17 May 2020
Largo Chiado, Rua Nova da Trindade, Rua de São Bento, Largo Trindade Coelho, Rua da Misericórdia, Rua Vítor Cordon, Largo Camões, Avenida Duque de Loulé ou Rua Ivens. Talking about these addresses is talking about the capital’s heart and in particular Chiado. But it is also talking about the locations of the projects that Coporgest offered the city in the last decade.
This interview did not happen just because Sérgio Ferreira is the founder and CEO of Coporgest, one of the real estate developers that most contributed to the rehabilitation of the urban fabric in Lisbon city center. This interview happened – more than for any other reason – because Sérgio Ferreira is, without a doubt, one of the few people who says what he feels and thinks. With no fears or hesitations.
José Cabral (J.C.) You founded Coporgest in 2004. At the time, the paradigm of real estate development in Lisbon was characterized by new construction in Expo, Telheiras, Lumiar, or Laranjeiras areas. The residential experience with higher demand did not seem to include living in a Pombaline style building in the historical center. What were your plans in the early years of Coporgest?
Sérgio Ferreira (S.F.) It’s true that I founded COPORGEST in 2004, although business took off only by the end of 2005.
Strictly speaking, my decision to practice real estate development was taken a long time ago. I have memories of it since I was a child – as a kid, I loved observing buildings under construction and admired the path of a few businessmen in the sector who, for the most part, corresponded to that stereotype of “hotshot” who rode flashy cars. I found this activity fascinating.
In 2004 I had just sold a medical equipment company, I had liquidity, no intention to retire at 40 and I thought it was time to take that step.
At that time I wanted to buy an apartment to move into. I lived in a 2 bedroom and was looking for a larger apartment, preferably a penthouse, with terraces and a swimming pool. I wanted to live in the city center, to save time on the road. I didn't find anything worthwhile. Everything I saw was poorly finished, poorly built, and tasteless, with horrible materials and amateur sound insulation. There was only one developer in Lisbon who came close to the concept I had in mind, but he still did very corny things.
COPORGEST's mission was born in my head at that precise moment. I decided that I wanted to fill an empty space in the market: by creating a residential real estate investment company, which would build apartments for the upper class, projects in central areas, with refined construction quality, using noble finishes, paying attention to details. Apartments with balconies, terraces, swimming pools, noble and distinguished entrance halls…
It was in this context that I started looking to the future and winding up my instinct. The company's matrix was defined at that time.
J.C. Was this developer you're talking about also a builder? I believe it was the most regular business model at the time... And considering the crisis period that was experienced in the meantime, didn’t that company have to close doors in the following years?
S.F. Yes, that developer was also a builder. He’s still alive but has retired. Following the 2008 crisis, he left construction and dedicated himself to the hotel business. For a long time, he was considered a reference in Lisbon. He did small residential projects, with quality well above the market average, but still at a level that had the potential to be much higher.
I started off by investing 1 million euros in equity, which later Í doubled. Today we have equity capital of around 60 million because I never distributed dividends. The first buildings were purchased with equity or with shareholders' contributions, and I only contracted debt to finance the construction.
J.C. Coporgest's first construction began in 2008. At that time, banks began to show less availability to finance real estate. I don't think I'll ever forget this number: between 2010 and 2014, almost 40,000 companies in the sector closed. Not to mention that, at the peak of the crisis – knowing that most of Coporgest's clients are foreigners – Portugal would be, along with Greece, one of the least attractive places to invest. Didn't your childhood dream startle you in the early years?
S.F. No. We made sure not to bite off more than we could chew. Contrary to what usually happens in this industry, I have always been a weak consumer of bank debt. I’ve been a Finance teacher at ISEG for many years now, I am aware of the theories that highlight the virtues of debt, but I have always believed that high debt allows companies to grow quickly but destroys them in times of crisis. It was like that in 2008 and it will be like that in 2020.
I started off by investing 1 million euros in equity, which later Í doubled. Today we have equity capital of around 60 million, because I never distributed dividends. The first buildings were purchased with equity or with shareholders' contributions, and I only contracted debt to finance the construction. On the other hand, I performed some transactions in which we paid for the land with the delivery of apartments after construction. During that period, supply was low in Lisbon city center, and the market responded well to our positioning of leaders in quality. These were years of intense learning and I had a lot of fun. It was only 12 years ago, but I really miss that period, when I was choosing taps and toilets, studying home automation systems, investigating sound insulation systems…
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J.C. When you say that “the market responded well” you almost make it look easy. Many companies cease to exist precisely because “the market does not respond well” to the products they design. That accuracy is worth gold. As much as financial discipline. But you are the leader and founder of a nationally and internationally awarded company. To achieve that, a good market study and strict accounting are not enough. Did you relive your role as a student? At 40, did you decide you had to know everything about real estate?
S.F. I had no choice but to study. I completed a postgraduate course on Real Estate at ISCTE, I did intensive research on market data, I investigated building materials, I went to some international fairs, and I spoke with dozens of people. Some said that I was not well.
Between 2005 and 2008, while approving the first projects in the Lisbon Municipality, I took the time to familiarize myself with the sector. It was at that time that I made my first contacts with the Urbanism Department of the Lisbon Municipality. Initially, I made a point of being present in all meetings with the Chamber and I was shocked by what I saw – how is it possible that an organization with so many human and financial resources is such a perfect example of medieval and inefficient management, which annually destroys hundreds of millions in the Portuguese GDP? Do you know what the answer to this is?
The explanation is just one – the mediocre quality of the nation's politicians. Any regular manager would get it up and running in 4 months, but it has been a real tragedy for 40 years. I was shocked, and nowadays I am still shocked. In 40 years there hasn't been a single councilor with the capacity to organize it and provide feedback in 90 days – approve or decline and explain why. Instead they prefer confusion – creating difficulties to sell facilities. The truth is that the political class has its priorities reversed. We are managed by creatures who have run deficits in public accounts for over 40 years, and no one ever realized that the result would have to be dramatic. We live in a permanent crisis. They are idiots, with rare and honorable exceptions.
In fact, developers have a lot of responsibility on the current situation because, for the most part, they are poor cowards who, instead of imputing responsibilities to technicians and politicians, criticize them when their backs are turned but continue sucking up to them. I must be the only one who has filed a criminal complaint against a mayor, another against a municipal director and two technicians, and several civil cases against the municipality.
J.C. In January I heard city councilor Ricardo Veludo* share that there were licensing processes in the Lisbon City Council (CML) that came to a halt in the approval phase because of unreadable handwritten notes. Among other things – like hiring dozens of architects in 2019 or evaluating the skills of each employee – I retained the image of someone trying to overcome the structure's inertia. And two essential messages: dematerialization of processes and transparency.
In addition, the new Digital Urbanism Platform was launched in April and, already this week, the city councilor announced that the licensing process will change. From what I understand, CML will rely more on projects and stimulate inspection. In theory it seems to be good news for those who comply. Do you think we may be witnessing one of those people who make a difference?
* who took office in October 2019; and inherited the Planning and Urbanism role, which had been with Manuel Salgado for the past 12 years
S.F. I am completely at ease to answer you because I don't know city councilor Ricardo Veludo, I never even saw him. I met city councilor Salgado, and was with him 2 or 3 times, but it was a waste of my time and I never sought him again – he is full of limitations, with twitches of shallow arrogance. I have no sympathy for him, although I recognize his technical knowledge and ability to work.
As for the current city councilor, the handwritten notes that he referred are sorted out in 5 minutes and weren’t even worth mentioning. The recruitment of 50 technicians and the dematerialization of processes were initiatives taken by city councilman Salgado that had no effect, they were an absolute zero. As for this desire to scrutinize less and inspect more, it’s a promise I’ve heard before but that has never been fulfilled until today. This is how it works in developed countries, and it works well. Let’s see if this is the case and if this city councilor has enough attributes and courage to implement this measure. For now, I can only say that he has been there for 6 months and our experience is very negative – the Department of Urbanism remains a total pandemonium, chaotic, with no guidance or leadership. Coporgest, in particular, has projects under evaluation and awaiting a decision for a year and a half now and we have to beg them to do the work that is their responsibility. It’s a shame.
I have a very different view on this problem and I’m sure that it will not be solved with individual measures. My management experience tells me that there is a deficit in organization and control, with an excess of people, an excess of procedures, but above all it seems to me evident that the municipality's employees have become accustomed to a disorganized and absurd way of functioning, carrying out ridiculous and archaic procedures that consume endless months of no use and only serve to destroy value to the economy. In CML Urbanism, people are governed by a temporary unit that is the semester, and the absence of leadership has been replaced by a kind of dictatorship of technicians. Honestly, it is difficult to envisage an organization with a worse performance. The technician who sees 100 processes earns the same as the technician who sees 5. The technician who responds in 30 days earns the same as the one who responds in 300. It’s a real shame, in which investors are treated with no respect. I hear that investors are fleeing to Porto, where it is said that services work less badly.
In fact, developers have a lot of responsibility on the current situation because, for the most part, they are poor cowards who, instead of imputing responsibilities to technicians and politicians, criticize them when their backs are turned but continue sucking up to them. I must be the only one who has filed a criminal complaint against a mayor, another against a municipal director and two technicians, and several civil cases against the municipality. With poor results, by the way – just with the enormous satisfaction of having fulfilled my civic obligation.
In short: if this city councilor wants to go down in history, he has a very simple task ahead of him: provide feedback in 90 days maximum, be it yes or no. Let him start by sweeping the fundamentalist idiots who work there and who have not yet realized that in the 21st century, palaces, in order to be preserved, have to be adapted. It would be a great start.
J.C. I was thinking about these things that you mention... the truth is that real estate developers and municipalities have a huge responsibility in defining what the city is. One of Coporgest's most popular projects was Sottomayor Residências. Do you know what I thought when I first looked at that project? That Avenida Duque de Loulé would no longer be the same. I’m not asking you for the record number of apartment units or the impact that construction had on the company's turnover. I speak of legacy. Don't you feel that there are cases where the physical rehabilitation of properties has a brutal impact on the local economy or on the self-esteem of a given road or neighborhood?
S.F. Many municipality officials look at developers with suspicion, as if we were relentless agents of savage capitalism, which is not surprising in a country where most people despise the success of others, there isn’t a culture of merit and success. Faced with this I always answer that the serious and credible developers should be very cherished and treated as important partners of the Municipality, as essential agents for the development of the city. If both parties comply with the rules, including legal deadlines, that partnership will create wealth and improve the city's charm and quality. On the contrary, if promoters are systematically faced with delays, difficulties and obstacles, we are only destroying wealth, damaging the GDP, driving away investors and delaying the city’s development. This project you mentioned, into which I put my heart and soul, is an excellent example. It transformed horrible ruins into a magnificent development, an asset that honors the city, and changed that Avenue’s appearance. But you can’t even imagine the difficulties we had to overcome in order to get the work going...
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J.C. Meanwhile, in 2014, Coporgest began to dedicate part of its dwellings to tourism, through its Lisbon Best Apartments brand. Was it a product redefinition strategy to meet a given demand profile (I'm thinking about golden visas), bringing with it another business opportunity?
S.F. In the years of 2012 and 2013, some opportunities arose to purchase well-located buildings in Chiado where, due to their physical dimensions, it was impossible to build a park in the basement. At that time we were already addicted to producing good quality apartments for sale, and I considered that it would be impossible to sell apartments at high prices without their own parking lot. That's when I came up with the idea of building apartments dedicated to tourism because most tourists don't bring a car. Note that at that time nobody spoke about local accommodation, which became popular from 2016/2017 on. Once again I moved on instinct.
Our first project was with a 5 unit apartment building on Rua Nova da Trindade. We built the team from scratch, added more apartments, expanded the team, and so on, until today… The idea of selling income assets for golden visas came up shortly after, in 2015 I think, when we realized that by uniting both we would come up with a very competitive product – the client purchased the apartment, we regained liquidity and maintained the commercial exploration, offering the owner a nice annual income in return. A win-win solution, which soon after some competitors followed.
I'm going to open the hotel, I'm going to learn how to manage it and I'm going to go for dinner there many times. For several years now I have been saying, insistently, that Coporgest must learn to manage hotels because I believe that in the coming years many hotels in Lisbon will be put up for sale, and I want to be prepared to assess whether or not to move forward.
J.C. Do you follow the activity of Lisbon Best Apartments as closely as that of Coporgest?
S.F. Yes, very closely and attentively. From a formal point of view, Lisbon Best Apartments is a brand, a business unit of Coporgest, but it doesn’t have legal autonomy. The team belongs to Coporgest, invoices are issued by Coporgest, etc. I participate in all important decisions, such as setting the price policy, hiring people, deciding on investments, etc. In addition, I hold a monthly, sacred meeting with the entire team, from the Director to the Guest Relations, where I listen to suggestions, complaints, ideas, and where we make a status report regarding occupancy rates, price levels, complaints and compliments from guests, level of achievement of goals... These meetings are an opportunity to keep my feet on the ground and are moments when we inspire each other to make small big decisions.
J.C. Meanwhile, less than 50 meters from Rua Nova da Trindade, a Coporgest hotel will be born. There have been some hotel groups entering the Local Accommodation business but I think that the reverse path is less common. When did you plan to take this step? Will it involve launching a new brand?
S.F. Once again, it was an instinctive decision. The building on the corner of Largo Rafael Bordalo Pinheiro was for sale, the one covered with tiles and, historically speaking, completely out of context. I visited the building, concluded that it would not be possible to create parking lots underneath but that it had adequate characteristics to build a boutique hotel or local accommodation. We did the math and moved on. A few months later Social Security put the building next door up for sale. I don’t remember if we were the only company that made an offer or if we made the best offer, but the truth is we bought the building. At that moment I had no doubt that it would be the perfect place for a 5-star hotel, by joining the two properties.
Our intention is to have our own management, and we registered the name “Lisbon Chiado Hotel”. There were several investors interested in buying, but I didn’t even want to hear the offers. I'm going to open the hotel, I'm going to learn how to manage it and I'm going to go for dinner there many times. For several years now I have been saying, insistently, that Coporgest must learn to manage hotels because I believe that in the coming years many hotels in Lisbon will be put up for sale, and I want to be prepared to assess whether or not to move forward.
J.C. When you say that "you will learn to manage" the hotel, it immediately reminds me of the enthusiasm with which you described the initial years of the company. Talking about Lisbon Chiado Hotel is not just about discussing a new business unit for Coporgest, is it? I am left with the feeling that – having used Lisbon Best Apartments to introduce this area of activity – you are very happy with the idea of having a new world to explore.
S.F. You are absolutely right. Human beings are all different from each other, everyone is unique and every head is a world. In my case, I get much more enthusiastic with a good challenge than with the money I expect to earn from it. This is the main reason why I don't take dividends from companies – I live comfortably with the money I have and I prefer to leave profits for companies to invest in new projects. Setting this hotel in motion will be a new challenge for me, a process of learning to do from scratch, a new source of enthusiasm. I see myself learning a lot about the hotel sector and I want to do better than others. I see myself finding an efficient team to help me implement an iconic space in the city. I imagine clients loving the place and saying goodbye with “see you soon”. Isn't that what professional life is for?
We have therefore reached 2020 impoverished, with a peak of public debt, with the economy on the way to a new crisis because tourism and real estate do not last forever and aren’t enough for everything.
J.C. I totally agree. But let's talk about sadder things: we live moments that will be registered in history books. In addition to the damage to public health, we have a partially paralyzed world economy and limited mobility. Even if the timings of the discovery, approval and production of a vaccine surprise us, what do you think awaits the Portuguese people?
S.F. I have to begin by putting this answer into context. The Portuguese political class certainly includes some qualified, intelligent, prepared, honest people, but the vast majority is the opposite of that. Unfortunately, there’s something common to all of them: all politicians, without exception, have their priorities reversed: first they think about their image, their personal career, news in the press, the political party, friends, some think about business, interests, and at the bottom of the list comes the public interest, always conditioned by all the above factors. They just want to make decisions that favour the top priorities of the list. This means that the overwhelming majority of decisions are focused not on the public interest, but on personal and group interests. It has been like this for 40 years and that is why I always say that the nation is very poorly managed. The 40-year pattern has been a steady rise in public spending, taxes, and public debt, which has led to underdevelopment and impoverishment of the economy. We could be a model of development, but we are only a model of anemic growth and excessive debt.
All of this to get to the following conclusion: these years of socialist government were a stop in time. The big reform they made was to cancel the reforms implemented by the government of Passos Coelho, and the rest was to manage interests and the press, always claiming that they lowered taxes when the numbers show that taxes are now the highest ever – they are more voracious than the liberals, but more cunning: they dropped a few pennies in the IRS and increased millions in indirect taxes, because the people pay and don't even notice. At the end of the day, most Portuguese survive, but they go through a lifetime without ever being able to truly live it, that is, they always live on the level of survival and when they look around they discover that there is a minority living with quality, and feel revolted, because they think that this minority is only made up of thieves. It is true there are corrupt people and thieves, but there are also people with success who have fought hard to achieve it. This is a reality that really saddens me and seems to condemn Portugal to a mediocre destiny that would be unnecessary.
We have therefore reached 2020 impoverished, with a peak of public debt, with the economy on the way to a new crisis because tourism and real estate do not last forever and aren’t enough for everything. In my humble opinion, the Covid-19 crisis is a coup de grâce in a country with fragile finances and a weak economy. What awaits us is Dantesque: deep recession, quick unemployment, hunger, a lot of misery, and the country's inability to react because we don't have the financial reserves to do so, we can't even print money. We are at the mercy of the generosity of the countries that took care of the future. And as voters in those countries believe that they do not have to support the excessive spending and archaic corruption of the southern countries, what awaits us is more debt and more taxes, more fees, more contributions. What is coming will be very tough. I already wrote one day that they should change the national anthem to “Heroes of the Sea, Poor People…”!
J.C. What about Coporgest? I would say that it’s during these times that having 60 million euros of equity capital makes all the difference. Both to face the sector stagnation (I imagine that the Lisbon Best Apartments project is frozen), and to feed your expectations regarding the appearance of hotel units on the market for sale...
S.F. Essentially, all of our works are ongoing, the Lisbon Best Apartments with 0% occupancy and real estate sales have come to a halt. However, Coporgest enters this period of crisis with two aspects that greatly favour us.
On one hand, as I was preaching 2 years ago that we were heading for a new real estate crisis, we ceased new investments in that period, which in practical terms means that we have 4 projects under development but very little product to sell. In more than 60 apartments under production, I believe we have a total of just 12 units for sale and still one project to develop, the Patriarchate Palace, which is fully financed by equity.
On the other hand, having a solid financial structure strongly helps to overcome periods of crisis, not only because it helps us remain serene since we don’t have cash flow problems, but also because we have access to our own funds or others if and when a good opportunity arises.
We will not take any hasty action, be it to reduce the team or to make investments at the first opportunity that arises. We have a few months ahead of us to digest the work at hand, observe what's going on around us and make informed decisions, depending on the course of events. Everything depends on the evolution of the economy and the sector.