size office €11/m2 per month; the ground floor of the office buildings or owner-occupied buildings along buildings is generally leased at higher rents as used Mamaia and Tomis Boulevards. The largest as commercial. occupiers the banks, insurance companies and consultancy, companies in the field of shipping and clinic. It is considered that a good quality office building with flexible space may have the opportunity to attract tenants from relocation and new occupancy. Retail (GF of Residential development in the area would With a catchment area of average size, it is blocks) require some additional services and expected a capital value slightly similar to the amenities including proximity food stores. residential component therefore this element These areas could incorporate various either suitable would be probably sized to a businesses such as grocery stores, minimum area. pharmacies, restaurants, services. Public Facilities Public It has been considered that several public The site has not proper accessibility and visibility Authorities sector or municipality offices could relocate from the main street to accommodate large public offices in quality building as such elements. authority office, rather smaller initiative structure and flexible office areas. Conference The city has many hotels with conference Offices within municipality facilities in Constanta rooms rooms; however, the location of the subject are marketed for a minimum net of VAT price is unique and integrated facilities would within 9.7-10.6 Euro/m2, or 59 Euro per conference boost the interest room per day or 15 Euro per conference room per hour and this is considered to be a minimum level. These would be in a modular format to allow resizing and accommodation f various events. 76 Considered suitable Public & Private Quality services and excellent location A panoramic view, eventually from the top floor Events would enable relaxed meetings and events. could create a landmark of the project. Outdoor, In any scenario, it is considered a public A low-raised scenario could fully benefit from the leisure, square with park and public spaces would outdoor elements combined with public facilities entertainment be required. The building footprint is low to enable events which will also ring a financial currently allowing large green areas, parks return. The interest for outdoor hall is limited to and it is envisaged that these will draw the summer period therefore it will not maximize tourists by foot as part of the promenade the financial component assuming such area. Cinema functionalities are found in a development to the site. radius of 2km to City Park Mall. An outdoor open theatre to host various events would be an interesting attraction at the sea side but with the immediate residential premises, it could be difficult to manage the high-level of noise, mainly after the sunset. Green areas The immediate area is densely built with To sustain a good quality of life, the new high-raised blocks therefore enough green development must provide extended green areas area is required to balance the living quality more than 50%. Either a parking would be in the area. required, it is expected this would be based on a smart green park solution, green terraces could be considered. Source: Constanta City Hall Based on the actual market evidence, there are several unsuitable sectors: Table 23: Unsuitable uses for the proposed development Considered unsuitable Shopping The shopping centre density is in the top three within the cities in Romania, all major Centre international and national tenants being present here. Due to the Subject plot size and location this use is not considered proper. Education: The city has numerous education facilities. Due to the Subject plot size and location this use is School & not considered proper. Kindergarten Hospital and The city has several hospitals and clinics including private ones. Due to the Subject plot size and clinics location this use is not considered proper. Logistics The city has a number of other more suitable areas to develop such facilities. Due to the Subject plot size and location this use is not considered proper. Source: Constanta City Hall Conclusions are based on the current market evidence and trends which are expected on medium term. It is possible this would change and therefore it is recommended to keep a frequent review of the market evolution and trends. 77 13 Site Development Scenarios 13.1 Proposed Development Scenarios Version 1 Mixed use with blended uses of hotel, amenities, apart-hotel and green areas SCENARIO 1. DEVELOPMENT APPRAISAL - HOTEL / RESI Pescarilor Street - Constanta, Romania Appraisal Date 21/05/2019 Estimated Annual Income / Total Sale Currency Euro Income deduction Contracted Rent / EMRV (including non- Parking / EMRV (€) (net effective) recoverables and Gross External Area Gross Rentable Area No of Units Lease Length Total GOI pa structural vacancy) (% ) NOI pa sq m sq m Parking years Euro/mth/sq m Euro/mth Euro % Euro Use Type Auxiliary Sale price Sale price Total Sale Cost of Sale / Non-rec. Net Sale Aparthotel 12,375 9,900 1,700 16,830,000 16,830,000 Parking for aparthotel - underground 4,830 4,200 120 6,000 720,000 720,000 Offices 600 500 20 8.00 50.00 60,000 10.00% 54,000 Hotel - 4* with conference rooms and restaurant 12,270 8,850 1,869,231 1,869,231 CAR PARK - Overground 1,500 1,500 60 4,000 240,000 240,000 CAR PARK - Underground - Hotel 2,415 2,100 60 - - Total Area - incl. parking 29,160 22,850 Hotel No. of stars Room type No. of rooms Average rate (€) Months F&B&Others Occupancy rate Gross income/room Expenses* Yearly net income **** Double rooms 150 €100 12 35% 45% €24,923 50% €1,869,231 per sq m GLA Total GDV Estimated Gross Development Value before Purchaser's Costs - - Aparthotel 1,700 16,830,000 Parking for aparthotel - underground 6,000 720,000 Offices Capitalisation Rate @ 9.00% 1,200 600,000 Hotel - 4* with conference rooms and restaurant @ 10.5% 2,012 17,802,198 CAR PARK - Overground 4,000 240,000 CAR PARK - Underground - Hotel Blended Cap Rate 52.16% Total Sale 1,338 36,192,198 Total GDV 36,192,198 excl. parking Euro/sq m GLA 1,880 incl. parking Euro/sq m GLA 1,584 NOTE: Gross Development Value (“GDV”) is a notion usually equivalent to the Market Value or the worth, reflecting a total gross development or capital value of a certain scheme or building upon completion. 78 Please see the definition within the Appendix 1. A1. It should not be confused with the cost of the development. 13.2 Proposed Development Scenarios Version 2 Residential with parking and green areas SCENARIO 2. DEVELOPMENT APPRAISAL - RESIDENTIAL Pescarilor Street - Constanta, Romania Appraisal Date 21/05/2019 Estimated Annual Income / Total Sale Currency Euro Income deduction Contracted Rent / ERV (including non- Parking / EMRV (€) (net effective) recoverables and Gross External Area Gross Rentable Area No of Units Lease Length Total GOI pa structural vacancy) (% ) NOI pa sq m sq m Parking years Euro/mth/sq m Euro/mth Euro % Euro Use Type Auxiliary Sale price Sale price Total Sale Cost of Sale / Non-rec. Net Sale Block 1+2 23,088 17,760 - 1,700 30,192,000 30,192,000 Underground Parking Block 1+2 10,063 8,750 210 6,000 1,260,000 1,260,000 Exterior Parking Block 1+2 4,323 4,323 153 4,000 612,800 612,800 Retail 1,972 1,400 20 5 9.00 151,200 10% 136,080 Total Area - excl. parking 39,446 32,233 383 30,343,200 30,328,080 Total Area - incl. parking 39,446 32,233 32,216,000 32,200,880 per sq m GLA Total GDV Estimated Gross Development Value before Purchaser's Costs - - Block 1+2 1,700 30,192,000 Underground Parking Block 1+2 6,000 1,260,000 Exterior Parking Block 1+2 4,000 612,800 Retail Capitalisation Rate @ 9.50% 1,023 1,432,421 Blended Cap Rate 90.5% Total Sale 1,039 33,497,221 Total GDV 33,497,221 NOTE: Gross Development Value (“GDV”) is a notion usually equivalent to the Market Value or the worth, reflecting a total gross development or capital value of a certain scheme or building upon completion. Please see the definition within the Appendix 1. A1. It should not be confused with the cost of the development. 79 13.3 Proposed Development Scenarios Version 3 Community Center Main use Site Gross Build Comments % to site Rent Occup. GDV € m2 Area m2 area €/year estimated Infrastructure 1,160 Pedestrian alleys, vehicle access roads with protected bike lanes 10% Recreation Services 8,940 Park with recreation areas, fields, playgrounds, climbing, etc. 77% Covered parking 4,300 73,800 90% 738,000 Wellness club over the parking 2,000 2,000 192,000 90% 1,920,000 Healthcare area over the parking 600 600 57,600 90% 576,000 Open air facilities, fields over parking 1,700 Park alleys 500 Green areas with trees 4,140 Commercial insertion 1,500 Underground parking with ground floor public facility and upper floor 13% Events area 500 500 terrace, possibly firstly limited to the summer season and Youth, 60,000 70% 466,667 Street food floor, restaurants, 1,000 1,000 Adult, Senior Clubs for the rest of the period with the option to extend 144,000 70% 1,120,000 washroom / restroom areas the public facility for the entire year if properly fuelled by the demand. Top floors terrace retractable cover 1,500 The public facility may include small bars part of a street food and 108,000 30% 360,000 market including fish commercialization and food preparation as well as other various dishes Totals 11,600 4,100 100% 635,400 5,180,667 NOTE: Gross Development Value (“GDV”) is a notion usually equivalent to the Market Value or the worth, reflecting a total gross development or capital value of a certain scheme or building upon completion. Please see the definition within the Appendix 1. A1. It should not be confused with the cost of the development. The above Scenario provides an indication of the GDV, assuming a low-raised development as requested by the City Hall. This was considered to limit the potential conflict with the public opinion and with the immediate residential neighbors assuming high-raised development. Moreover, the occupancy is over the 17% limit from the PUZ but it was taken into account that the Municipality may update the parameter. The residual value is very low under this scenario, so it will not worth as an investment. On the other hand, there are some public benefits which should be considered: public areas and facilities, park, sport attractions and a small part of commercial which may generate incomes from rent. 80 13.4 Considerations for the Municipality Strategy Despite the differentiation elements between the scenarios, It was considered that the general guidelines should be followed. With several milestones, the development will provide financial and public benefits. Specifically, following the infrastructure development, the interest and worth would be reflected either as a Gross Development Value of the commercial projects raised with the developers, or directly by the Municipality, area built for commercial and public uses, green areas, leisure as public benefits. The financial dimension focuses to the rent obtained from lease contract or capital value from sale components, returns from the business tax and property tax. 13.4.1 Step 1 Preliminary As guiding rule, the developers and the potential investors or buyers are interested in a development if there is already an infrastructure in place including as a first step the roads and utilities. This step includes a public intervention to develop the vehicle access roads and its success is linked to assuring financing sources. It was assumed as prior condition of Subject development that at least one of the following access roads to exist: ▪ Extended roads from Santa Maria Bay which is the most probable; ▪ Extended road from Mamaia Boulevard via Pescarilor/Students Street which is the both possible and useful to the area; ▪ The coastal boulevard which has an uncertain timeline. As well, it is expected within this prior stage period to also clarify any issues concerning planning, legal or technical pre-requirements, building permits for the effective development. 13.4.2 Step 2 Book of Rules / Schedule of Conditions A Book of Rules or Schedule of Conditions are required to draft for the further commitment, as this engages the Municipality on medium-long term and will also gain developers’ trust. It is a set of rules professionally drafted with specific commitment to provide a clear framework for investors and establish a good practice manual. As an example, this can include the requirements for maintenance of the public areas, green areas, disposal of various materials, to name just a few examples. In Romania the legal framework for condominium administration area is less regulated and solutions should be considered, for instance, in administration of the green areas. 13.4.3 Step 3 Green areas and public square With limited resource of parks, Constanta should provide more such elements and has the opportunity of building a new facility aligned with trends. Either at small scale as within the first two scenarios or larger as in the third scenario, a mix with outdoor facilities, park, relaxation and meeting premises is required. Special importance given to pedestrian areas (promenade, park, pedestrian alleys) will support an active social life. Urban-type participatory actions are an essential factor in strengthening social connections at the neighborhood level. Investments like cultural centre, public open spaces, parks and the kitchen gardens inside the residential projects an as well education buildings, will stimulate the involvement of tourists, residents and especially children and contribute to building a community. Organizing cultural events (fairs, exhibitions, concerts, etc.) and pedagogical activities will periodically animate social interaction at the neighborhood level. The process of social insertion through the obligation of the builders to employ a minimum percentage of people in social difficulty represents an important element in the sustainability of this neighborhood, with economic and social impact at sector and city level. On the other hand, a Community Center development for the entire site would limit significantly the financial return despite public benefits. 81 Chapter VIII. Appendices 82 14 Appendices Appendix 1 Sources of information Appendix 2 Terminology Appendix 3 Other evidence 83 Appendix 1 Source of Information 84 This Study, has accessed different types of information, using different available sources with the main sources as follows: ▪ INS - National Institute of Statistics - is the main producer of official statistical data of the country, playing the role of the coordinator of the National Statistical System, according to the stipulations of the Law no. 226/2009 on official statistical organization and functioning in Romania, with later modifications and completions; ▪ CNP - National Commission for Strategy and Prognosis – is a public institution in Romania, under the subordination of the Government General Secretariat; amongst its main attributes is to elaborate forecasts regarding the economic and social development of Romania in the short, medium and long term, in correlation with the provisions of the Government Program, of the national, sectorial and regional strategies, as well as on the trends in the national and world economy; ▪ Sector 5 Bucharest Competitive Profile - a World Bank Group publication for the use of various beneficiaries, including investors; it provides information regarding the local specificities including information on workforce, education, trends, businesses, identified issues, recommendation and conclusions; ▪ Oxford Economics – is a leader in global forecasting and quantitative analysis. This economic consultancy born out of Oxford University provides economic forecasting and analytics on 200 countries, 100 industrial sectors and 3,000 cities tracking market trends and assessing their economic, social and business impact. ▪ Analize Imobiliare - is the first and most trusted Real Estate Intelligence platform in Romania, developed by Imobiliare.ro in collaboration with top statisticians and property valuers in Romania and Momentum Technologies Netherlands – leader in the Dutch market of automated evaluations; ▪ Eurostat - is the statistical office of the European Union situated in Luxembourg. Its mission is to provide high quality statistics for Europe; ▪ Different agencies sites - for information on available evidence for rent and sale; ▪ JLL / JLL Research –JLL databases and research. NOTE: For GDP growth forecast there are different figures reported by different institutions, some being more conservative, whilst other being more optimist with forecasting figures with the mains versions, as follows: for 2019 GDP growth forecast: 5.1% (CNP), 3.8% (Eurostat), 3.5% (World Bank); for 2020 GDP growth forecast: 5.2% (CNP), 3.6% (Eurostat), 3.1% (World Bank). 85 Appendix 2 Terminology 86 A. General Real Estate Terms A.1 General Terms GBA – Gross built area: the total floor area of a building, usually measured from its outside walls (above and underground area). GLA – Gross leasable area: the floor area that can be used by tenants. Generally measured from the centre of joint partitions to outside wall surfaces (incudes the Net area + Add-on of the building) Add-on factor – the number of usable sqm divided by the number of rentable sqm in a commercial real estate lease. The result of this calculation will be 1 if the two numbers are identical, but it is usually slightly lower than 1 because some sqm in a building will be partly or totally non-unusable. Non-usable sqm includes space shared with other tenants (such as lobbies, hallways, stairwells, elevators and restrooms) or occupied by structural components (such as support poles and interior walls). In a poorly designed building, the usable area may be considerably less than the rentable area. In commercial real estate, the lease cost is calculated based on rentable area, which includes areas that are not usable. This means that for the same amount of usable space, a building with a lower add-on factor will cost the tenant less than a building with a higher add-on factor. The add-on factor is important because the tenant pays for this unusable space in his lease. He pays for a fraction of shared common areas and he pays for all of the space he rents that is occupied by structural components. Potential tenants can thus use the add-on factor to help them compare leases and determine which lease offers the best value. Prime rent Prime Office Rent - Represents the top open-market rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The rent quoted normally reflects prime units of over 500 m² of lettable floorspace, which excludes rents that represent a premium level paid for a small quantity of space. The Prime Rent reflects an occupational lease that is standard for the local market. It is a face rent that does not reflect the financial impact of tenant incentives and excludes service charges and local taxes. It represents Jones Lang LaSalle’s market view and is based on an analysis/review of actual transactions for prime office space, excluding any unrepresentative deals. Where an insufficient number of deals have been made for prime office space, an assessment of rental value is provided by reference to transactions generally in that market adjusted accordingly to equate to prime. Prime Shopping Centre Rent - Represents the top open market net rent that could be expected for a notional prime position shop situated in a specified shopping centre, as at the survey date (normally at the end of each quarter period). Rents are normally quoted in Euro per m² per month. Passing rent: current rent, after indexation and/or after applying any steps as agreed in the contract. Different (higher) than the initial contractual rent; ERV – Estimated Rental Value – estimated achievable rent for a certain type of property at a certain date - usually refers to the headline/ asking rent; Average Rent - Represents the average mean value of all known face rents achieved on leasing transactions completed within a market during the survey period (normally calculated annually, or quarterly on a 12- month rolling basis). It excludes any unrepresentative deals. 87 Weighted Average Rent - Represents the average mean value of all known face rents achieved on leasing transactions completed within a market during the survey period weighted with the floorspace (normally calculated annually, or quarterly on a 12-month rolling basis). It excludes any unrepresentative deals. Net effective rent – The actual rental rate achieved after deducting the value of all the incentives (rent free, fit-out contribution, relocation cost) from the base rental rate; Occupancy Costs - Occupation Costs represent the sum of the prime net rent and estimates of prevailing local taxes and service charges liability that a retailer would typically be expected to pay in addition to the net rent. NOI (Net Operating Income) – income from property or business after operating expenses have been deducted, but before deducting income taxes and financial expenses (Interest and principal payments) NOI = gross income – operating income Yield (Current) – measurement of investment returns based on the percentage relationship of annual cash income to the investment cost. Current yield = current income / investment cost Yield (Prime) - Prime Yield represents the best (i.e. lowest) “rack-rented” yield estimated to be achievable for a notional property of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The property should be let at the prevailing market rent to a first-class tenant with an occupational lease that is standard for the local market. The Prime Yield represents Jones Lang LaSalle’s “market view”, based on a combination of market evidence where available and a survey of expert opinion. Commonly used yield type in Central & Eastern Europe including the Romanian property market is the Gross Initial Yield (GIY) which, similar to the West European countries (e.g. UK, Germany or France) Net Initial Yield (NIY), divides net operating income by the market value of the property or the purchase price, however in the case of CEE markets excluding purchaser’s transaction costs. Because the GIY is calculated otherwise comparing to NIY i.e. without taking transaction costs into account, the outcome (yield) is usually higher than NIY. This is largely due to the fact that unlike in more established western markets there are no standard assumptions for average purchasers’ costs for any of the target markets in CEE in which a fund invests. Purchasers actual purchase costs on any transaction, vary widely, depending upon the nature of the transaction (e.g. whether it is a property purchase or SPV purchase) and the type and level of due diligence that may be required in either alternative purchase method. As a result, there is no established practice in any of the CEE markets in terms of purchasers’ costs level and the majority of available information about market yields refers to GIY. Therefore, in the estimation of GDV It is usually applied GIY resulting in the value net of purchaser’s costs. This is common market practice in CEE region including the Romanian property investment market. Prime Capital Values - Represents the top open-market capital value (per square meter) that could be expected for a notional building of the highest quality and specification in the best location on the survey date (normally at the end of each quarter period). Prime capital values are derived from prime rents and prime yields: Calculation: Capital Value = (Prime Annual Rent / Prime Yield) * 100 GDV – Gross Development Value – total gross development/ capital value of a certain scheme/ building upon completion, before considering any allowances for incentives, vacancy and other operational costs, calculated as follows: 88 Calculation: GDV = (Annual ERV* / Specific Yield) * 100 *Annual ERV = ERV/m2 * Area (sq m) WAULT – weighted average unexpired lease term - The WAULT is the sum of the remaining contractual fixed lease payments of the portfolio/assets (not including any further extensions or options to extend the term of the lease agreements) divided by the contractual annual rent of the portfolio/assets at a specific moment in time. Stock - represents the total amount of completed space in buildings within a market that is capable of occupation regardless of the type of ownership or type of building quality, as at the survey date (normally at the end of each quarter period). The non-competitive stock (usually referred to within office market commentaries) excludes class A & B stock, not recorded in JLL database (for offices: Vilas, Class C). Availability –Vacant space as of the reporting date (regarding if a pre-lease has been signed for such space). Counts from exit date in case of a relocation. Availability does not equal Vacancy. If tenant is still paying rent, even if they are no longer in the space – the space is available, but not vacant. Vacancy rate - The Vacancy Rate represents immediately vacant floorspace in all completed buildings within a market as at the survey date (normally at the end of each quarter period), expressed as a percentage of the total stock. Does not include spaces available for sub-lease, nor spaces which are close to expiry, not occupied, but still under contract. Also, vacancy excludes "obsolete" or "mothballed" property, i.e. floorspace held vacant and not being offered for letting, usually pending redevelopment or major refurbishment. Completions - Represents floor-space completed during the survey period (normally over the quarter) within a market, ready for occupation. Completions include both new development and refurbished accommodation that has been substantially modernised. Under Construction - Represents floor-space under construction as at the survey date (normally at the end of each quarter period) within a market. Under Construction includes both new development and refurbished accommodation that is being substantially modernised. Construction is the stage at which building work is in progress. Planned Developments - Represents unimplemented warehousing development within a market, where construction has not started at the survey date (normally the end of each quarter period). Only development that has received authorisation from the appropriate planning authorities is included. Planned development includes both new development and refurbished accommodation that will be substantially modernised. Completions/Constructions are divided into: Speculative: Development (completed, under construction or planned) that is available on the open market at the survey date for occupation or will be available for occupation upon completion. Non-Speculative: Development (completed, under construction or planned) that has already been acquired for occupation at the survey date and is not available on the open-market. Non- speculative includes pre-let space and built-to-suit facilities (also referred to as design build). Owner - Occupier: Development (completed, under construction or planned) that is undertaken from the end user (normally a corporate) and will not come onto the market for lease. Note: Built-to-suit facilities represent warehousing developments which are normally projected by a warehousing developer but where construction starts only upon the completion of a legally-binding agreement for occupation. Specification and concept of the facility will normally be adapted to the occupiers’ needs. 89 A.2 Office Gross absorptions (take-up) – A measure of the total sqm leased over a specified period of time with no consideration given to space vacated in the same geographic area during the same time period. It includes net absorptions (except space contraction) plus renegotiation and relocations from competitive stock to competitive. Net absorption - The sqm leased over a fixed period-of-time after deducting space vacated during the same period. Net Absorption represents the change in the occupied stock within a market during the survey period (normally derived annually). Net Absorption is calculated on the basis of “top-down” estimates of occupied stock derived by subtracting vacant stock from the total stock. Mothballed stock, i.e. floorspace held vacant and not being offered for letting, usually pending redevelopment or refurbishment, is excluded. It includes relocation from non-competitive stock, expansions and new market entries. Calculation: X – Y = Net Absorption X = Current stock – current vacancy Y = Previous stock (same quarter, previous year) – previous vacancy (same quarter, previous year) A.3 Retail RETAIL WAREHOUSE Retail Warehouse Solus Units - Stand-alone single level retail store selling non-food goods, with adjacent surface car parking, occupying a purpose built “warehouse” type or converted industrial building, located in an edge of center, suburban or out of town location. Generally, owner occupied by household goods, electricals, DIY retailer, although other sectors are becoming more common. May be located near other related retailers as part of an ad-hoc retail warehousing agglomeration. Solus units will generally be a minimum of 500-1000 m2. Subsectors: Stand-alone single tenant Agglomerations: 2 or more solus units in the same area, possibly with shared parking but not physically attached. Retail Warehouse Parks - Planned, centrally managed schemes, with adjacent surface car parking, occupying a purpose built “warehouse” type or converted industrial building, located in an edge of center, suburban or out of town location. Must consist of at least 2/3 units with a total GLA of over 5,000 m². Any owner-occupied units that may be in the same development area should not be included in the GLA. Subsectors of Retail Warehousing parks: Fashion parks: tenants must be mainly fashion retailers that could also trade on the high street. Some of these types of parks will also include traditional retail warehousing retailers (DIY, household), although only a small proportion. Note: This does not include Factory Outlets, which are a separate category Other/Non-bulky goods: Tenant mix will be in a range between pure Fashion Parks and Bulky goods. Other types of tenants could be multimedia, books, office supplies, car centers, toys, sportswear, etc. Bulky goods: limited to household, electricals, DIY, car and bike accessories, and other traditional retailers SHOPPING CENTERS 90 A shopping center (or shopping mall) is defined as a central location where shops, restaurants as well as service company’s leisure operators are grouped together to serve a local or wider population whose conception and management have the following characteristics: The building/s is/are created and managed as a single entity The entity is managed by a single authority whose responsibility is to control the commercial mix, its implementation and adaption. Retail associations often support the SC management function by coordinating the views of the retail/leisure operators, which are then fed into the marketing and promotional activities organized by the management team. The minimum gross lettable area of a shopping centers included for the purpose of the JLL database is 5,000 m². A.4 Residential Residential investment – a broad interpretation of purchasing residential for the purpose of generating a return (could include capital growth, rental growth, or a combination of the two). Residential investment could also include market rent, social rent, or other intermediate rented stock. It can also be used to refer to development, land and residential capital markets activity Buy-to-Let – reflects residential investment on a unit by unit or small block basis, generally by non- professional landlords. Build to Rent – the industry term for purpose-built private rented stock. Broadly analogous to the US multi- family sector, on which the model is based. While this has become for many the default term to describe this new sector, as development industry terminology it narrowly refers to the physical creation of this new asset class. Build for Sale - is a term that is used to describe all residential property that has been (or is currently being) built by a developer and sold on the open market to either an owner occupier or a Buy-to-Let investor. Affordability - While there is no universally agreed measure of what constitutes ‘affordable housing’, according to the United Nations program UN Habitat, there are three common measures, which are associated with two components: housing costs and household income. The first is house price to income ratio. The ratio is calculated by dividing the median house price by the median household income. It shows the number of annual median salaries it takes to buy a median priced house. The second measure is house rent-to income ratio. This ratio is calculated by dividing the median annual rent by the median annual renter household income. But there is no universally agreed ratio or percentage at which owner-occupied or rental housing is deemed unaffordable. The third measure of affordability is the residual income assessment. It is represented as a percentage of household income spent on housing-related expenses and demonstrates a household’s ability to financially service housing without compromising on necessary non-housing expenditure. Although there is no universally agreed percentage, housing is generally deemed affordable when a household spends less than 30 per cent of their income on housing related expenses, such as mortgage repayments (for owner- occupiers), rent payments (for tenants), and direct operational expenses such as taxes, insurance and service payments, according to the same source. 91 A benchmark used to define housing affordability at the international level is the one proposed by Demographia International Housing Affordability Survey, using the “Median Multiple”. It measures housing affordability by dividing median house price by median annual gross pre-tax household income. A ratio of less than 3.0 is considered affordable, a ratio between 3.1 to 4.0 is moderately unaffordable, a ratio between 4.1 to 5.0 is seriously unaffordable and a ratio of more than 5.1 is considered “severely unaffordable”. A.5 Hotel Occupancy – Occupancy is calculated as the number of rooms sold divided by the total number of available rooms throughout the period being analyzed. Average Room Rate (ARR) - Average room rate is the average price a room is sold for in a hotel in a given period, calculated by the room revenue for that period divided by the number of rooms sold/occupied. Also referred to as ADR (Average Daily Rate). RevPAR - Revenue per available room or room yield is a measure of the revenue earned per hotel room derived by dividing the total Rooms Revenue by the number of rooms available in a given period. A.6 Industrial & Logistics The industrial real estate market encompasses a wide range of different building types used for manufacturing, light industrial assembly and processing, and storage and distribution. Industrial buildings have been split in two main building groups: light industrial and warehousing buildings. Distribution Warehouse - Warehousing properties are defined as property assets dedicated to storage and distribution of goods with a minimum floor- space of 5,000 m² gross internal, with ceiling heights over 8 meters. Warehouse types include storage warehouses, distribution warehouses (freight forwarding), cross- docking warehouses and cold storage warehouses. Warehousing stock excludes light industrial buildings and manufacturing assets as well as warehousing space within mixed usage assets. The office component of warehousing properties is usually between 5-10%. Light Industrial - Light Industrial properties are comprised of property assets < 5,000 m² dedicated to the assembly, disassembly, fabrication, finishing, manufacturing, packaging, repairing or processing of materials. Some light manufacturing which requires limited raw materials and physical changes to the materials might also be located in light industrial buildings. The office component of light industrial properties is usually less than 10%. 92 B. General urban planning terms General terms are summarized below and the main legal aspects that needs to be taken into consideration for a new development: Plan Urbanistic General (PUG) This is a local area plan, which will stipulate many parameters, requirements and restrictions (such as building heights, parking requirements) on developments within a particular area. These plans are produced by the Department of Urbanism of the City Hall responsible for each particular area. Certificat de Urbanism (CU) This is a specific document issued by the Department of Urbanism of the City Hall, which will be a response to an application for development parameters on a particular site. The CU will stipulate what permits, applications and other official approval processes will be needed for a particular development, on a particular site. Examples of these requirements could be as follows: · Production of a PUZ; · Production of a PUD; · Approvals (Aviz) from relevant authorities (e.g. police, fire, environment etc); Plan Urbanistic Zonal (PUZ) This is a development proposal for the site, which may need to be carried out as a response to the CU. If a proposal is not in line with the PUG – e.g.: the PUG states buildings must be P+3 and a developer wishes to construct P+8, then a PUZ application must be made to change the parameters of the PUG. Upon approval of the PUZ, a client may proceed to apply for a Building Permit for the works. This allows construction to take place, as per the design and parameters contained in the PUZ. If a PUZ confirmed by the City Hall to comply with the CU, then occasionally no CU reapplication is required. Plan Urbanistic de Detaliu (PUD) Within the CU, the local City Hall will sometimes request a document called a PUD. This is a more detailed version of the PUZ, which will fix the parameters contained therein, and give the City Hall more details. This is often when the City Hall feels the PUZ, whilst approved, is not detailed enough. A PUZ may simply contain hatched areas where construction takes place, and the City Hall will want more details. It is worth noting that some CU stipulations will not require a PUD or even a PUZ. If the proposal matches what is stated in the City Hall PUG, then the City Hall may well omit these processes from the CU. Building Permit Once all the requirements stated in the CU are satisfied – which normally includes a PUZ, and sometimes a PUD, as well as all the appropriate permissions from all the approving departments in the City Hall - a developer is able to apply for a Building Permit. This Building Permit will allow construction to commence. The Building Permit documentation will be a development of the PUZ/PUG/PUD, depending on what that particular CU stated, and will contain detailed design and construction information for the actual building project. Generally, the Building Permits are valid for 1 year from issue, meaning that construction must start within 1 year from when it was issued. The permit will then remain in place for the duration of the construction works. This duration of the construction works will be stated in the application (12 months, 18 months etc), and then in the Building Permit itself. If works are not commenced within 12 months of the date of the Building Permit, a one-off application can be made for a 12-month extension, which is normally granted. No further extensions are allowed after this. 93 Construction Inspections Within the design documentation there must be a Quality Control Plan issued by each designer for its section of design and it consists of the specific works which must be checked and confirmed as compliant with design regulations in force. The checking should be done by the following: designer, Client’s representative (Diriginte de Santier employed by the client), Building State Inspectorate (BSI) representative. This Plan must be submitted to the BSI for their review and approval, and they will periodically visit the site to ensure that the works are following design code and law. It is usual practice for the BSI to confirm their presence is needed only for part of the works noted within this plan. For any other works it is enough for the checks to be done only by the designer and “Diriginte de Santier”. The progress on site cannot run without the works in the plan being checked and approved as mentioned within the Quality Control Plan. Final Acceptance Upon completion of all works the Client must call for a committee of City Hall representatives and independent specialists to inspect and confirm the works as complete and compliant with the approved design, Building Permit documentation and regulations in place. For the purpose of this final inspection a ‘Construction Book’ needs to be completed which contains all as-built design, quality certifications, protocols and all documents as requested by the law. Such an inspection usually takes a few days and the outcome is a Completion Protocol signed by all members of the committee. The Completion Protocol does allow for an appendix where incomplete works are recorded at time of inspection. The law allows for maximum 90 days for such an appendix to be cleared out. The Completion Protocol enables the Client to register the building as existing with the City Hall tax department and other authorities. Registry of the building with the Real Estate Registry (RER) – Land Book In order to register the building with the RER the following steps should be followed: i) register the building with the City Hall tax department following receipt of the signed Completion Protocol, ii) register the building with the Cadastral Office based on the Completion Protocol and cadastral measurements carried out on site upon completion of works by an authorized cadastral surveyor and iii) Register the building with the RER following receipt of tax certificate issued by the City Hall tax department and approved cadastral documents issued by the Cadastral Office. Main Urbanism Indicators: - CUT (Ro: “Coeficient de utilizare a terenului”) The CUT is the density coefficient, meaning the ratio between the Total Built Area (without underground levels) and the Site Area. The CUT of a particular project is stipulated by the Authority in the CU. Main Urbanism Indicators: - POT (Ro: “Procent de ocupare a terenului”) The POT is the maximum footprint percentage, meaning the percentage between the building Foot Print Area and the Site Area. Again, this will be stipulated by the Authority in the CU. 94 Appendix 3 Other evidence 95 A. Scope of works - Real Estate Assessment Constanta, Mamaia Site The Municipality of Constanta is interested in redeveloping a 1.16 ha strategically located, sea-facing site in the Mamaia area – a touristic hub within the city. The subject site is situated on the southern end of the Mamaia peninsula, approximately 4.5 km from the center of Constanta. The site is surrounded by predominantly high-value residential functions. As a result, the site has potentially high financial value for the city. However, the city is eager to explore the potential for other civic uses that could enhance the economic development of this touristic area. Several developments have been proposed in the area including the revitalization of a nearby fish market, and the creation of a seaside promenade. Despite its relatively small size, the site may therefore have strategic value in connecting and creating synergies among these developments in such a way that enhances local economic development and exceeds the direct financial value of the site. The objective of this real estate market assessment is to support the City of Constanta to establish the real estate potential for the site, given its city and neighborhood dynamics, and use the information to decide its desired redevelopment strategy for the site. Scope of Work In preparing the Real Estate Market Assessment, it is expected to complete the following tasks: Provide a high-level macroeconomic overview of the Constanta area; Identify the relevant economic and real estate market trends that may affect development of the subject site; Provide an overview of the local real estate market and its sub-markets (office / retail / housing / hotel / entertainment, affordable housing, other) and provide rentals, vacancies, property yields and other relevant data (such as the size of the market and affordable price ranges) for the sub-markets; Given the touristic nature of the Mamaia area, an analysis of the local tourism market will be required. This should include market demand for accommodation (costs, vacancies, demand for various forms of accommodation, etc.), and description of tourism-related trends impacting the neighborhood; Explore the potential for government and other non-market uses such as parks, public space and/or cultural uses. These uses should include, where possible, the potential for private sector inclusion and economic development opportunities; Propose possible high-level development scenarios that meet the city’s criteria for, inter alia, urban form, development mix, open space requirements and propose realistic estimates for build-out time, potential sales and taxes; Explain, drawing upon real estate market data, how significant new developments in the site’s surrounds (at city and neighborhood-level) could affect the market and site more specifically and provide details of key developers operating, or are interested to operate, in the vicinity and market. 96 B. Land plots for sale in Mamaia area and vicinities No. City Transaction/ Description of the Site Area Price Price Photos Offer date property (m2) (EUR) (EUR/m2) 1 Mamaia May-19 frontage: 75m 40,900 6,135,000 150 frontage: 43m PUZ 2 Mamaia May-19 7,200 5,040,000 700 GF+12F+15F, POT 70% 3 2 Mai May-19 6,045 1,450,000 240 Palazu 4 May-19 6,000 1,080,000 180 Mare Mamaia 5 May-19 GF+2F, POT 40-70% 5,500 2,200,000 400 Central Mamaia POT 35%, GF+7F, CUT 4. 6 May-19 5,000 2,600,000 520 Nord Frontage 44m POT 35% CUT 4 7 Navodari May-19 5,000 3,250,000 650 GF+7F 42m / 108m Mamaia- Cadastral number 8 May-19 4,573 2,057,850 450 Sat 108963 Mamaia 9 Feb-19 4,371 4,000,000 915 Central Mamaia 10 May-19 4,000 2,800,000 700 Nord frontage: 70m POT 40% 11 Mamaia May-19 3,534 1,943,700 550 CUT 4 Bs+GF+10F PUZ 12 Mamaia May-19 GF+8F, 3,000 3,000,000 1,000 POT 70% frontage: 50m POT 35% 13 Mamaia May-19 3,000 900,000 300 CUT 4 GF+7F Mamaia 14 May-19 3,000 750,000 250 Nord frontage of 40m at Mamaia 15 May-19 Siutghiol Lake 2,300 2,300,000 1,000 Central GF+8F 97 98 C. Other Maps * indicative area – the map is not based on the official site information 99