Eastern European Trip in June/July 2007

R.Epstein

I’ve been in the CEE region for the past couple of weeks now currently finishing up a visit to Bratislava. I was in Prague for five days and now Bratislava for three. Tomorrow I board a boat for a cruise down the Danube to Budapest. Better than a train or renting a car, and since there are no flights, it’s the best way to go! In Budapest I’ve got a very busy schedule including a presenation on doing business in the US, of all things, the Export Club. Then it’s off to Warsaw to rendevous with my family who are already there before coming back to Paris and then home.

The trip so far has been fantastic. I’ve been reconnecting with old friends who are still living in the region as well as making new ones. The economies here are booming. Slovakia perhaps leading the pack as one of the fastest growing economies in the European Union. Many attribute the success to an across the board flat tax of 19% for business and individuals alike.

Prague is still one of the most amazingly beautiful cities I’ve ever seen. Walking the Old and New Towns as well as the Castle Districts was magical. I was transported back in time to 1992 when I first arrived there. It felt like I was in every building in the city, which may not be far from the truth as I was peddling our telecom service to anyone and everyone in the city.

It is great to be back. The beer, the architecture, the people. Incredible place. Still relatively inexpensive although nothing like it was in the early 90’s. And incredible opportunity abounds. In addition to reconnecting with old contact and making new ones, I am on assignment for two clients who are looking at the region for very different purposes. More on that in my next posting.

An American Bar & Grill in Prague – Part 4

R.Epstein

As it turned out, this wonderful Czech doctor was also restituted a beautiful small building on Bartakova Street, just a block down from the Hotel Incontinental off of Parizka Street in Stare Miasto. While not perhaps prime prime location, it was pretty good for what we had in mind. We were able to negotiate a healthy free rent period during which we needed to reconstruct the basement of this building which had not had a lot of attention for quite some time. We convinced the good doctor that we could get this project off the ground. We obtained the right licensing for running a restaurant, had architectural plans drawn up and got underway with reconstruction on what could have been an incredibly fun place for Czechs and ex-pats to have a beer and enjoy a fund Americana type bar and grill.

The lease agreement was surprisingly Western in content. We negotiated several months of free rent while reconstruction was to take place. We negotiated option periods so that we could extend the lease if things went well over time. All in all it looked very much like the leases I had been litigating for five years before coming to Prague. Everything seemed to be falling into place . . .

Real Estate in Eastern Europe

R.Epstein

We recently decided to upgrade our real estate holdings in Eastern Europe. Back in the late 1990’s and early 2000’s, we purchased several flats and a piece of ready-to-be-built-on land just outside of Warsaw. We plan to sell the flats, refinance the debt on the land and purchase one or more investment properties to be managed professionally.

In investigating the residential real property managers, I was not surprised to find very few companies providing that service. Had I not returned to the US in 2001, that was a business I was seriously considering starting. But one very interesting website emerged from the research I was doing. Amberlamb Property Reports I found to be a very interesting source of information on real estate in Eastern Europe. It can be found at http://www.amberlamb.com/. In my humble opinion, some of the best real estate investment opportunities in the world exist in Eastern Europe.

Outsourcing to Eastern Europe

R.Epstein

In August of 2006, when I first started this blog, I wrote about outsourcing to Eastern Europe and compared it to outsourcing to Asia. The New York Times recently published an article discussing the same topic predicting that Eastern Europe would garnish 20% of the nearly 400 billion USD outsourcing market by 2010. The url for the article follows. Enjoy! http://www.nytimes.com/2007/04/19/business/worldbusiness/19prague.html?ex=1177646400&en=762277174e9f2770&ei=5099&partner=TOPIXNEWS.

An American Bar & Grill in Prague – Part 3

R.Epstein

As we pick up the string of Parts 1 and 2, the next phase of the project was to find a location in the center of Prague for the restaurant. As everyone knows, location, location and location are the three most important aspects of any retail business. In Prague in 1993, there were many interesting sites available because restitution was in full swing. Czechs whose family owned real estate in the city prior to the communist takeover after World War II were getting that real estate back. Of course they were getting it back in an “as is” condition. If they were really lucky, they could sell it for a substantial amount if the location was excellent or the building had somehow survived in good condition. Most of the buildings may have looked nice on the outside, but needed a significant amount of renovation before it could be lived in or used for a commercial purpose.

In our case, we were working with a real estate agent that became a good friend. Hanka had gone to Canada, met her husband, married and brought him back to Prague in 1990. She worked for one of the more aggressive real estate agencies at the time, but as a friend, she really worked hard to help us find a good location. And in fact, we found a location off of Pariska Street across and down the street from the Intercontinental Hotel in Stare Miesto. In short, a very good location.

The owner was a classic denizen of Prague at the time. A very sophisticated doctor who had suffered through the communist’s time only to have a renaissance in his sixties as Prague blossomed again. This elegant gentleman had gotten, as he put it, “a little bit rich” when he and his sister had been restituted a beautiful large building on Vaclawke Namesti, along with ten other of their cousins! They then sold it to a predatory real estate shark who put a little bit of money into it and then sold it again. In the next installment, we’ll go over the terms which finally brought in some of my own direct experience as an attorney doing legal work in the real estate area.

Real Estate Bubble Building in Romania and Bulgaria?

R.Epstein

As new members of the EU, in addition to the infrastructure money coming from Brussels, it appears that foreign direct investment into real estate in these two countries is booming. http://www.canadianbusiness.com/markets/market_news/article.jsp?content=D8MP69B00. 20% appreciation smells of a real estate bubble. But is that what’s really happenning.

I happen to think that real estate investing in Central/Eastern Europe has been some of the safest investment opportunities available anywhere in the world. I invested in real estate in Warsaw around 2000, suffered through the horrible economic downturn of the early 2000’s and watched my real estate value shrink. But now 6 years later my investment has grown 150%!

Bulgaria and Romania have many amazing real estate investment opportunities. Things are still cheap even in the financial and political capitals. Sofia and Bucharest will one day be just like any other regional European center in Western Europe. Now is the time!

Romania and Bulgaria Enter EU

R.Epstein

On January 1, 2007, Romania and Bulgaria both acceded to full European Union membership. However, membership isn’t what it used to be. Just look at the Romanian Embassy’s website in Washington where there is a movement for gaining Romania participation in the visa waiver program to gain entry to the US without the need of a visa. http://www.roembus.org. Only Slovenia has been granted fully equal status with the rest of the leading EU countries.

It is likely that other expectations will take longer to realize than expected. Government turmoil does not necessarily stop just because EU membership has been achieved. The Czech’s have been living without a government for 10 months! Poland is run by the “Twins.” And Hungary’s president is a crook!

All in all, EU accession is a key step in the transformation of these former Eastern Bloc countries. Funds that have never before been available for the big ticket infrastructure items like roads, bridges and the like will now flow into these countries from
Brussels. Now it is up to each country, and its citizens, to take advantage of what amounts to the best opportunity yet for general economic stability for all.

Congratulations are in order for these two countries as they have made it through a long and difficult process. I just hope they reap the benefits they’ve been promised.

An American Bar & Grill in Prague – Part 2

R.Epstein

In Part 1 of this saga, I explained how we got the business started in general terms. More specifically, we formed a Czech limited liability company, an s.r.o., which when spelled out are three difficult Czech words to pronounce. When deciding what to call the company, I decided, and my partner agreed, we needed to bring a small piece of San Diego to Central/Eastern Europe. I suggested “BCH” as a contraction of one of our favorite things about San Diego, the beach! And so BCH, s.r.o. was born.

The licensing for running a restaurant was a bit trickier. The articles of association can be very general much like an American limited liability company’s are where you typically choose to describe the business as any business that is within the law. And so ours read that way with the added specificity of running a restaurant.

Despite a BA in hospitality and years in the industry, my partner was unable to qualify for the license under the very “high standards” imposed by the Czechs in 1993. But so long as we could find someone Czech with the appropriate degree from a Czech institution to lend his or her name to our application, we were good to go.

Our clever and creative lawyer had such a person and we got our license to open the restaurant. Now all we needed was a location and the money to get it open! Meanwhile, we began another business which we ran through the s.r.o. in which we tried really hard to do big commodity trading deals. More on the next steps on the bar and grill project in the next installment.

An American Bar & Grill in Prague – Part 1

R.Epstein

When I decided to leave beautiful San Diego and go to Prague, I wasn’t sure what it was I could do. As a California business litigator, one has very few translatable skills for doing business in Eastern Europe. But then one of my friends in San Diego, who originally couldn’t believe I was leaving the “good life” of a senior associate in a well-respected big law firm, decided his seemingly dead-end job as a banquet manager at a San Diego hotel was way too much work for way too little money. He claimed to have the experience necessary to open and run a restaurant and thought Prague would be a great place to open an American bar and grill. That sounded like a lot more fun than trying to import and sell used medical equipment, which was the first serious business idea that crossed my bow. So we agreed that we’d go to Prague together and open an American bar and grill there.

Yet, I still had no experience in what it took to open a restaurant let alone manage one. This was very much my partner’s project. But I did know what I liked in a bar and grill and was able to contribute to the concept of the place by drawing on years of experience frequenting these uniquely American, fun places. Not to mention that many of us guys dream of owning our own bar. This was my chance and since I had someone I thought could actually run it if we got it open, I was in!

By the time we got on the place in San Diego to head over to Prague the first time, we had a pretty good idea of the concept. I am a firm believer in not reinventing the wheel and there was a bar and grill in San Diego, Pacific Beach to be exact, that we both liked and thought would be a great guide on what we would do in Prague. The name of the place was The Daily Planet. Unfortunately, it no longer exists. But more on the program in the next installment.

When we got to Prague, we got right into the process of trying to find a location, obtain the necessary licensing and otherwise get set up for doing business there. As I mentioned in my “Prague in 1992″ post, we were fortunate in gaining the assistance of finding a flat in Prague that fit our very austere budge, but had a telephone as well, a very rate commodity in Prague at the time. This became our home and office for the next couple of years!

Through other Americans we met as we began to network in ex-patriot community, we found a young lawyer who seemed able to get pretty much anything you needed done – somehow. What we needed was a company licensed to run a restaurant as well as having the flexibility to do other types of business. Although we didn’t realize it at the time being too naive in business to know any better, what we were trying to set up was a boutique investment banking/business management enterprise but without any of the contacts in the financial community and very little business management experience. Yet we were taken seriously because we were from the “West.” Such was Prague in those days.

Prague in 1992

R.Epstein

I first arrived in Prague in 1992. At that time, it was still Czechoslovakia. No one knew whether the fall of the Berlin Wall and the opening of the Eastern Bloc countries was going to last. Yugoslavia, which many Americans confused with Czechoslavakia I’m sorry to say, was deep into ethnic strife. Half of my world thought I was nuts giving up a secure, corporate law practice in a big established law firm in San Diego for the unknown of Prague. But to me, it was a moment in history which only comes once in a lifetime. So, I sold my car, rented my townhouse on the beach and went to Prague to get involved.

Luckily for me, my law firm actually had a small office in Prague so I had a point of contact even though I was no longer working for the firm. That proved an incredibly valuable thing for us in terms of an entre into how things work there to the point of even having them help us find the flat which became our home and office for the next two years.

The atmosphere in Prague at that time was magical. It seemed anything was possible and there were no real rules governing how to get it done. The Czechs themselves had not yet decided exactly how they were going to regulate business and the city government didn’t quite know how to deal with all of the young people who had flocked to Prague at a time when raving was rampant and Prague was full of roving nightclubs and parties.

As a foreigner that had come to Prague with a fairly serious business objective, namely to get some kind of business off the ground, I found I had far more credibility than was my due simply because I was from the “West.” Teaching English was one of the most popular and in demand services. The Czechs in Prague had already gotten tired of the far too many foreigners in their city. And the easy money, mainly from buying recently restituted real estate from unsophisticated Czechs, had run its course. And so we set off on our first project – to open an American bar and grill in Prague!