The win-win-win scenario

Guernsey-based Revetas also revealed that it was opening an office in Budapest to add to its existing branches in London, ?Bratislava and Vienna and that it was currently in the process of raising a EUR 250 mln fund for investment in the region. Along with these announcements was the appointment of Markus Leininger to Revetas' investment committee, who spoke to ?Eurobuild CEE' about the ambitions of the fund in this part of the world.

Revetas Capital is the successor to Bifrost Investment Group, which was set up in 2003 aimed at opportunistic real estate investment in the CEE region, but mainly in the CIS. According to the company website, the team has since acquired, managed, refinanced and disposed of over EUR 400 mln of real estate in ten transactions involving properties with a combined area of around 240,000 sqm. However, the team's geographical focus has now shifted. "Now we are looking at the SEE region, where banks are trying to dispose of distressed assets," explains Markus Leininger. "Poland has done relatively well over the crisis years, but further south is a different story," he continues, "the situation there is more problematic, so there is more potential for a company like ourselves. In Hungary, Romania and Bulgaria banks are still over-leveraged, with bad loans not being the only problem, since Basel III is to come into force in 2018, which will impose greater capital requirements. And the banks will have to be ready for this before 2018. An additional difficulty with selling loans is that capital values for real estate have fallen. We want to bring in fresh money to create new value and bring the assets back on track."

What is different about Revetas' approach? The idea behind the whole venture, according to Markus Leininger, "is to create a top-tier boutique to mainly focus on banks with problematic loans or investors who want to pull out of projects." For this purpose, Revetas is looking to develop a track record of partnerships with financial institutions, but going "beyond the profile of a pure opportunistic real estate developer," as Mr Leininger puts it. "We want to create a rescue and recovery platform to restructure, recapitalise and de-leverage real estate in the region," he adds.

Write-offs ruled out
How does Revetas Capital intend to do this? According to the company's new board member it will be done "hand-in-hand" with investors who have lost interest in a real estate project they have invested in but cannot find buyers for, especially since everyone is currently focusing on core product. "That's why we will be focusing on non-core asset classes. In most cases so far the banks are not refusing to talk to us, but we will see how it goes. The banks need to sort out their balance sheets, and so bringing in new money should be popular with them. Up to now it has only been a win-situation only for the buyers of distressed assets - the banks have had to write off lots of money. However, the current climate is not going to allow large-scale write-offs. So we will focus on providing an exit-scenario, where both partners will be able to benefit from an increase in the value of the asset," he adds.
He goes on to explain that Revetas can work in a number of formats to create such win-win situations: joint-ventures with existing schemes; or full-ownership, but hand-in-hand with the lender for a smoother venture. "A broad variety of tools will be employed to do this," he says. "The situations could be distressed, but our main focus will be to find assets that we can re-position and bring back to the market. Banks will be able to get their money back and funds will be able to exit and make a profit as well."

Drop in the ocean
And what role does its London/Luxembourg-based partner Patron Capital have in Revetas' plans? "Patron is the seed investor in the fund and has provided EUR 100 mln to the platform to start the business," says Mr Leininger. He insists that it should be a leading platform in the CEE region, where he feels that no-one is providing a comparable service. The target of the fund is to raise EUR 250 mln, but given the scale of banks' balance sheets difficulties and the quantity of problematic assets, he believes that the size of the fund should grow. As Markus Leininger concludes: "Considering the number of investors who can't manage their assets, have lost interest or repatriated their capital, as well as the number of banks who need to reduce their loans for such assets, EUR 250 mln is a mere drop in the ocean. The banking system is still managing to function despite the situation, but it is on the lookout for solutions, for partners to appear to help reduce the risk process for deals - especially now during the euro-crisis, when they are unable to take more write-downs. Such joint-ventures as we are proposing between banks, investors and ourselves will put assets back on a better level than today - even in the more difficult jurisdictions, such as Romania and Bulgaria."

Nathan North