The FINANCIAL — “Carrying out the rehabilitation of Center Point, coming to the aid of 6, 200 families is the main social responsibility that Dexushas,” Irakli Kilauridze, Group Founder and Distressed AM Business CEO, told The FINANCIAL.
The FINANCIAL — “Carrying out the rehabilitation of Center Point, coming to the aid of 6,200 families is the main social responsibility
that Dexushas,”Irakli Kilauridze, Group Founder and Distressed AM Business CEO, told The FINANCIAL. He said that the turn around of Center Point Group, the largest property developer of the Georgian pre-crises real estate market, is one of the major projects of Dexus.
Dexus is a business group focused on distressed asset management, property development, construction and property management. Dexus offers its corporate customers a proactive and creative approach in restructuring loan and investment obligations. The company took Center Point Group and related companies under its management with the aim of the Group’s recovery in 2010. Prior to being managed by Dexus, construction of all development projects were put on hold and liabilities towards approximately 6,200 customers remained unfulfilled. The crisis period for the Center Point Group began in 2008 and reached its peak by 2010.
Dexus announced the three-year Center Point Group turnaround plan on 17 December, 2010, according to which the company will be led out of crisis by the end of 2013. This turnaround project is widely considered to be one of the greatest challenges in Georgia’s business environment. Though there are still a number of customers who complain that Dexus has acted against the interests of its customers and raised the price ofthe purchased property. In response Kilauridze says that only 5% of customers are not satisfied with the agreed terms.
“Dexus promised 6,200 affected families that it would help them find a way out of their difficult situations. Because of this, we feel a huge responsibility towards these families,” saidIrakliKilauridze, Group Founder. “These people did not think that Center Point would face bankruptcy. This attitude is not right in a free market economy,” he added.
After taking Center Point Group (CPG) under its management Dexus renewed the construction of 23 buildings, 8 of which have already been completed including the massive development – Magnolia, Batumi (58k m2). As a result, up to 2,200 apartments and commercial units were delivered to CPG customers. By completing the ongoing construction of 15 buildings a further 1,200 property units will be delivered. Dexus has already raised and spent approximately GEL 25 million on CPG development projects.
Dexus aims to accomplish the step-by-step renewal and completion of all suspended projects during the years 2012-2013 according to the turnaround plan of the Center Point Group. In total, Dexus will invest up to GEL 95 million in the project.
Today Dexus manages the assets of approximately 1/3 of the under-construction residential property market in Georgia according to the latest market research. As for Center Point, it owned assets of approximately USD 100 million, including 25 development projects and 17 land units in the land bank.
“Center Point had a loan from three banks consisting of EUR 7.7 million in total. 14 projets, consisting of 55 buildings, 6,200 aggrieved families, about 100 cases that have gone to court, no financial resources, five mortgaged projects, 10 pieces of land taken away by the bank plus a very bad emotional background from the clients’ side – this is the legacythat Dexus inherited from Center Point,” said Kilauridze.
The flat prices per sq.mof the buildings built by Dexus are as follows: in DidiDigomi – USD 500, in Digomi and Isani – USD 600, in Vake – USD 1,200, in Saburtalo – USD 700-900.
Q. In your opinion, what caused Center Point Group’s financial problems?
A. It is difficult to single outoneexactreasonfor why Center Point ended upin such acriticalstate. It was a combination of many things – theRussian-Georgian war, economic crises etc. The company was not properly managed, in my opinion. If Center Point had had a stronger and more principled team the end result would not have been so dire, becauseactually almost the whole sector was going through similar problems at the time. Other companies werealso incomplicated situationsalong with Center Point. They, however, hadtaken on too many responsibilities for too many people and could not fulfill all the plans at the same time. People gave money to the company in advance. They were promised that the flats would be ready for living in 2 or 3 years but 7 years have passed since then and none of the building have been built yet. This was the sector standard at that time; a private company can get away with almost anything, so long as it is not expressly prohibited. The fact is that Center Point thought that it would be able to meet its obligations.
Q. Despite the myriad of problems at CPG you still made the decision to manage the company. What benefits were in it for you?
A. We had a financial interest. After the rehabilitation of Center Point we will get a bonus. We are then going to invest this amount of money in our own projects. We will continue similar activities for other construction companies that need rehabilitation. At the moment negotiations are already underway with five companies. We have already signed a contract with one of the companies on which constructions have started. I am talking about the Valencia building company, project:IsaniSavane. The constructions will be finished by the end of 2013. Besides rehabilitation activities, we have a construction company as well as a development and marketing company. We are also working on establishing a real estate fund.
Q. How has the company managed to come back from these problems?
A. Generally speaking, the first 100 days are the most important for a new management. If the management does not achieve the desired results within this period of time, it means that its work is more or less a failure. In Dexus’ case, we learnt of all the problems that Center Point had and developed a rehabilitation plan. We sorted out three of the most problematic projects which needed a special work plan. 3,000 clients who had paid in full turned out to be in very difficult situations, because the rest of the clients hadonly paid half of the money. This may not be a decisive reason for the suspension of constructions, but it was certainly one of the main reasons in this case.
We have calculated what the deficit for each project was; we have calculated entrance money, unsold stocks and confronted the expenditures at the same time, which is mainly related to construction costs. We have explained to the families that the company had enough financial resources to continue the constructions but not enough to paythe tax. When a construction company transfers the possession of a flat to the inhabitant, this operation is rated by value added tax. If a company does not pay this tax it will be distrained.
When I say that the company had enough financial resources to continuewith the constructions I mean that these resources were received from those clients who had only paidpartly. We asked these inhabitants to pay in full; after this we sold stocks, from which we got money and then we spent this money on completing the constructions. We realized that there was no money for taxes after this. So we offered the chance for the families to pay about 20 percent of the value additionally. In such a way they could become the owners of their flats. Otherwise, we could not give possession of the flats to them.
Q. But according to the original contract signed with CPG, the families were not obliged to pay for the tax and the flats were in their ownership. So how valid was your offer to the families?
A. Of course, this point was not covered in the previous contract that the families had signed with Center Point. According to that contract Center Point had to pay for the budget, but because of the financial problems, we have had to offer the families to pay on their own. At first glance, I admit that our offer is not helpful for the inhabitants if we compare it to the contract signed with Center Point. But, if we take all the facts into consideration and realize all the problems that Center Point has, then everybody should be able to realize that our offer is truly for the best interest of customers giventhe actual situation. We are offering the families to cover this deficit, but we guarantee them that the building will be built and they will not lose the money that they had paid at the beginning of the constructions.
If we weigh up what the choice was for the inhabitants, we will see that our offer is profitable given current situation. Let’s say that the families paid 100,000 per each flat, Center Point went into bankruptcy and the projects were sold at auction. In this case, first of all it would be difficult to find a buyer and then it would be impossible to sell the flat at its initial price. So the inhabitant would get 20 percent in best case and lose80 percent. What we offer is to pay additionally 20 percent and have the apartment finished. With our scenario families lose only 20 percent versus 80 percent. Another choice is tosell the flats together for 120,000. 20,000 would be left with us to be used in construction and 100,000 would be given to the families.
Nowadays as a result of our offer we have finished construction for 1/3 of CPG clients and construction for another 1/3 is ongoing. We plan to commence construction for the remaining 1/3 next year. If Rcheulishvili continues their contract with us for 2 more years, then we will finish all the projects by the end of 2015. Once the contract expires it is up to Rcheulishvili whether they want to continue Center Point’s activities or quit the company, or just leave it under our management.
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