A billion euro to spend

Europolis has proved itself to be one of the foremost real estate investors in Central and Eastern Europe. It has cash to spare
and special plans for Warsaw.
Eurobuild speaks to Director Bernhard Mayer.

In Central Europe you have invested mainly in office buildings. Two exceptions were warehouse complexes in the Alliance Logistic Centre near Warsaw. Why is that? Can you explain Europolis Invest's strategy?

- It has a historical basis. In the past, Europolis developed four office buildings in Vienna, so our staff are experienced in this type of real estate project. We also think that the office market is more reliable in terms of location and tenants, whose financial standing is usually better than in other sectors.

So why did you decide to invest in warehouse projects?

- Because we think the number of products is very limited in Central Europe. If you come to Warsaw and look at the buildings which are potentially interesting to invest in, you will end up with perhaps ten. It's not that many. Additionally, some are not for sale and some are owned by one's competitors. If you want to invest more than EUR 1 bln in this market, you have to consider alternatives. For me, logistics is one of these.

At the moment Europolis Invest is active in Warsaw, Prague and Budapest. How would you compare these cities?

-Broadly speaking, the legal situation is very similar and there is not much risk for investors. The only one exception is the restitution issue in Poland, which hasn't been properly clarified. In other countries the problem has been solved more easily. For example, in the Czech Republic a deadline was set for potential claimants, so now the situation there is clearer. Hungary's is currently the best tax system: it is very transparent and isn't changed every year. You can handle anything if you know about it in advance and if it is in internationally-accepted tax frames. I think this is normal for any country in transition. It is important to realize, however, that changing the legal and tax systems is not just about issuing documents. Change always has a big impact on companies and creates a lot of additional work.

What about the products available on these three markets?

- In terms of rents, yields and availability of products I would compare Budapest and Prague. Warsaw is completely different. There are a lot more products in Warsaw and this is reflected in our portfolio. We have two buildings in Budapest, one completed and one under development in Prague, but in Warsaw we have four properties.

Do you think the investment market in Warsaw is competitive?

- Yes, but I expect it to become much more competitive by the end of 2003 or the beginning of 2004. Now we are seeing more activity, especially from German funds and as there will be a change to the law, investing here will become easier for them.

What about these aggressive funds which accept riskier products?

- Well, it's a common view that it's a riskier market here. It's clear that the rent of a contract signed five years ago will come down if you have to re-rent it to another tenant. On the other hand, the investment yield you get is about 11 %. If you own a building in Frankfurt with a 6 % yield, you don't have any guarantee that rents will not come down and your biggest tenant will not suddenly disappear, so the only advantage is that you gain a good understanding of Western European markets. Europolis knows Central European markets better. Both risks and opportunities here weigh in our favour at the moment.

Your portfolio in Poland consists of four properties. How much did you invest in them?

- Our investment volume in Warsaw has reached nearly EUR 200 mln., which represents a large portion of Europolis' portfolio in Central Europe, where we have invested 350 mln euro so far.

You are in close co-operation with AIG/Lincoln Polska. What exactly is your involvement in their Saski Crescent office project in Warsaw? Does this include other AIG/Lincoln projects?

- We have acquired three of AIG/Lincoln's projects, (Saski Point, Aliance Logistic Park and Info-Park, Budapest), and we know one another very well. We have a relationship with AIG/Lincoln, though it doesn't amount to a formal agreement. We have agreed however, that AIG/Lincoln will deliver a completed building, (Saski Crescent), with tenants. The tenants attracted to the building will determine the final price, as is stipulated by the lease agreement.

Europolis Invest was set up in 2001 for 10 years. What will happen to your portfolio after this?

- Usually a fund has three options. The first is to extend the period. The second is to sell the portfolio to another investor and the last is to set up a new fund with the same strategy, or with a different strategy in terms of the markets or branches of the markets. If the portfolio is a success, all three options can be easily implemented. I am very optimistic that this fund is not the last we will manage.

Europolis Invest's plan is to expand its portfolio to the value of EUR1 bln over the next four years. Is it possible to say how much of this amount will be invested in Poland?

- It will not be formally divided. Not everything will be invested here in Poland, although this is our most important market at the moment. I don't have any problem with investing here a lot more. But we have good opportunities in Romania as well, so maybe our next deal will be done there. We are also looking at the Baltic states, though these are small markets and Polish towns like Lódz and Poznan. We will be researching the possibilities there soon.

You have looked at other markets in this part of Europe, the Baltic countries, Romania, Slovakia and Slovenia, for example. Can the products there compare to what you can get in Poland?

- Yes, from a technical point of view they are comparable. The difference is simply volume. The markets are much smaller in Ljubljana or Zagreb. If you acquire the best buildings in some of these smaller countries, they will be yours for years to come. Buying 50% of the completed office space in such cities doesn't make sense. You could easily do this with class A property. It is also rather expensive to learn the legal and tax structure, particularly when managing from Vienna.

When should we expect to hear about your next investment in Poland?

- Maybe this year.