ARCO VARA AS - NASDAQ OMX Baltic

tends to be smoother in Latvia than in Estonia. Given the complexity of the local governmental
approval process and its critical importance to the implementation of the project, successful
completion of the detail planning phase is crucial for any development project.
After the detail planning approval has been obtained, the next step is to prepare the building design
documentation within the limits prescribed by the detail planning and additional architectural and
construction requirements that the local authorities may prescribe for the project. Arco Investeeringud
usually commissions the designs by the same architectural bureau that prepared the proposal for the
detail planning. The building design documentation details the exact location of each building, floor
plans and division of space and facades. The design documentation is needed for applying for a
building permit for the project. The building permit issued by the local municipalities is needed before
construction can be commenced, and it is granted on the basis of the design documentation. According
to the management of Arco Investeeringud, the average time from the completion of the design
documentation to obtaining a building permit is approximately six months.
The building permit enables the Group to proceed to the construction phase. The Group’s key supplier
in this project phase is the main contractor, which is selected through a tender process. The Group’s
own construction division participates in the tendering alongside third-party contractors, and Arco
Investeeringud will not choose it unless the offered price is competitive. On its recent larger
development projects (e.g. Kolde) the Group has used Arco Ehitus as the main contractor and has not
had to depend on external main contractors. After the tendering, the construction contract is finalised
and signed, and the Group appoints its own supervisor for the project. Arco Investeeringud regularly
supervises the project development and building documentation in the Group’s development projects.
The general contractor prepares the records of the construction work and other documentation required
by the relevant building acts and a draft for the construction contract.
When the building work has been completed, the Group files an application with the local authorities
for a permit for use, if the building is located in Estonia or for an act for commissioning of the
building, if it is in Latvia. The building cannot be taken into use before the local government
authorities have inspected it and issued the permit for use or executed the act for commissioning of the
building.
The time required by the construction phase has increased become longer over the last few years due
to supply constraints in the construction market. The average building time for residential projects is
currently approximately 12 months, and hotel projects take as long as 26 months.
Under the terms of the construction contract, the main contractor gives a guarantee of construction
works as to the quality of the workmanship and materials, the guarantee indicates, that the construction
complies with the contract and that the construction is safe and fit for use. The guarantee is granted for
a period of at least two years as of the date on which building is completed. The contractor must
correct at his expense and within a reasonable period of time any construction faults or deficiencies
that become evident during that period.
The sales process is initiated when the building is substantially completed. Arco Investeeringud does
not retain or manage the building itself unless it can see the potential to develop the property further.
Both residential and non-residential development projects are sold either to investors or end-users at
completion. A real estate agent is usually appointed at a relatively early stage and a marketing
campaign is prepared and conducted concurrently with the construction phase. Arco Investeeringud
often uses the services of Group’s own agency division because it is comfortable with its sales
capability and familiar with its practices resulting in a professional and faster solution intra-group.
Sales costs constitute up to two per cent of the total development project expenses. When willing
buyers have been found, sales contracts concluded and completed, this concludes the development
process.
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