The masters of the retail-verse

Aneta Cichla, 'Eurobuild CEE': What will Rank Progress be like in 10-15 years' time?
Jan Mroczka, president of the board, Rank Progress: It will be several times bigger. We have all the work towards this planned out for a few years ahead. Retail projects are a long-term process and they will continue to be the basis of our activities. While building some of the centres we will be securing land for subsequent projects. And when all this has been done, we will be busy with modernisations, renovations and conversions of the centres in our portfolio.

Rank Progress will also have another string to its bow. I mean the joint venture for the construction of waste treatment plants.
Getting into the waste treatment sector is our new idea. The collaboration with our Canadian partner is indeed our second business 'string'. However, I would not include it with our basic development activities. We are starting a new business line. After meeting a number of banks interested in financing these projects, I can confidently state that there will be no problems in obtaining money for feasible projects. The waste treatment sector is one which I, the president of the board of Rank Progress, believe in very much at the moment. The market is absorbent and EU regulations support the development of this business. Together with our partner we have everything we need to achieve success: experience, know-how and technology.

What about extending your operations to the residential market?
We have a residential project in Legnica - it is finished and practically fully sold. We are not planning a new one at this time. In Wrocław we also have a large project - Marina Park with around 3,000 apartments. We are currently looking for an industry partner for the sale of the apartments. If we find a credible, stable and reliable company, we will want to do business with it. We have already had a few meetings with interested parties, but have so far found that there was no chemistry between us.

What about offices and warehouses?
We are not interested in office or warehouse projects. We have had a few cooperation proposals related to office projects in Warsaw, but we decided against them. You need to have a feel for the market. And we are the masters of retail.

So it is all about retail after all?
I know each tenant. I know how to talk to them, what they expect, what rents to offer and what the tenants' development plans are going to be. Many of them are my friends or acquaintances - I have been building these relationships for years. This is a very important element in this business. I do not build things just for the sake of building them; I do so having taken into consideration the needs of my partners - the tenants. This is the recipe for success. I do not go to Cannes because we have been regularly organising our own conferences for a few years, to which we invite the largest retail chains. At the meetings we reveal our planned shopping centres and together we analyse the projects and the locations offering some potential. The amount of square metres we build is done with our client in mind. We try to figure out which tenant needs what and we design for them. This translates into the number of contracts signed.

You're going to complete some more projects this year. Which of them will come onto the market first?
The first one to be opened will be the Pasaż Wiślany retail park in Grudziądz, which will be launched in August. The commercialisation of this project is now almost 100 pct completed - only one unit is still available for lease. Brama Pomorza in Chojnice will open in two stages - in September and October. We are currently finalising contracts with tenants. The first stage of the project will involve the construction of a 'home & garden' centre and a shopping arcade with a hypermarket, some restaurants and boutiques. The second stage will consist of a retail park.

And what about the project in Krosno? According to some preliminary arrangements it was supposed to start its operations at the end of last year.
Miejsce Piastowe in Krosno, which is over 80 pct leased, is still mired in administrative procedures. A neighbour has lodged a protest and we have to wait for the dispute to be settled, but we expect to open the retail park this spring.

Which projects are currently under preparation?
Centrum Handlowe Piła is under construction and should make its debut on the market at the end of next year. We want to start the construction of Centrum Pogodne in Oleśnica this spring. The completion of this project is planned for Q1 2014. The second half of 2013 will see the beginning of work on Galeria Aviator in Mielec, which should be finished by the end of next year. This year we are also planning to start a project in Kielce - the S7 regional shopping centre. It is a huge project over an area of 67 ha and, due to its size, construction will take two years. The centre should be ready by the end of 2015 or early 2016. We are also planning a project in Duchnów: Centrum Warszawa-Wschód. But the launch date of this project depends on the pace of work on the local zoning plan. It will be a large centre, 8 or 9 ha under a roof, so an area of about 90,000 sqm. We would definitely like to start a project in Olsztyn this year, where we are in the process of securing a building permit and leasing. We have had a very positive response from the market - some leading retail chains are interested in entering the centre. The plan is to complete the project at the end of 2014.

A total of 81 towns and 81 convenience centres - this is the development strategy of Rank Progress in smaller towns?
We have chosen 81 towns where our mini shopping centres could be located initially. The selection criteria involved an assessment of the tenants' needs. After this we looked for suitable locations in each town: with good transport links, near residential estates, and with a well-regulated legal and administrative status. We have already chosen a dozen or so plots. Their purchases are at various stages, but they are in progress. However, until they become our property, we cannot talk about them. Our portfolio of convenience centres includes the centres we have already talked about: Pasaż Wiślany, Miejsce Piastowe and Centrum Pogodne in Oleśnica. Other centres of this type will have the same name - Centrum Pogodne. They will be retail parks with a partly roofed shopping arcade.

Are you not tempted by large cities?
The centre in Duchnów will after all be part of the capital city. The completion of the A2 motor-way will provide access to it within 10 minutes. In addition to that I am negotiating to buy two projects in Warsaw.

Will they be takeovers of projects, as in the case of the Aviator shopping centre?
Yes, they will. In the next few months there could a few more such transactions apart from the ones I have mentioned. We are currently in negotiations, so I cannot disclose anything concrete yet. We are also buying new plots, such as in Wejherowo, where a shopping centre with an area of 18,000 sqm will be built. We are buying the property from the town, having won the tender in December last year. This project stands a chance of entering the market at the end of next year. However, design issues will determine the launch of the project in this case.

Still, you do not accept every offer. You gave up on Alchemia in Lublin.
We gave up because there was a lot of competition in Lublin, which requires a fight and provides tenants with a basis for rent negotiations at a level which is unacceptable. Let's be realistic. Given the choice a tenant would choose the cheapest offer, this is obvious. And we do not want to carry out projects at any expense, giving up on the quality, which is a key issue for us.

Nevertheless, you got involved in Olsztyn, even though the foundation stone of Galeria Warmińska was laid near Rank Progress's project in early April...
Our centres complement each other. There is no space for a DIY supermarket in Galeria Warmińska, whereas in ours there is. A fitness club, a cinema - it's all there. There are people to build for. I am also a shopper and would like to have a broad choice. Such competition, which is based on complementing each others' offers, is healthy.

You have touched on an important issue - leasing negotiations, establishing the conditions for a brand to open in a centre. Is this one of the problems that are concerning developers right now?
The commercialisation is one of the most difficult stages of a project. Projects that are 60 pct leased, in good locations, with building permits and the developer's own contribution in place, do not have to worry about loans. There will be financing for them. However, reaching the required commercialisation level is a problem. This applies to centres that have to fight rival projects on the local market. This gives retail chains an advantage.

As well as the crisis and the decrease in consumption...
The crisis? Decrease in consumption? Have a look at the sales of luxury goods in Poland or the financial results and turnovers of large tenants. The reports will soon be published on the stock exchange.

So what is the problem?
Those who are worse off right now suffer because of the limited availability of credit. Without it small entrepreneurs are not able to obtain financing for their operations. The banks used to be eager to support a wide range of businesses; now they study them very closely. Sometimes they require threefold or fourfold collaterals. Consequently, not everyone can fulfil these conditions. Reduced expenditure by the middle classes has also had some influence, but I would not exaggerate the importance of this factor. However, the combination of all these factors has resulted in the fact that smaller tenants are no longer planning significant expansion.

How do you assess the current mood on the market?
Those who can negotiate the media circus around the retail market right now, and are able to control it, are thinking positively. Take a look at some of the banks that brought on the crisis in the United States a few years ago - they are doing great right now. I will not repeat, like most people, the fallacy that we are in a crisis. No, we are not. We should finally believe in ourselves, also as a nation. Poland is still the 'green island'. The banks are lowering their expenditure under the influence of the inflow of negative information, while tenants want rents lowered and increases in fit-out costs. However, developers such as ourselves regard this as a transitional period. But we need to work out some common solutions that will benefit both parties. The fact that we are managing to work out compromises and sign new leases confirms that I am right. Moreover, the company keeps on receiving purchase offers for our centres. This gives us the grounds for saying that there is no crisis on the market.

Still, the profitability of the retail business has declined in recent times...
If investment profitability decreases below 25-30 pct, then I would say we have a problem. So far we do not. If someone claims that it is only possible to make 6-8 pct on this market, why build anything at all? It would be better to keep the money in a savings account.

When are you planning your bond issue? The flotation planned for February did not take place.
A resolution has already been passed. The PLN 150 mln bond issue will take place on May 15th. The bonds are secured by our properties.

What was the aim of the sale of Galeria Świdnicka for PLN 104 mln to a company affiliated with Rank Progress?
The money from the sale will be used to finance new projects. Elsoria Polska I wanted to buy the centre, so we are selling it on the agreed terms. Please note that the contract is drawn up in such a way so that we can withdraw from the earlier arrangement provided we find a different buyer who would pay more. We have two other offers that we are currently considering.

How do you see the future of the retail market? When will the balance finally return?
The balance has been there all the time. But compromise, which I mentioned earlier, is of the utmost importance and will benefit everyone - even under changing market conditions.

Rank Progress's projects and sales
The main projects carried out by the Rank Progress group include large-format shopping and service centres, retail parks and shopping centres located in medium-size towns. In 2001-2012, Rank Progress completed 25 investment projects, including seven of its own shopping centres: in Jelenia Góra (Pasaż Grodzki), Legnica (Galeria Piastów), Świdnica (Galeria Świdnicka), Kalisz (Galeria Tęcza), Kłodzko (Galeria Twierdza), Zamość (Galeria Twierdza) and Zgorzelec (Carrefour Zgorzelec). Some of these have been sold to the Blackstone Real Estate Group and became part of the King's Street Retail platform: Galeria Tęcza (sold for EUR 37 mln), Galeria Twierdza in Kłodzko (EUR 39 mln) and Galeria Twierdza in Zamość (EUR 44 mln). Galeria Świdnicka is also currently in the process of being sold at an agreed price of EUR 25 mln.

Businessman from birth
Jan Mroczka, the co-founder of Rank Progress and its majority shareholder, has been operating his own business since the beginning of his professional career. He gained his first business experience as a teenager, in a family gardening company run by his grandfather. Later he opened his own business. His companies included a winery and a concrete fabrication plant. Before he became the president of the board of Rank Progress, he was the co-owner of a company involved in real estate transactions called Bartnicki, Mroczka E.F. Rank Progress for ten years (1997-2007). He claims that work is his greatest passion and spends his few free moments with his family.