Opportunity investors at the door

The Polish market is well used to hearing about German institutional investment funds acquiring properties here. Soon, they could be matched by a new influx of British and American 'opportunity' investors. They are a little wary of the office and hotel markets in Poland, but seem keen enough on warehouses and retail

The closest any of these investors are to entering the Polish market would seem to be Resolution Property, which was formed in 1998 in the UK, between Chief Executive Robert Laurence and the investment team from Argent, "with the specific aim of investing in UK commercial property, that offered scope for high returns", according to the website. Turning their attention to Central Europe, they recently entered into Heads of Terms with TK Development for the acquisition of Targówek Retail Park and Reduta Retail Park in Warsaw. Though RP's Magnus Lofgren insists that "it's still early days" as far as the firm's dealings with TKD are concerned, and that the latter "need to fulfil certain conditions" such as "attracting tenants" to the two buildings, he will express general enthusiasm about TKD, (in whose performance he says he is confident) and Poland and its forecasted GDP growth which "looks fantastic". Resolution Property are also looking at other schemes here and across the region, particularly in Hungary and the Czech Republic.

About the risks
Knight Frank Nieruchomości's Dorota Latkowska, who is the firm's Head of Corporate Finance in Poland, explains that up until two or three years ago, UK investors considered Poland to be "too risky" a market. Now they tend to look at it with more of a view of becoming minority shareholders or participants in the development process, than acquiring whole properties. She acknowledges that they are less keen on the office market because "the competition between the Germans is so high" and are more interested in the retail sector. They also tend to be "opportunity" investors, willing to take bigger chances than their institutional counterparts and put their money into projects, which are perhaps smaller, have less of a high profile and are some way off from being 100% leased. For taking such risks, they can expect yields of up to 15 per cent, rather than the 9-10 per cent institutional investors accept.

Getting closer
Europa Capital Partners, an independent management company which was established in 1999 in the UK, are exclusive advisors to the Europa Fund, a close-ended pan-European real estate investment fund, which is aiming to spend up to EUR 1 bln in Western and Central Europe over the next three years, of which 30 per cent is earmarked for the latter. Its first port of call in this region was the Czech Republic, where a 53,000 sqm warehouse and office facility was acquired. It does however have serious intentions for Poland.
"We have attempted transactions in Poland," says Dominik Brambring, Associate Director of Europa Capital Partners, "but as well as one or two normal problems during negotiations, we've have run into other difficulties over uncertain land ownership", the issue of perpetual usufruct having proved one such obstacle. But now that close-ended opportunity investors such as his "are allowed to invest in non-freehold properties and it's easier for us to follow a certain exit strategy", they are looking more intently at opportunities here, particularly in logistics. They're likely to avoid the office market however because, in Brambring's view, "[in Poland] it is in a downward cycle right now, so we'll have to wait before we invest in it". Of that 30 per cent the fund has allocated to Central Europe, Poland can expect to benefit from a third.

Coming soon
The US-based Merrill Lynch, whose Rob Schweizer, from its London office, describes as an "opportunity investor, which is a bit more flexible than others, in that it can take a longer term view of its investments", has "only been looking at Poland for about a year". It is however currently involved in negotiations for a transaction, which says Schweizer, could be concluded within "the next three months", for which they've already "signed the bill". Another will in all likelihood follow after that, though he wouldn't be drawn on the finer details of either, except that one, in the office sector, involves a "unique tenant and a fifteen year lease in the centre of Warsaw".
"Though we're monitoring the office situation in Poland, I can't say we're particularly bullish about it in the long term," he remarks. Though hotel investments are a possibility, Schweizer acknowledges that that particular market is overcrowded at the moment and along with Europa Capital Partners, suggests that logistics holds more promise for Merrill Lynch in the nearest future.