Arco Vara Taps Local Partner to Drive Sofia Housing Project

TALLINN, ESTONIA – May 13, 2026 – Real estate developer Arco Vara AS has finalized a strategic partnership for its Bulgarian residential project, completing the disposal of a 25% stake in its subsidiary Botanica Lozen EOOD to local firm Kamaleo Invest OOD. The deal, completed on May 12, marks a significant shift in the project's execution, delegating full operational management to the new local partner while allowing Arco Vara to retain majority control.

This move signals a calculated adjustment in Arco Vara's international strategy, aiming to leverage local expertise to navigate and capitalize on the burgeoning real estate market around Bulgaria's capital, Sofia. The agreement, first announced in March, sets a new course for the multi-stage development of family homes in the sought-after Lozen area.

A Strategic Shift in Management

Under the terms of the new arrangement, Kamaleo Invest OOD will not only be a minority shareholder but will also take the helm of the Botanica Lozen project. A comprehensive project management agreement, signed concurrently with the share transaction, entrusts Kamaleo Invest with the entire project lifecycle. This includes overseeing all design and construction activities, navigating complex permitting procedures, managing procurement, and driving the sales and marketing process for the development's upcoming stages.

While Arco Vara steps back from day-to-day operations in Bulgaria, it retains a 75% stake and ultimate control over the subsidiary. This structure allows the Estonian-based developer to continue consolidating Botanica Lozen EOOD in its financial statements under IFRS standards, maintaining a firm grip on its investment. The partnership is designed to blend Arco Vara's development capital and overarching vision with Kamaleo Invest's on-the-ground knowledge and operational agility, a model increasingly common in cross-border real estate ventures.

The project timeline aims for the completion of all development stages by July 2029, a goal the new partnership is structured to achieve efficiently.

Incentivizing Success in a Booming Market

The financial structure of the deal is heavily performance-based, designed to align the interests of both partners toward a successful and profitable outcome. Kamaleo Invest OOD is entitled to service fees totaling up to EUR 576 thousand, contingent on the timely and proper completion of specified project milestones. More significantly, the local partner stands to earn up to 40% of the project's profit, calculated based on the net cash flow generated after each stage is completed.

This profit-sharing mechanism provides a powerful incentive for Kamaleo Invest to maximize efficiency, control costs, and accelerate sales. The timing of this partnership appears particularly astute, as it coincides with a period of sustained growth in the Sofia property market. Following Bulgaria's official adoption of the euro on January 1, 2026, the market has seen increased stability and predictability. Real estate analysts project an 8-12% rise in Sofia property prices this year, with average prices already exceeding €2,300 per square meter.

Demand for single-family homes in suburban areas around the capital remains robust, a trend that began during the pandemic and has since become entrenched. Buyers are increasingly selective, prioritizing quality construction, energy efficiency, and lifestyle amenities—all features central to the Botanica Lozen concept. With demand outpacing the supply of quality new builds, the project is well-positioned under its new management to meet the needs of a more discerning, yet eager, client base.

The Botanica Lozen Vision

The Botanica Lozen project itself is a significant development located on a 47-acre site near the village of Lozen, just a 15-minute drive from Sofia's city center. The master plan, which was updated in 2021 to pivot from apartments to private homes, envisions a total of 56 single-family houses, each with a private yard, targeting high-income professionals and their families.

The first stage, comprising 16 homes, has already been completed and sold, proving the concept's appeal. The new partnership will now focus on the next phases. Preparations for Stage 2, which will consist of 24 houses, are underway, with construction scheduled to commence in the summer of 2026. A final third stage of 16 houses will follow to complete the development.

This project caters directly to the market's shift toward a suburban lifestyle that offers more space, safety, and a connection to nature without sacrificing proximity to urban conveniences. The success of the initial phase demonstrated a key insight into the local market: Bulgarian buyers often prefer to purchase homes that are either near completion or fully finished, a factor that will likely influence the sales strategy for the upcoming stages.

Financial Engineering and a Focus on Estonia

For Arco Vara, the transaction represents more than just a partnership; it is a key component of a broader corporate strategy to refocus its resources on its primary market in Estonia. Company leadership has previously indicated a deliberate, gradual exit from the Bulgarian market to free up capital and management bandwidth for Estonian projects. This deal allows Arco Vara to reduce its direct operational burden in Bulgaria while still benefiting from the significant upside potential of the Botanica Lozen project.

From a financial reporting perspective, the transaction is structured as an equity transaction. The sale of the 25% stake increases the 'non-controlling interests' on Arco Vara's consolidated balance sheet by approximately EUR 2.2 million. Because Arco Vara did not lose control of the subsidiary, IFRS standards dictate that the transaction does not have a material impact on the consolidated income statement or the volume of assets and liabilities. The transaction price exceeded the carrying amount of the disposed interest by a mere EUR 25 thousand, which will be recognized directly in equity.

Although designated as a related party transaction due to Kamaleo Invest OOD now holding a qualifying stake in a significant subsidiary, Arco Vara has confirmed it does not qualify as a significant transaction under the rules of the Nasdaq Tallinn Stock Exchange. This intricate financial and strategic maneuvering allows Arco Vara to de-risk its Bulgarian investment, secure local expertise for execution, and advance its strategic pivot back toward the Estonian market, all while positioning the Botanica Lozen project for its next phase of growth.