Hungry Hypo

Beata Latoszek, the head of Deutsche Hypo’s Polish branch: Having observed the healthy economic conditions in Poland and its substantial potential in terms of commercial real estate, we made the decision to enter the Polish market. We are interested in the financing and refinancing of real estate projects: office buildings, shopping centres, warehouses and hotels. We are able to finance very large projects through ‘underwritings’, i.e. financing the entire project followed by the subsequent sale of part of the loan to other foreign banks that do not have their branches in Poland. The advantage for the client is that they obtain financing from one partner – even if it is a large project they only negotiate with us and we carry out further loan syndication (the division of the loan between other banks).

Are you not afraid that you will share the fate of banks that have wanted to finance Polish projects but failed to find their proper place on this market?
No we are not, because I believe that Poland is a large and mature market. We want it to be a balanced and stable business aimed at long-term relationships. We are also confident about retaining clients who we have cooperated with on projects in other countries, e.g. in Germany or Holland. The experience and financial power of investors are always very important, particularly in the context of construction loans. When the budget is exceeded, the investor has to show their readiness to cover the additional costs.

So what should the commercialisation level of a project be before Deutsche Hypo gets involved in financing it?
We are not interested in speculative financing. We expect app. 40 pct of the area to have been leased and in some cases even 50 pct. It also depends on the interest cover ratio or the interest and debt cover ratio. And it is important what locality the project is being developed in – whether it is Warsaw or other cities such as Kraków, Poznań, Gdańsk or Wrocław, which we are also interested in.

What about smaller towns?
As far as offices are concerned, we are not really interested. Many shopping centres are being built in these markets instead. We are considering financing projects in regional towns and cities, but those located in the western ‘wall’ of the country. However, we will make such decisions when we come to them, considering each project in turn. We do not have a fixed list of towns where we would like to be active, because the situation is still undergoing dynamic change. However, we are not planning to finance projects in towns of less than 50,000 inhabitants, with the exception of portfolio transactions.

How much is Deutsche Hypo planning to invest on the Polish market?
There is no predetermined amount. Because we issue mortgage bonds, the most important element is the possibility of entering a loan on the register of pledges. That is why we focus more on the quality of the investor and the project rather than the volume of financing. We have analysed many projects already and are still working on a lot of them. We are optimists and we will certainly successfully close the first few transactions soon.

Is Deutsche Hypo planning to grant more loans for refinancing than for the construction of real estate?
We are planning to balance these activities. A mortgage bank can issue mortgage bonds when they have a facility entered on the mortgage bonds register and this is possible when it generates revenue.

Have you started working on any Polish projects?
We are currently dealing with ten projects. These are office projects in Warsaw and in the south of Poland. We are also working on a retail project. When it comes to hotels we have some experience in this field from western markets; but the problem in Poland is that the majority of the facilities are operated on the basis of management contracts. Such a contract does not mean much for a bank in terms of securing a potential transaction. It does not have a fixed rent, a lease contract signed by a chain, so revenue is not guaranteed if a crisis situation arises. This is why banks in Poland are reluctant to provide such financing. We are looking at a few hotel projects in Poland, but only those that operate on the basis of lease contracts.

Can we count on you bringing new investors over to Poland?
We come from Germany and our entry into Poland also sends a signal to our clients. We want to encourage them in this way to invest on this market. Developers who are already present on the Polish market will also be able to carry out a larger number of projects. German funds in particular are constantly looking for more projects to invest in.