AM to PM

How healthy is the Polish asset management market, what problems is it having to tackle and what are its prospects – these were the issues which dominated the round table discussion chaired by ‘Eurobuild Poland’, in the head office of Jones Lang LaSalle
Both asset managers for funds managing real estate portfolios as well as specialists from agencies offering AM services took part in the meeting. Invitations to the discussion were accepted by:
Anna Duchnowska – head of Asset Management Polonia Property Fund, AIB PPM
Małgorzata Ledwoch – head of Property and Asset Management, King Sturge
Monika Rajska-Wolińska – head of Property Management, Colliers International
Bartłomiej Hofman – managing director, Europolis
Łukasz Maciak – commercial investments director, BZ WBK AIB TFI
Rafał Mateusiak – managing director of real estate fund, BPH TFI
Tomasz Trzósło – national director of capital markets Central Europe, Jones Lang LaSalle
Tomasz Cudowski, ‘Eurobuild Poland’: First let’s try to decide precisely what we are going to talk about, since asset management is a broad concept. For instance, property managers responsible for a larger package of tenancy contracts like to be referred to as asset managers.
Tomasz Trzósło: The fundamental difference between asset and property managers is that AM decisions involve ownership issues, strategic decisions connected with long-term management. For example, an asset manager recommends when a property should be sold and defines the scope of rent-setting freedom. A property manager is unable to do that.
Bartłomiej Hofman: I agree. An asset manager must possess a vision for a whole portfolio. It is he who is able to recommend, for example, when an owner should sell a building or adapt to market requirements by changing its original function from office to residential, or to optimize the way the space is used.
Małgorzata Ledwoch: An AM has precedence over a property manager. But not only these concepts are confused – facility managers often say that they deal in property management, though in effect they operate in a completely different field. Accuracy in settling these definitions is required for the good of market operators, to avoid misunderstandings.
Łukasz Maciak: The subject of AM interest can be defined in two ways, and the decision usually depends on who defines it. In the wider sense, a fund’s assets are not real estate alone but also share and stock in target companies, since funds, to avoid risk, often invest in real estate through target companies. In the narrower sense, an asset is real estate alone or a real estate portfolio.
Rafał Mateusiak: The work performed by AM can be divided into two parts – the ownership and external service. But nothing stands in the way of an AM agency performing the full range of work for its customers. In reality, that depends solely on the customer and the extent to which the owner decides to transfer control of his portfolio.
‘Eurobuild Poland’: Is AM outsourcing at all possible? Could transferring these services externally mean the loss of full control of the assets and an increased investment risk?
Tomasz Trzósło: Outsourcing AM services is possible, of course, and will occur to an increasing degree, but I cannot imagine the full transfer of decision-taking without any ownership supervision. In practice, an asset manager should move freely in a predefined area, while decisions exceeding an asset manager’s authorization will have to be approved by the owner. In short, the owner maintains control of his assets while the asset manager will be motivated by financial remuneration for the best possible ‘care’ of a property and so endeavours to maximize its value.
Monika Rajska-Wolińska: Asset management is a discipline requiring such features as trust and responsibility, while outsourcing AM services does not mean that an owner has lost complete control of his portfolio. A managing  company drafts appropriate reports and using their local knowledge advises the owner and consults on all strategic decisions. A decision to in- or outsource may also result from an investor’s long-term strategy, for instance whether an investor intends to change his agency in Poland. Should he plan to sell his portfolio in a few years and leave Poland, then the future outcome of employing people on full-time contracts will lead to problems related to the termination of labour contracts.
Rafał Mateusiak: As in any outsourcing, the mandator must answer a fundamental question: whether the decision to outsource services guarantees the company any added value. That apart, an outsourcing decision depends on the trust in the external company and on the fund’s strategy. Funds exist with their offices in New York, for instance, which do not want to open a Polish agency – it is these which usually are inclined to outsource a greater range of services.
Łukasz Maciak: With no disrespect to existing agencies and consulting companies, I would say that there are no companies offering comprehensive AM services in Poland, mainly due to their financial weakness. If the capital of such an external company amounts to even PLN 10 to 20 mln and it is to manage a portfolio of PLN 1 bln, then should an unfortunate decision be taken by the external asset manager, the fund manager and stakeholders of the fund will find it impossible to regain any of their lost finance. Admittedly, these companies employ Poland’s top specialists, but I think it is still too early to outsource AM.
‘Eurobuild Poland’: But managing ‘in-house’ a large portfolio, means the creation of its own departments and covering the related costs. When will outsourcing start to pay its way?
Anna Duchnowska: There is no precise moment when an internal asset management department should be created. This depends on the investor’s strategy. The appearance of a so-called ‘critical mass’ effect is imperative, that is, a specific minimum number of properties which justify the existence of an internal department. For some investors this may be two properties, for it could be a dozen or more. On the other hand, greater interest is being generated by AM services by smaller foreign investors owning 1 or 2 buildings in Poland and which cannot justify the opening of local offices. They expect comprehensive services from an agency or consultants – from target company registration through locating the finance, day-to-day property administration, leasing space up to and including financial and bookkeeping services.
Rafał Mateusiak: We employ specialized workers to coordinate the work of external companies. They monitor the work of facility and property managers, architects and project managers. Our financial director cooperates with an auditing company and with banks. Only when the work of these people is combined with the know-how of outside companies will a fund be able to take the appropriate decisions.
Eurobuild Poland: The rapid growth of the AM market is, unfortunately, accompanied by a lean labour market for that industry. Are Polish asset managers emigrating in their hundreds?
Rafał Mateusiak: This is true – both to the East and West. The Polish market is so absorptive today that it has already found work for all good and average specialists. Developers, the number of which has rocketed in the past few years, drain the market to the greatest extent. Companies in other specialities, which have decided to transfer part of their capital to the property market, have also appeared. They, more than anyone else, require people with the necessary know-how and experience, to move safely in a field about which they know little. Following the unpleasant experiences of recent years, banks and insurance companies too are employing large numbers of property specialists to avoid risks being taken.
Bartłomej Hofman: The Polish AM market is developing rapidly, but from the beginning it has been a very shallow market. There were only a handful, perhaps a hundred, specialists when I started working on the commercial properties market more than 8 years ago. And since then the supply of modern office surface in Warsaw has risen from some 600,000 sqm to around 3 mln sqm! To become a good manager, agent or specialists you have to acquire basic knowledge of all aspects of the discipline. Studies and training are insufficient – several years of practice are also required.
‘Eurobuild Poland’: What other problems, apart from those of personnel, are besetting the industry?
Rafał Mateusiak: For example, problems due to vague and frequently changing tax regulations. In our case it is dangerous since we handle large sums of money during transactions, and even specialist consultancy companies and law offices oppose each other during negotiations, giving differing interpretations of the same valid regulations. In this anxious situation, we are forced to take decisions and assume responsibility for them.
Łukasz Maciak: Another headache is the absence of a Polish benchmark from which the value of properties could be indexed. It is no secret that properties are attractive and their values are rising. But is that thanks to the market or asset managers? If investors in Poland had such an index, would they know their portfolio is well managed and whether its value is growing proportionate to market trends? Initial plans exist to establish such an index but these require greater trust on the part of investors, who would have  to allow access to their most confidential data. Such an index would be very helpful if only to set the provisional remuneration for outsourced AM firms.
Rafał Mateusiak: The tenants ‘expands’. The economy is in good health, companies are growing and looking for more office space in their buildings, which are mostly 100 pct occupied already. An asset manager has to decide which company he should hold on to and which should be allowed to go. I feel we shall be witness to an increasing number of company moves and relocations. Fortunately, that is far from meaning that office buildings will be full of empty space – empty premises will be absorbed rapidly by the remaining tenants.
‘Eurobuild Poland’: That’s good news for property managers – who will have fewer contracts to manage. But there should be plenty of work for asset managers. So what prospects can Polish AM expect? In what direction is that industry going to move?
Anna Duchnowska: I am sure AM will have an increasing part to play in the investment industry. Investors are encountering mounting problems in purchasing commercial buildings and implementing return rates, waiting exclusively for rates of capitalisation to fall. Since the further compression of capitalization rates is severely restricted (and even impossible in some cases) investors are having to look for other solutions, which is where asset managers can find a place for themselves. I think the AM industry is almost bound to succeed throughout the whole CEE region.
Monika Rajska-Wolińska: I agree that present market trends suggest a rising demand for AM services. A few years ago when foreign companies invested money on the Polish market in commercial properties, they focused the management of such buildings mainly on their administration and cost management. The situation has changed on the commercial properties market in the past two years, with competition rising and AM services becoming an important factor influencing an investment’s success.
Bartłomiej Hofman: It is a relatively young market, but I also think it has a definite future. New companies are appearing alongside existing AM firms, which will be initially managing assets in the name of small investors, but will tackle greater investment portfolios in a period of a few years. Outsourcing AM services will be depend to a large degree on the trust of investors in companies and the people employed by them, and in those who manage capital amounting often to 100,000s of euros.
Anna Duchnowska: You should never forget about pension funds which will very soon be investing in real estate, following the example existing in most EU countries. The demand for investment announced by the Pension Funds Organization is growing by the year while the opening of this sector to the real estate market is only a matter of time. The PFO has no experience of the Polish real estate market, so its requirement for qualified companies rendering AM services will be all the greater. And that will be real potential needing a real solution!