Until two years ago, Auchan had an economic strategy which concentrated wealth in the hands of the owner family, gathering in the company’s portfolio everything it had buil during the last half a century. This approach made that family the richest in France, with an estimate of 21 billion Euros in wealth. This direction has since changed, though, because of the need for capital in order to aggressively extend business operations on certain markets.
‘Auchan Group is extending in every country which deserves special attention today, in terms of market size, and that means countries like Russia and China. The need for capital in order to open as many commercial centers as possible, and as quickly as possible, has increased considerably. Thus, a certain type of property that has reached its full economic potential, meaning that those assets can no longer be developed, are eligible for selling. In the last two years, transactions of this kind have been done in France – nearly 300 million Euros – and Italy – approx. 700 million Euros,’ has declared Tatian Diaconu, General Manager of Immochan Romania, the real estate branch of the group. Built around the chain of Auchan hypermarkets, the French holding has come to own more than 60 internationally renowned brands, which allows it to self-sustain its development plans. In Romania, the group has deployed four of its brands: Auchan, Decathlon, Leroy Merlin and Immochan.
Diaconu declares that the commercial project Auchan is building at Tractorul Braşov is not included in the type of assets that can be sold, because it can further develop in the next ten years. ‘Apart from the 20 ha that are being constructed on right now, we are already thinking about the second development phase. The commercial segment will further be enhanced with the booking of several new boxes. In the end, our target is to build a new residential neighborhood. We can increase the value of the property in Braşov in the next ten years, so it is not profitable to sell such an asset,’ adds the leader of Immochan Romania. Besides the approximate 25 million Euros that have been paid to the Centtera Capital Partners investing fund in April 2012, in exchange for the former plant Tractorul, the Auchan group has invested approximately 35 million Euros in building the Coresi Shopping Resort. The commercial center is 70% complete and over 80% of its usable 32.000 square meters have been booked by retailers such as Auchan, Inditex – with its six brands, H&M, Kenvelo, Flanco, Decimas, Sabrini, Yves Rocher, TUI Travel, Arsis –, Vodafone, Inmedio, Sensiblu and iStyle, and more recently, LC Waikiki and CCC. The investment in the center, destined to be open in March 2015, comes around 60 million Euros, including the price paid for the land on which it is built, which comes at about 12%-15% of the total cost.
Land for sale
Near the Coresi Shopping Resort, the French group has booked four ha of land, which can house 15,000 square meters more of commercially-destined venues. Immochan is already negotiating to rent 6.000 square meters of it for two furniture and pet food retailers, among others. This second phase of development will be set off in April or June next year and will be completed by the end of the year. Initially, it was believed that a home improvement and do-it-yourself company would settle in the new space, but the only option left available was Leroy Merlin, part of the Auchan group and the only one not present at the time on Braşov’s market. This alternative was brushed off in September, as the retailer bought the Bau-Max network. ‘Every do-it-yourself company is present in Braşov. In the foreseeable future, I don’t think any of them would be interested in entering a new project, since the existing number of units is sufficient,’ adds Tatian Diaconu.
Moreover, Auchan has booked another 15 ha of land for commercial development in the next three to five years. As to the remaining 60 ha, the company is looking for partners to develop an industrial site and a residential area, also being open to selling land. Which it just did recently. The Mihai brothers, Adrian and Neculai, along with their partner, Felix Pătrăşcanu – owners of FAN Curier – have bought 2.7 ha of the Tractorul platform to build a regional node for the courier company they run. According to our calculations, the price they have paid comes around one million Euros. ‘They will ensure development of the business on their own and plan to open next year. 250 to 300 new jobs will be made available, which is very important for the city. There is no construction on the land and it has an industrial-logistical Zonal Plan of Development (PUZ). The price is fair,’ commented Diaconu. Immochan could favour a similar development plan for a residential area, for which two patches of land have been destined, one of 22 ha and the other of 30 ha. The company’s manager wants to begin infrastructure work in April (demolishing, building four way roads, implementing utilities near the site), and then assign construction to an external developer.
The most advanced negotiations are with the entrepreneur Daniela Kasper, who is building very near a residential neighborhood of 500 houses. On the first lot assigned to the residential project, the French company says that 2.000 flats could be built, grouped in blocks of 4 or 5 stories. ‘We’ll favor the alternative which is quickest, because each block of flats will bring us 100-150 clients for the commercial center. Maybe there would be other alternatives which, in the long run, would ensure us a greater profit, but we opt for swiftness,’ adds Diaconu.
When the land was bought, Auchan also considered a business park, but the new data shows that such an investment would not be profitable enough. Thus, this alternative is only thought of as a plan B, in the event that the commercial area cannot be further extended.
Investment recovery
For the Coresi Shopping Resort, Auchan has set a rent between 13 and 17 Euros/square meter/month and expects at least five million Euros in annual revenues two or three years from now. Given the current market context, they should recover their investment in about ten years. Tatian Diaconu is convinced that in three to five years, a second commercial center will be built in Braşov, but he hopes that by then his project will already have a good lead. ‘I am a marathon runner and I have learned one thing: if you don’t want to be elbowed by the competition, you have to stay ahead of it. Our decision to start this project in Braşov, when other four similar projects were already announced, was based on this principle,’ adds the manager of Immochan.
The company’s analysis shows that around 20% of the earnings of the population are destined for mall shopping, not including hypermarket shopping. Considering Braşov’s population, 50-55,000 square meters of commercial space would still be required. After finalizing Coresi and the commercial area around it, the market in Braşov will be close to saturation, and a new project would make things more difficult for the French group. To prevent this from happening, Immochan tries to attract a mix of tenant brands as varied as possible, in order to secure the ten million people traffic it targets annually. In this sense, new retailers are a solution. A first step was taken by attracting Decimas, an older partner of Auchan, which is a sports equipment retailer with 20 shops in the Auchan’s commercial centers in Spain. The company also tries to attract two more names for the Romanian market. On top of that, it intends that by the end of the process, 25%-30% of the total rent space will be occupied by local retailers.
60 million Euros is the sum Auchan has invested by now in the Tractorul Braşov platform, including the price it has paid for the land
