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CORESI – URBAN REGENERATION PROJECT

Brasov, Romania

December 2009

Executive summary. Centerra Capital Partners (Centerra), a Guernsey-based property asset

manager backed by Cheyne Capital, manages an industrial property of approximately 1.2 million

sqm in Brasov, a city of 300,000 inhabitants in central Romania. Due to its proximity to the city

centre, Centerra’s vision for the site is a new urban centre of Brasov encompassing all the vital

city functions: retail, offices, residential, leisure, educational and civic spaces combined in

harmonious synergy.

This regeneration project, one of the largest in Europe, would total 1.35 million sqm of mixed-use

development over time, requiring investments of over €1 Bn phased in time to meet the

progressive demand for the different functions, commercial, residential and offices. Centerra’s

aim is to create a framework, deliverable over 10-15 years, to promote a market-led mixed use

development of a new urban centre of the city. Centerra believes this is the best way to create

value in its investment. To prove this concept and to make this framework deliverable, Centerra

intends to execute the first phases of this development over the next few years, either alone or in

partnership with other developers specialised on certain type of development. Each stage of the

development will be commercially viable in itself as to attract new partners for development and

financing.

The site’s new identity (the name “Coresi”) is distinctively local as it is the name of the person

who printed the first book in Romanian in the 16th century in Brasov. The intention is to

transform the old tractor factory into a new vibrant city quarter and sustainable community.

Centerra believes that a sustainable and socially responsible development is what will create

value in the long term in their investment. Centerra is positioning Coresi as a model development

in Romania. With the advice of several world class consultants, DTZ (real estate advisory), YRM

(architecture), NormanDisneyYoung (sustainability and engineering), BuroHappold (utilities,

structures and traffic) and EC Harris (costing), Centerra created a masterplan which blends

commercial parts with social elements including a university campus, city hospital, administrative

and cultural buildings, all using state-of-the-art energy efficient design in both building and

operations. For more information about the masterplan please consult www.coresibrasov.ro.

Brasov. Located in Transylvania in the centre of Romania and founded in the 12th century,

Brasov is one of the country’s largest cities and also one of its oldest. Brasov is one of Romania’s

main tourist destinations given its proximity to Poiana Brasov, Romania’s foremost winter resort,

Bran (known outside Romania for Dracula’s castle) and being the centre the Siebenbürgen area

inhabited by German colonists since the Middle Ages. Those colonists built many fortresses and

old towns over time that still exist today. The city of 280,000 people is in the centre of a region

with several towns in its close proximity, totalling 600,000 people. Brasov attracts another

600,000 people annually who stay at least one night in the city’s hotels.

Renowned for the outstanding beauty of the surrounding mountainous area as well as for its

industrial prowess during the communist period, Brasov is experiencing a period of strong

economic growth following a period of decline from its industrial heyday. Its industrial heritage

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and skills of the local workforce, as well as the strong local universities have attracted an

increasing number of foreign firms, many of them from German-speaking countries. Several

industrial, pharmaceutical, food processing as well as many IT companies have located there in

recent years. While the economic crisis is affecting Brasov, the premises are set for a sustainable

strong growth of the city’s economy in the long term.

Acquisition overview. In its communist heyday, Tractorul UTB was one of the largest state-

owned companies employing 25,000 people and manufacturing 100,000 tractors a year.

Following the fall of communism and after many years of heavy losses and huge cumulated

debts, the Romanian government stopped tractor production and put Tractorul UTB in voluntary

liquidation. In July 2007, the company’s assets were sold in a public, open-cry auction. Flavus

SRL, a company managed by Centerra, won this auction and acquired all the Tractorul UTB

assets comprising the land (1.2 million sqm), buildings (approximately 500,000 sqm), equipment

and intellectual property for a total consideration of €77 million (grossly corresponding to

€64/sqm). Centerra’s rationale for the acquisition was the development potential for the 120ha of

land centrally located in Brasov.

In April 2008, the European Commission, who investigated the transaction over suspicions of

state-aid to promote the manufacturing of tractors, reached the conclusion that no state-aid was

involved (there is no obligation to manufacture tractors), that the sale was conducted in an open,

transparent and widely publicised auction, and that the Romanian government has obtained the

market price for the Tractorul assets.

Transaction structure. Flavus Investitii SRL (Romania), owner of all the assets, is in turn 100%

owned by Flavus Investments LTD (Cyprus), the majority owner of which is Cheyne New Europe

Fund I, a fund managed by London-based Cheyne Capital.

Progress since the acquisition. Since the acquisition, Centerra has achieved several milestones.

Most importantly, Centerra:

Obtained the clear bill of health from the European Commission, clearing the way to the

development.

Fended off spurious lawsuit aiming to annul the acquisition of the site by Flavus, and which

was one of the main risks in the transaction.

Converted initial negative press based on spurious and ignorant rumours into positive PR and

goodwill from the political class and the public, easing the way of the development.

Developed the masterplan for the site, rooted in the vision of a new urban centre for Brasov

and in the future demand for residential, office, commercial and leisure space. This

masterplan was presented to the city and the press, attracting a great deal of positive PR and

goodwill, which translate into a competitive advantage and speed of permit approvals.

Cleared the site of hazardous materials which were properly disposed of. Undertook phase 1

environmental study and adapted development phasing accordingly.

Sold usable plant equipment and thousands of tons of scrap metal (presently at a rate of 3,000

tons a month) generating millions of euros of revenues.

Rented almost 10,000 sqm of offices and 20,000 sqm of industrial space, generating

significant revenues. This has been done consistent with the development strategy: office

tenants committed to moving into new buildings as they are built, providing a critical mass

for new tenants; industrial tenants on renewable short leases so that they can be moved as the

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development progresses. Several high-profile office tenants include IBM, CGS (a US call

centre employing 700 and growing), Fresenius (a German clinic) and Freudenberg (a German

automotive company).

Demolished the 23ha site of the shopping centre (retail park and mall)

Finalised the PUZ (zoning permit) based on the Masterplan for the entire 120ha. The zoning

of the entire area for a mixed-use urban centre in itself has created significant value in

Centerra’s investment.

Concluded agreement with an experienced shopping centre letting agent and developer (see

below) to develop the first phase of the regeneration project, which is the 90,000 sqm GLA

shopping centre. Letting well under way with confirmed interest from anchors. Concept

design finalised, and detailed design to start shortly.

Assembled a highly experienced in-house development team that includes development,

letting, architecture, engineering, and project management expertise.

Retail project well under way: of the Phase 1 (50,000 sqm GLA) the hypermarket (14,000

sqm GLA) and DIY (9,500 sqm GLA) anchors will be signed by the end of 2009. Of the

remainder gallery and mid-size units, 35% of the area will be signed by the end of 2009.

Development strategy. Centerra intends to play a long-term land management role by dividing

Flavus into several land-owning companies, each focused on a single use (retail, residential,

office). On a case-by-case basis, Centerra will either develop alone each plot or, alternatively, it

will co-opt experienced and specialised development partners in a development joint-venture.

This strategy will allow Centerra to participate actively in the development while partnering with

best-of-breed developers on some of the key functions but retaining control over the overall

development of the entire site according to the masterplan. Centerra aims to sell certain areas,

such as for example the hotel/conference area or the area for the university campus if the

conditions are favourable.

Centerra intents to start the development with a shopping centre (see below) capitalising on the

need for a city of this size of retail space that is currently either insufficient or non-existent. This

will come with the development of certain infrastructure (such as the East-West axis), the

development of which it is intended will be financed by EU infrastructure and regional

development funds.

Centerra’s projected build for residential (7,000 units over 10-15 years) and offices (150,000 sqm

over the same time frame) is based on detailed analysis of the local market. The phasing of the

project has been thought out to reduce the risk of the development. Consequently, Phase 1

comprises the shopping centre (itself possibly subdivided in 2 phases), about 20-30,000 sqm of

offices (of which we have already let 10,000 sqm in existing buildings with the option to move to

the newly developed buildings) and 400 apartments.

The infrastructure (roads, utilities, canalisation, access and a bridge over the railway to more

directly connect the site to the city) and the entire site will be developed based on sustainable

principles, in compliance and even above Western European standards. Centerra aims, and the

masterplan is designed to achieve, for a LEED rating of Gold. The roads and bridges will be built

with the city’s involvement but led by Centerra. The energy strategy contemplates the creation of

a centralised CHP unit in Phase 2 or 3 as well as on-site renewable energy units. It is envisioned

that utilities provision for the entire Coresi city (gas, electricity, heating) will be managed by

Flavus Utility, a subsidiary of Flavus.

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Master planning and re-zoning. Functional uses. The master planning exercise was carried

with an extended consultation with city and local government authorities and citizen

organisations so as to maximise the chances for zoning such an extensive area. The masterplan

was developed with input from a market absorption study by the European Urban Regeneration

team of DTZ, and drawing on other regeneration projects throughout Europe. The masterplan was

developed by UK-based firms YRM retained for detailed master planning, BuroHappold for

utilities, traffic and structures, and NormanDisneyYoung for sustainability engineering.

The masterplan was developed from a series of strategic design moves for the site and its

surrounding area of influence. These moves, which comprise of a series of strong urban

interventions, are designed to provide the site with a robust framework for the creation of a new

quarter for the city of Brasov. It is planned for the site to comprise commercial areas, residential

blocks, an office and technology park, a university compound, social and administrative

buildings, a city hospital all interlinked by urban squares and parks. Major circulation routes are

separated with vehicles running East/West and pedestrian routes North/South. Key axis and

gateways are emphasized by the height or social use of the buildings.

The development - by virtue of location and mix of functions – adds a new urban centre to

Brasov’s existing medieval and modern financial centre. Situated equidistant from the physical

central point, it mirrors the old town centre in its significance for the urban development and its

diversity of amenities, such as the park, high-streets and squares. The new quarter will offer

spaces and functions that are desirable for a town of regional importance, which could not be

accommodated in the medieval town structure. The masterplan provides areas for the expo and

business centre, the retail zone and the healthcare campus, satisfying existing and future market

demands in an urban context. The mix of housing and social amenities aims to ensure a vibrant

and lively community, without which no urban development can succeed.

In Appendix are the location of the site in Brasov (Appendix 1), the masterplan (Appendix 2) and

forecasted development mix (Appendix 3).

The masterplan, finalised in July 2008 was then translated into a re-zoning application by a team

of local architects. Since then, we have obtained all the required authorisations from utilities and

all government bodies and we recently obtained the zoning permit (PUZ in Romanian) for the

entire site. Converting the large industrial area in the proximity of the centre of Brasov into an

urban area zoned according to the masterplan and with built in flexibility for building various

urban functions is a major success, and one which will add significant value to Centerra’s

investment.

Coresi Shopping Centre. Centerra is already well under way in the development of the shopping

centre area in the North-West part of the site. This shopping centre is the main priority of the

redevelopment of the site because it will create value in the entire site by bringing traffic and

creating a strong point of attraction on the site. Additionally, the infrastructure around the

shopping centre, in addition to facilitating access to the latter, will create high value areas for

further developments of residential, office and leisure space on the site.

The full layout of the Coresi Shopping Centre in the context of the Masterplan is illustrated in

Appendix 5 below. The letting agent is Krammer Wagner, an Austrian firm with significant

experience in the development of malls and retail parks - www.krammer-wagner.at.

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Phase 1 of the project entails the development of a 50,000 GLA Retail Park which will include a

hypermarket (Auchan), DIY store (OBI), a furniture store (e.g., Kika, Mobexpert, etc.), a large

sports store (e.g., Decathlon) and several mid-size units (e.g, Kika, Peacocks, Takko, etc.) as well

as a gallery of other retail stores (sports, convenience, cafés, etc.). There will be 2,100 above

ground and 350 underground parking spaces.

As of 31st December 2009, Centerra has signed a partnership agreement with Auchan to become

the key anchor of Coresi Shopping City, with a hypermarket of 16,000 sqm. Additionally, several

mid-size and smal retailers have signed up to let space in the 11,200 sqm gallery in front of the

hypermarket, totalling 36% of the available GLA. Phase 1 construction will start in the spring

2010 as soon as the construction permit has been obtained. The planned opening is end of

summer 2011.

In a close Phase 2, Centerra will develop a 40,000 GLA Mall on two floors linked with the Retail

Park and anchored by fashion retailers such as Zara, New Yorker, Peek & Cloppenburg, C&A,

etc. The shopping centre will include a leisure centre that will include a multiplex cinema, a

casino, a family centre, and a games and bowling alley. The shopping centre will include a total

of 3,500 parkings over and underground.

Centerra has retained the services of L35 - a Spanish architecture firm, renowned for their

shopping centre design and many developed projects which are commercial successes, to

concept-design the Coresi Shopping Centre. L35 (www.l35.com) are working as leaders of a

group of local detailed design architects and engineering firms who will design the shopping

centre. For full details on the various players assisting Centerra in this project, please refer to

Appendix 4 below.

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Appendix 1. The site (in yellow) in the context of Brasov and surroundings

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Appendix 2. Masterplan

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Appendix 3. Masterplan development mix

Retail Built area (sqm)

Mall 40,000

Big Box 50,000

High Street 20,000

Sub Total Retail 110,000

Office 150,000

Administrative 20,000

Residential 750,000

Hotel/Conference 15,000

Exhibition 40,000

Leisure/Sport 10,000

Social Buildings 50,000

Light industry 100,000

Total 1,245,000

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Appendix 4. Key players and advisors

Investor: Cheyne Capital, London; family offices

Owner: Flavus Investitii srl, Brasov

Developer: Centerra Management srl, Bucharest

Master plan architects: YRM, London – Bucharest

Master plan sustainability engineers: Norman Disney Young, London

Master plan civil engineers: Buro Happold, London

Master plan project cost control: EC Harris, Bucharest

Shopping centre concept architects: L35 Architectos, Madrid

Landscape concept: Benavides Laperche, Madrid

Lighting scheme: Kondos & Kondos, New York

Shopping centre detail architects: Arhi Grup, Bucharest

MEP engineers: MC General Construct, Bucharest & Ekium, Bucharest

Structural engineers: Popp & Asociatii, Bucharest / Cereng SRL Brasov

Graphic Design: Fileni & Fileni, Buenos Aires

Letting agents: Krammer & Wagner, Vienna - Bucharest

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Appendix 5. Layout of Shopping Centre in the context of the Masterplan