Looking good in platforms

Ewa Andrzejewska, ‘Eurobuild Central & Eastern Europe’: Since September 1st you have been responsible for theCEE region at Logicor, the warehouse platform of global player Blackstone, which we have still not heard much about in Poland. The information that has reached the media’s ears so far has mainly concerned purchases. Will we now be finding out anything more?

Bartosz Mierzwiak, managing director responsible for the CEE region, Logicor: We have created a platform with 6 mln sqm of warehouse space in Europe, of which app. 1 mln sqm is located in Central and Eastern Europe. The majority of the properties are situated in Poland, one is in the Czech Republic (an app. 60,000 sqm park near Prague airport) and another is the Tulipan Park complex (two buildings, 30,000 sqm) in Hungary. The CEE markets we certainly want to be present in are Poland and the Czech Republic. As far as other markets are concerned, this all depends on the capital values and the efficiency of operating a portfolio there.

What other tasks is the head of theCEE portfolio going to have to face?

My role involves taking care of the portfolio. Today we are a three-person company in the CEE region. Apart from myself there is also Roman Skowroński, the head of asset management, who will be responsible for ongoing customer relations. In the future we will grow in a systematic and well-thought out manner. However, we will not be setting up any huge structures. Ultimately, there will be no more than a dozen or so people. We are currently recruiting a number of people and I have to admit that the recruitment process is going quite smoothly. We are mainly concentrating on leasing and asset management experts. Investment transactions are the responsibility of our Blackstone colleagues, with Louis-Simon Ferland supervising the team in Europe, while the internal Logicor team is concentrating on smaller acquisitions that complement the European portfolio.

Central and Eastern Europe has quite a strong position in the European portfolio.

Discussions are now being held on how Europe is to be divided up. Our largest portfolio is currently in France (1.7 mln sqm), which is followed by Great Britain (1.24 mln sqm) and Poland as the third largest market (0.9 mln sqm). The next positions are taken by Spain (0.64 mln sqm), Italy (0.48 mln sqm), Germany (0.39 mln sqm) and Holland (0.27 mln sqm). The speed of our growth has been impressive. Only 15 months ago we had 2 mln sqm and now we have grown to 6 mln sqm. The last dozen or so months were dedicated to the development of the structure, but now we are moving to the second phase, i.e. creating the Logicor brand. We want to raise our profile among potential business partners. A similar policy was implemented earlier on the American market, where Blackstone’s platform is IndCor. Our strategy is to be a long-term owner, operator and provider of warehouse, distribution and industrial space for clients including logistics operators, retailers and production companies.

You are not building any new projects as a matter of policy?

Our growth so far has been based on acquisitions only. This is the policy we have adopted.

Could this change in the future?

As far as the future is concerned, we are not ruling out anything that would raise our standing among clients and better enable us to provide them with what they need. I know that this is a vague statement, to which you can draw an number of conclusions, but it is probably the best answer. We want to be a real player on this market, and one that is able to offer the full spectrum of solutions and services, even though today we are basing our operations on acquisitions.

So how many square metres of warehouse space are you still looking to acquire over the next few months?

Logicor has grown from 0 to 6 mln sqm in less than three years. This pace of growth is unprecedented in our sector in Europe. In the past 18 months alone we have almost tripled the size of the portfolio from 2 to 6 mln sqm. I believe it would be difficult to maintain this level of growth going forward. However, we clearly have the desire to continue to expand the portfolio over the coming months and we believe there are still good opportunities to acquire assets that are complementary to our existing portfolio, where we can add value through active, hands-on asset management. The market is clearly getting more competitive, with new sources of capital chasing product. However, our underwriting, due diligence and closing speed, together with our impeccable track record in closing transactions, are distinct competitive advantages that will continue to set us apart from most of the competition.

What challenges can you expect, apart from putting the team together?

My task is to create value for our investors by making sure our properties are leased as well as they possibly can be and with as high rent levels as possible. Full stop.

What is the vacancy level in the portfolio?

A few per cent and generally in line with our main competitors.

So there probably won’t be a lot of work? [laughs]

With so many properties there is always something to do. For some the leasing contracts will soon expire (2015 and 2016). Some of our facilities are multi-tenant warehouses and you need take particularly good care of those.

Who is supporting Logicor at this point in terms of managing the local portfolio?

Panattoni and AIG/Lincoln manage properties in Poland on our behalf. In the Czech Republic it is also Panattoni, while in Hungary it is AddVal.

Are there no conflicts of interest when a developer moves into management?

There is always an inherent conflict of interest; however, we believe that the importance of maintaining a good long-term working relationship with an important owner far outweighs the potential short-term gains of taking tenants out of our portfolio – and we believe that our developer-manager service providers are fully aware of this issue. You don’t really want to bite the hand that feeds you. There are obviously situations where we cannot accommodate an existing tenant in our own portfolio and will work with our developer-manager to find the right solutions for them in another site where we can acquire the asset upon completion.

When we recently asked market analysts about the current scramble for investment products, we were told that investors are buying in the expectation of an increase in rents over the long term. Is this also the case with Logicor?

There will be a fierce fight on the BTS market, and it is actually now underway. Yield compression is already evident, which means that rents have also been decreasing for large BTS transactions. At the same time, the leasing market for medium-sized areas in the range of 3,000–7,000 sqm is stable. There is not a lot of pressure on rents to grow today. For such a situation to take place the net demand must start increasing, and this will happen when the economy starts growing enough for operators to need additional space for running their businesses. More production plants could of course be built, but most of the net absorption is created by logistics operators anyway. With a growing economy what seems to be healthy vacancy of around 10–11 pct will soon dry up. A logical consequence of this will be rental increases.

If we consider the optimistic scenario, when could we expect a growth in rents to occur?

This depends not only on the economic but also on the political situation in Europe. This has recently been the biggest question mark. We could talk about a one- or two-year prospect. The rush for purchases will finish soon, too.

Because the products available to buy will run out?

Then we will start consuming the products, i.e. creating unified and well leased portfolios.

To conclude, I would like to ask you to sketch out what the Polish warehouse market might look like in a dozen or so years.

This is a difficult question. What do we know? We know that we currently have a warehouse area of 8 mln sqm in Poland, while the German market has app. 80 mln sqm of warehouses and there are 80 mln German citizens.

But can we hope for our market to develop in the same way as our western neighbour?

We have a population of 37 mln, so if we are ever going to have app. 37 mln sqm of warehouses, this means that we are still at the beginning of that road. Even if I am mistaken and we only reach half of that (18.5 mln sqm), this is still a long way ahead of us. The market is budding. We have developed the main markets, which are still a little imperfect, too. And what about locations such as Bydgoszcz, Lublin, Rzeszów or Szczecin? In the West, cities of this size can themselves each have 1 mln sqm of warehousing. When it comes to determining the future, everything depends on the infrastructure – the roads and the railways. At the moment the transit from the north to the south of the country is virtually non-existent. If we develop wisely and focus on local production and exports onto more expensive markets, such as Scandinavia, it will certainly benefit our sector.

Why did you change your job after less than four years working for Prologis?

I wanted to develop myself and Blackstone is a huge organisation, giving me the opportunity to do this all over the world. Besides, I like creating things and here we have to create everything from scratch, starting from plugging the first computer into the first socket. I love Western Europe for what it looks like, but it’s a kind of Disneyland where nothing happens. Over there people’s dream is to achieve a certain salary and then to survive like this until they retire. This is not my style. I need challenges because I get into a rut without them – and this is what kills me. ν

Managing the new boys

Bartosz Mierzwiak is the managing director responsible for Central and Eastern Europe at Logicor. For the last four years he was employed by Prologis, where he was the manager responsible for Polish business development (country manager, Poland). Before he joined Prologis and became involved with the warehousing sector for the next few years, he was employed by Jones Lang LaSalle for almost eight years, where he was responsible for the leasing of office space, advising both tenants and real estate owners. Bartosz is a graduate of the Warsaw School of Economics and the faculty of law and administration at the University of Warsaw.