Starting with 2010, most banks decided it was high time they admitted the non-performing loans in their portfolios, coming to the conclusion that a new strategy was necessary. After 1-2 years, they realized that trying to sell the non-performing real estate assets at prohibitive prices, even higher than the market prices, was reaching a dead end, needless to mention the useless marketing costs that were involved.

It took a short while until the insolvency trend started, most of the large residential compounds being given a second chance through this legal instrument that offers protection to all the involved parties, excluding the buyers that made down payments before the insolvency procedure was opened. It must be mentioned that this fact makes the insolvency law quite unfair from the moral and human point of view.

However, from the financial perspective and business wise, it makes perfect sense – the major creditor takes over (represented by the bank in most and ideal cases), a judicial administrator takes charge and reorganizes the entire activity by cutting unjustified costs and valuing the assets at the maximum potential price, the debts are put on hold, the selling strategy is adapted to the new market conditions therefore, as a result, the residential units start to be successfully sold.

The decision-making factors have shifted from the developers to the judicial administrators and the major creditors. From one perspective, this fact has got its own advantages – decisions are made based on financial calculations and not on the often met, developer attachment to its project; the banks are willing to invest some additional amounts in order to complete the residential developments and to create a comfortable home for the currents owners and the future ones.

On the other hand, having so many parties and legislation involved in the insolvency procedure, the decisions take a longer time to be made, sometimes too long and the approvals need to escalate several levels of management layers. Moreover, the selling prices tend to be quite high on the grounds that the banks are trying to reduce as much as possible the haircuts made, considering the negative impact these are having on the books and the provisions made.

Another disadvantage of a residential compound being in insolvency, used to be the image problem, insolvency being the equivalent of failure, uncertainty and people left with paid amounts and no apartments. The reason for mentioning “used to be”, at past tense, relies on the fact that nowadays, with the largest residential projects in insolvency, people got used with the concept, they are well informed and realized that not only there are no risks involved, but they are more protected purchasing an apartment in a compound strictly monitored by a judicial administrator and financially supported by a bank.

To my opinion, based on the experience of reorganizing the sales activities in some of the largest compounds in Bucharest, a professional and result oriented judicial administrator, together with a collaborating and open minded major creditor, adding a creative sales team, working together and trying to achieve an honest, successful goal, is the new best way to go!