Budapest Developer Builds Luxury Homes in Former Red Light Zone

By Alex Kuli

July 17 (Bloomberg) -- Peter Futo, a Hungarian candy salesman turned real estate millionaire, is betting 850 million euros ($1.3 billion) he can transform a Budapest slum into prime real estate in the European Union's slowest economy.

Futo, who owns property developer Futureal Zrt. with his son Gabor, is building Corvin Promenade, Hungary's biggest development since communism fell, on the site of demolished homes near what used to be Budapest's red light district. Affluent people will live there because it's on the boulevard that borders downtown, offers easy airport access and is near the Danube, the Futos said.

``The key to success is to be able to acquire and develop a big enough piece of land that you can have impact,'' said the younger Futo. ``If you are able to grab the whole thing, take it as one, and have a city vision for that, then you can really make a change.''

The father-and-son team is investing in Hungary at a time when other developers aren't. The country's economic growth was 1.3 percent in 2007, the slowest in 14 years. Hungary issued 8,956 residential building permits in the first quarter of 2008, the fewest since 2001, according to government statistics.

At the same time, the Futos have scaled back their plans in neighboring Romania, where the economy grew 6 percent last year, because they're concerned real estate prices have risen too fast and are about to tumble.

Old Homes Destroyed

Corvin Promenade was conceived by members of the local government in Budapest's Jozsefvaros district who wanted to replace the slum dwellings, the Futos said in an April 23 interview in Peter Futo's office in downtown Budapest. The council invited bids, persuaded residents to move into new homes, and knocked down the old ones, they said.

The average apartment size was 23 square meters (250 square feet), and most residents had their toilet outside the apartment, at the end of the corridor, said Peter Futo.

``The only reason why such a project is possible at all is there was a slum,'' his son said. ``There was a population problem, a social problem. But that's not a location problem.''

Futureal took over the project in 2004 when it paid an undisclosed amount to acquire Corvin Rt., the developer that won the bid. The Futos hired architects including British landscape designer Robert Townshend to redesign the development and center it around retail and office space.

Mall Rights Sold

They sold the right to build Corvin Promenade's 35,000- square-meter shopping center to Klepierre SA, the French mall owner controlled by BNP Paribas SA, last year. The mall will cost an estimated 229 million euros ($313 million).

The development will include a park, restaurants, and penthouse apartments that overlook the Buda hills on the west side of the Danube. The complex has its own underground parking garage, and its website notes that with such amenities, ``common downsides of city life will be avoided.''

All 820 of the still-unbuilt apartments in the first phase of the project have already been sold at an average 2,150 euros per square meter, 32-year-old Gabor Futo said. That's more than double the average price for residences in Jozsefvaros, according to a database kept by online real-estate broker Ingatlan.com.

Corvin Promenade's first phase will finish next year. The second phase will add 2,000 more apartments by 2012.

Futureal is financing each phase of the project separately, using banks including Intesa Sanpaolo SpA, UniCredit SpA, and Erste Bank AG, Gabor Futo said. The banks finance 80 percent to 90 percent of certain projects, with Futureal funding the rest from its own equity, he said. He declined to give further details.

Contrast

The contrast between the sleek lines and glass-walled balconies promised by Corvin Promenade may clash with the rundown tenements and their crumbling neoclassic facades next door, said city architect Ivan Bojar.

``It cuts into the city fabric,'' he said. ``I'm keeping my fingers crossed for it, because this idea of clearing buildings for a new development has no precedent'' in Budapest.

Balazs Bazsalya, a researcher at Budapest polling company Marketing Centrum, said the new development will raise the value of the apartment he bought near the site two years ago.

There are also fewer poor neighbors than before, he said.

``There haven't been any major complaints'' about the forced relocation, Bazsalya said. ``It's probably because these aren't the kind of people who have the organizational skills to mount opposition.''

Mathematician and Candymaker

Peter Futo, 62, never planned to be a developer. In the 1970s, he worked both as a mathematician and at his grandfather's candy factory, which Hungary's communist government seized in 1948, he said.

After communism collapsed in 1990, Futo founded his own confectionery company, Fundy Kft., selling gumdrop bears, frogs and dinosaurs, as well as chocolate and wafer snacks. Annual profit exceeded 2 million euros by the end of the decade, he said.

Futo sold Fundy to Van Melle NV, the Dutch maker of Mentos mints, for an undisclosed sum in 1999. He used the proceeds to create Futureal because, he said, real estate was an investment opportunity that wasn't dominated by multinational companies.

The Futos are focusing on Hungary, in spite of the country's slow economic growth, because land values in Romania are inflated and competition is ``getting out of control,'' Gabor Futo said.

``It's just incredibly, incomparably and irrationally high,'' he said. ``We went there to do five shopping centers. We are doing one only, because we have decided not to take the risk.''

Residential land prices in Bucharest, the Romanian capital, have tripled to as much as 3,000 euros per square meter since 2004, according to a survey by Colliers International. Futureal is selling its 118 apartments in Bucharest's Nightingale Park and ``cautiously'' considering new projects, Futo said.

Even with the slower growth in Hungary, Corvin Promenade may serve as a model for further developments in the country, whose mayors have been reluctant to bring in private capital, said Miklos Nemeth, head of the Hungarian Association of Real Estate Management in a May 14 interview.

``Municipalities will realize that you need to attract private capital, and the nice things you can do with it,'' he said.

To contact the reporter on this story: Alex Kuli in Budapest at akuli@bloomberg.net;