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Radosław Górecki
POLAND Warsaw is one of the top ten capital cities in Europe when it comes to the annual transaction volume on the investment market. In 2012 it was one of top ten markets in the world, only behind such cities as London, Sydney and Berlin. So is Warsaw really one of the world's leading cities?
Difficult choices
According to Ernst & Young, just 1.4 pct of the global capital earmarked for purchasing properties abroad was invested in Warsaw in 2012. "This is nearly ten times less than for London and almost four times less than for Paris. The stable and mature markets of Western and Central Europe do represent competition for Warsaw, as well as such maturing markets as Brazil. The cap rates there are nearly twice as high as in Poland," remarks Katarzyna Gerl, a partner in the property department of Ernst & Young Corporate Finance. Warsaw is the only city in the CEE region regarded as a core market by the majority of investors. "However, compared to other leading cities in Europe it has a limited number of top class assets available for purchase," Katarzyna Gerl points out. Michał Rokosz, the director of the property department at Deloitte, agrees. "Funds are looking for projects in the range of EUR 50-70 mln situated in the centre of Warsaw, with a price that reflects a cap rate of over 7.5-8 pct. The problem is that such product is virtually unavailable. Many owners remember the times when the main investors were German funds, who could offer prices that reflected a cap rate of app. 6 pct. Of course it is still possible to find individual examples of such transactions, but for private equity funds such a price is too high and does not guarantee a required rate of return," claims Michał Rokosz.
Germans in retreat
In fact, t is the internal problems that German funds have been having that could lead to a change in the balance of power on the investment market. "Just a few months ago German funds considered the property market in Warsaw to be one of the most important in the region. However, they have since become less dominant. Some have suspended purchases and are preparing for liquidation," claims Michał Rokosz. So purchasing power is moving towards investors from the US and the UK. Who, then, is going to be investing in the Polish capital? "Private equity funds. And I'm not referring to large players, such as Blackstone. These will be smaller managers, who could best be described as investment boutiques, looking for stable markets but at the same time guaranteeing a higher rate of return. "Warsaw could fit in with these expectations," he adds.
The funds now investing in Poland are either institutional or private equity funds. According to Katarzyna Gerl, there are app. 450 private equity funds operating in the property sector worldwide, and currently they are trying to raise USD 150 bln. But the situation on the fund raising market has radically changed since before the crisis. "Platforms that have existed for many years are still able to raise the funds. Before 2008, nine months were needed on average to close a fund. Nowadays it takes the major funds about 18 months to raise the capital on average. New private equity funds have only managed to raise 6.8 pct of the total capital raised globally. Private equity funds operating in the property sector raised USD 139 bln in 2007, whereas since 2008 the pool raised annually only comes to USD 50 bln. The volume of global transactions in the sector amounted to USD 1.23 bln in 2007, while in 2009 this had decreased to USD 406 bln, but increased to USD 679 bln in 2012. The share of private equity funds in the global value of transactions fell from 11 pct in 2007 to 7 pct in 2012," explains Katarzyna Gerl.
Who's next?
Because of this many foreign investors have invested in Poland and our market is considered to be the most attractive in the region - and there is growing interest from new entities. "A lot of investors are currently monitoring the Polish market. We know about at least thirty of these. But there are a lot of debt funds operating on the international market. In 2011 they raised USD 4.1 bln and last year collected USD 11 bln. Over a medium-term prospective, funds can fill a niche in financing on the Polish market. On the other hand, increased activity from insurance companies interested in direct and indirect investments on the property market should occur over the next few years. It is not out of the question that debt funds will be one of the indirect investment tools available to them," adds Katarzyna Gerl.
Investors are looking for properties whose value can be increased by, for example, active management. "This is not an easy task considering the fact that there is no prospect of increasing rent levels. On the other hand, active management requires a team that is familiar with local market realities. This is why some funds are looking for another way, such as that chosen by Peakside Capital. To enter the Polish market the fund simply bought shares in the funds of Polonia Property Fund as well as their manager, and established Peakside Polonia Management. Valad Europe did a similar thing, taking over the management of the Polish Retail Fund from GE Capital RE," explains Michał Rokosz.
According to Ernst & Young, just 1.4 pct of the global capital earmarked for purchasing properties abroad was invested in Warsaw in 2012. "This is nearly ten times less than for London and almost four times less than for Paris. The stable and mature markets of Western and Central Europe do represent competition for Warsaw, as well as such maturing markets as Brazil. The cap rates there are nearly twice as high as in Poland," remarks Katarzyna Gerl, a partner in the property department of Ernst & Young Corporate Finance. Warsaw is the only city in the CEE region regarded as a core market by the majority of investors. "However, compared to other leading cities in Europe it has a limited number of top class assets available for purchase," Katarzyna Gerl points out. Michał Rokosz, the director of the property department at Deloitte, agrees. "Funds are looking for projects in the range of EUR 50-70 mln situated in the centre of Warsaw, with a price that reflects a cap rate of over 7.5-8 pct. The problem is that such product is virtually unavailable. Many owners remember the times when the main investors were German funds, who could offer prices that reflected a cap rate of app. 6 pct. Of course it is still possible to find individual examples of such transactions, but for private equity funds such a price is too high and does not guarantee a required rate of return," claims Michał Rokosz.
Germans in retreat
In fact, t is the internal problems that German funds have been having that could lead to a change in the balance of power on the investment market. "Just a few months ago German funds considered the property market in Warsaw to be one of the most important in the region. However, they have since become less dominant. Some have suspended purchases and are preparing for liquidation," claims Michał Rokosz. So purchasing power is moving towards investors from the US and the UK. Who, then, is going to be investing in the Polish capital? "Private equity funds. And I'm not referring to large players, such as Blackstone. These will be smaller managers, who could best be described as investment boutiques, looking for stable markets but at the same time guaranteeing a higher rate of return. "Warsaw could fit in with these expectations," he adds.
The funds now investing in Poland are either institutional or private equity funds. According to Katarzyna Gerl, there are app. 450 private equity funds operating in the property sector worldwide, and currently they are trying to raise USD 150 bln. But the situation on the fund raising market has radically changed since before the crisis. "Platforms that have existed for many years are still able to raise the funds. Before 2008, nine months were needed on average to close a fund. Nowadays it takes the major funds about 18 months to raise the capital on average. New private equity funds have only managed to raise 6.8 pct of the total capital raised globally. Private equity funds operating in the property sector raised USD 139 bln in 2007, whereas since 2008 the pool raised annually only comes to USD 50 bln. The volume of global transactions in the sector amounted to USD 1.23 bln in 2007, while in 2009 this had decreased to USD 406 bln, but increased to USD 679 bln in 2012. The share of private equity funds in the global value of transactions fell from 11 pct in 2007 to 7 pct in 2012," explains Katarzyna Gerl.
Who's next?
Because of this many foreign investors have invested in Poland and our market is considered to be the most attractive in the region - and there is growing interest from new entities. "A lot of investors are currently monitoring the Polish market. We know about at least thirty of these. But there are a lot of debt funds operating on the international market. In 2011 they raised USD 4.1 bln and last year collected USD 11 bln. Over a medium-term prospective, funds can fill a niche in financing on the Polish market. On the other hand, increased activity from insurance companies interested in direct and indirect investments on the property market should occur over the next few years. It is not out of the question that debt funds will be one of the indirect investment tools available to them," adds Katarzyna Gerl.
Investors are looking for properties whose value can be increased by, for example, active management. "This is not an easy task considering the fact that there is no prospect of increasing rent levels. On the other hand, active management requires a team that is familiar with local market realities. This is why some funds are looking for another way, such as that chosen by Peakside Capital. To enter the Polish market the fund simply bought shares in the funds of Polonia Property Fund as well as their manager, and established Peakside Polonia Management. Valad Europe did a similar thing, taking over the management of the Polish Retail Fund from GE Capital RE," explains Michał Rokosz.
