Warsaw investment pie

Investment funds are scrambling for the best real estate on the Warsaw market. They are competing mainly by offering developers attractive prices and, no less importantly, good terms of agreement

Warsaw remains the investment centre of Poland and most of the purchases have been made by real estate funds and according to a report by Cushman & Wakefield Healey & Baker, 67 per cent of these have been in the Central Business District. Last year's purchase of Centrum Biurowe Euromarket, by a fund linked to Zentral Immobilien Fonds (the HypoVereinsbank Group) for EURO 23.9 mln, was the only exception. "This is a significant step which could lead to more institutional investment transactions in regional city office markets in the coming years," reads the report.
What's on offer will most certainly determine the development of investments outside Warsaw. At the moment there isn't much real estate available and developers aren't much interested in selling their property.

Fancy a piece of pie?
Although Warsaw has vast property resources at its disposal, attractive property from an investor's point of view, is not easily come by. Despite this, investment funds, attracted by favourable return rates, are the biggest pieces of the 'Warsaw pie'.
"I'm often approached about the possibility of selling our biggest Ochota Office Park complex," admits Andrzej Mikołajczyk of Mahler Project. "We have no such plans for the time being but I can understand why people ask. Ochota Office Park is fully leased out and has interesting tenants so it's bound to attract investors who though having lots to spend, have little to spend it on."

Tempting offers
Those who know about the Warsaw investment market, agree unanimously that the price remains a decisive factor in any agreement. It isn't however the only one, since nowadays the speed with which investors are capable of reaching decisions has begun to play a crucial role.
Flexibility is undoubtedly an inducement in a competitive market, though some developers can be lured by other qualities, one of which is the so-called 'forward purchase' option whereby, having received part of the payment before the completion of a building, development teams don't need to worry about financing their scheme.
Could this have been the kind of offer which tempted TK Development Poland (TK Polska Operations) to come to an agreement with an investor, as to the heads of terms of selling Jerozolimskie Company House II as early as the construction stage? According to Zygmunt Chyla of the company, the news came as a disappointment to at least two other potential investors.

Investor with a reputation
The Buelens Group adopted an interesting approach when selling their building, Sienna Centre.
"We were in no major rush to do it, just concerned to find a suitable investor," says Marie-Madeleine Buelens. "We worked on it together with Cushman & Wakefield Healey & Baker and their task was to select and negotiate with serious partners such as Europolis. We didn't want to inform the whole market that the building was for sale."
Mrs. Buelens informed Eurobuild that they finally chose Europolis because it not only offered them a better price but presented an extensive real estate portfolio and trustworthy shareholders. "There are many prestigious tenants in Sienna Centre and we didn't want them to fall into the hands of an undeserving owner," stresses Mrs. Buelens.

It's harder in Hungary
"Competition in the Polish investment market has been growing for the last 12 months," confirms Doris Schumacher of Zentral Immobilien Fonds. "It will grow further when Poland is granted entry to the EU and the German open investment funds' law is altered. [to enable the purchase of property in perpetual usufruct]. As far as we're concerned, Hungary, with its high competition and prices, is a more difficult market."
One of the options is to go outside the office market and have a closer look at retail, as Heitman did when they signed a property purchase agreement with the Casino group and Apsys. "I expect deals in the logistic sector," hints Zygmunt Chyla of TK Development Poland.

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Flexibility is what counts

Dorota Latkowska,
Knight Frank Nieruchomości

As there is a limited supply of investment products on the Polish market at the moment, the speed at which investors are able to make decisions has become one of the decisive factors when acquiring property. Funds which can respond to new opportunities stand a greater chance of purchasing the best property and I believe Europolis, DB Real Estate, the HVB Fund and Heitman thoroughly analyse the investment possibilities and market conditions in Poland, and can make quick strategic decisions.
In a market like Poland's, where there is a shortage of property worthy of investment, investors are trying to "create" investment products by offering owners more and more sophisticated terms, such as making allowances for leasing risks, accepting payment on an instalment basis, etc.
Europolis' involvement with the developer AIG/Lincoln, is yet another example of the possibilities of acquiring attractive investment products. The Austrians already own the Saski Point office building and have signed a preliminary agreement with AIG/Lincoln for the purchase of Saski Cresent, soon to be complete.
The case involving Rodamco Europe and GTC is analogous. When purchasing half of the shares in Galeria Mokotów, Rodamco allowed for future "cooperation" with the developer in other schemes, though obviously such "marriages" don't last forever. Another trend we can observe these days is that of investors entering join venture enterprises as early as the stage when construction permits are acquired.
I hope that apart from the open and closed real estate funds currently operating in the market, the so-called opportunity funds, interested in large portfolio, "sale & lease back" and "forward funding" deals, will also increase their investment volume. Such funds are capable of transforming "buildings with possibilities" into buildings with investment appeal, and then selling them. The purchase of Warsaw Trade Tower was perhaps one such activity and the building, once leased out and having been marketed appropriately, could in several years be an excellent investment product for a German, Austrian or American open and closed real estate fund. >From recent meetings, I've learnt that in the next two to three years we can expect substantial growth in the international capital looking to the Polish real estate market, which means the players will have to be increasingly creative.

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The product is still what's most essential

Agnieszka Jachowicz,
DTZ Poland

There are several ways an investor operating in the Polish market may benefit from long-term cooperation with a developer, such as saving money on the costly 'due diligence' analysis. Part of this involves research into a developer's financial standing which, when buying another building from the same company, becomes superfluous once the investor has already acquired all the necessary knowledge.
Often enough, the trustworthiness of a developer affects the way property is perceived and, subsequently, in a situation where the next product corresponds with an investor's requirements, there is a chance the deal might be finalised in a shorter time. This was perfectly illustrated by when AIG/Lincoln sold two Warsaw buildings to the same investor. Saski Crescent was not officially put up for sale in the Polish investment market because it had found a prospective buyer before it was built.
The product however, remains the most important selection criterion. The structure of a transaction is based on the understanding reached by all parties, and their priorities. The common delays when finalising agreements, often stem from the demands made of developers such as having to recruit a minimum number of tenants. Investment funds are usually reluctant to search for tenants for their buildings, which is why buildings with long-term tenancy agreements are more often sought.
So far investors, with only a few exceptions, have been buying office buildings but I receive more and more inquiries about retail property, which I feel very positive about. Heitman's purchase of a large real estate package from Casino and Apsys, which we believe to be the beginning of a wave of retail deals, confirms this trend. Heitman's move has received various responses but as far s I'm concerned, this was a brave decision at a time of growing competition in the retail property market. As well as the companies which specialize in the retail sector such as Rodamco, the Złote Tarasy and Galeria Mokotów investor, many other investors are interested in smaller retail units as a way of diversifying their property portfolios.