Office & mixed-use development
In 2035 the number of Poles in retirement will approach the number still at the productive age. Is this a problem? For the economy, yes. However, the virtually non-existent retirement home market in Poland means that there is potentially profitable business out there for investors

The Polish government is currently engaged in trying to satisfy the needs of senior citizens. An elderly or disabled person receives round-the-clock help in a retirement home. In order to qualify for such care, you need a referral from the local council. The state currently spends over PLN 10 bln per year on long-term care. “In recent years there have been quite a bit of investment in long-stay services for the elderly who require permanent care,” says Marzena Rudnicka, the president of the Polish Institute of Silver Economy. The institute integrates commercial entities, non-governmental organizations that operate in the services for the elderly sector as well as representatives of local government and central government involved in silver policy. “The construction of a home and its furnishings should be designed based on a familiarity with the needs of dependent people. There is a lack of such specialist high quality facilities in Poland. If we want to fulfil the long-stay needs of the elderly, local authorities should encourage companies professionally involved with such care in Poland or abroad to invest in their communities,” claims Marzena Rudnicka.

Good business, what does this mean?

‘Good business’ means healthy profits and for some it also involves secure investments. A familiarity with the business is also important. However, it is difficult to attain such a familiarity with this business because the retirement home market is still in its infancy in Poland. As few as 1 pct of senior citizens live in retirement homes in Poland, whereas in Western Europe the level is around 4–10 pct, according to Reas in its latest report on residential development for the elderly. “The basic criterion in an assessment of the attractiveness of this line of business is the occupancy rate, that is, what percentage of the beds prepared will be utilised by senior citizens,” explains the president of the Polish Institute of Silver Economy. “The business to be done related to the construction and operation of facilities for the elderly is certainly promising, but today we can be talking about the development of this market in our country still being at a very early stage. Developers are interested in this sector, but more in terms of silver construction, that is, mainly in serviced apartments,” explains Marzena Rudnicka. For such investment the very high costs remain an issue. A condo-hotel model, where you invest in an enterprise offering optional services, could be one variant.

Who is to finance all this?

So far investors are financing such projects themselves. Others say it would be useful if the government established a fee that would follow a patient to a private facility. "When the first projects are built and start operating, lenders will emerge offering lower costs in capital than funds. This will speed up the development of the sector and it will attract more investors. That is why the help for the first few projects and investors is so important,” indicates Reas in its report.

After the construction project is financed somehow, there is still the issue of financing the stay of a resident. “Pensioners admittedly have relatively low pensions, but as many 65 pct of them own an apartment or a house, which provides a range of possibilities in terms of monetisation in order to satisfy their accommodation needs,” Reas points out in its ‘Prospects for Silver Construction in Poland’ report. The property could be sold or monetised through a reversed mortgage. “The state should create conditions for the development of such products through regulatory and financial incentives and the market will discover and start filling the individual niches. Apart from approaches addressed to the public sector, the support for the Social Housing Association should also be considering the development of buildings such as silver apartments for rent,” believes Władysław Jan Brzeski, a partner at Real and co-author of the report on silver construction.

What is it like on mature markets?

In developed countries money can be made from retirement homes in the same way as with any other commercial properties. The American and Australian model is based on the construction of silver towns, far away from the hustle and bustle of cities, but also far away from social infrastructure. The German and Austrian model involves apartments in cities, with access to the social and cultural infrastructure. Regardless of the model, the investor concludes a long-term lease with the operator, i.e. a company experienced in operating retirement homes, which is followed by the construction of an actual property for such a tenant. “After 4 or 5 years, an investment product defined in this way is offered to funds who are keen to buy it for their portfolios. So far in Poland the investor is in principle also the operator of such a facility, even though we are now seeing the first few examples of the approach described above, but involving contracts with foreign operators,” says Marzena Rudnicka. “The attempts to build and sell apartments for senior citizens that have been made so far have not fulfilled expectations, because ultimately they were also occupied by young people who inherited the apartments from their grandparents,” explains she added “From the point of view of the optimal management of apartments for active, independent senior citizens or for serviced apartments, a more rational method is to lease them, with a single owner being responsible for the leasing process of the entire property. Because when it comes to a housing estate there is no guarantee of long-term maintenance of the specialist function or the furnishing of a home designed for senior citizens, thus making the profitability of an investment in the service infrastructure aimed at housekeeping, care and nursing unlikely. However, on the Polish market there is a lack of operators who combine experience in terms of management of leasing involving housekeeping as well as funds interested in the purchase of relatively small portfolios of specialised apartments,” admits Grzegorz Kiełpsz, the president of the Polish Association of Developers and president of the supervisory board at Dom Development.

So it is worth building. But where?

Warsaw is the best market for such investment, having the highest number of people interested in residents who are able to pay for such care in facilities designed for the elderly, but it is closely followed by other large cities. “The entire western side of Poland, where facilities are targeted mostly at residents from Germany, is also quite a good market, with growing potential,” says Marzena Rudnicka.

Growing interest

There is huge interest in the Polish market. Some foreign entities have already focused on Poland and have started activities here. One international development firm operating in Poland, which prefers to remain anonymous, has made contact with a foreign investor operating a chain of retirement homes in their own country but wants to invest in Poland. Future profit is not an issue. But without aid from the state the business cannot be profitable, which can be seen in the operations of the most popular facilities in the country, a representative of the developer admits. “The best thing would be a fee that follows the patient. Like a student fee in the educational system,” say representatives of the business. This would stabilise this business. In the current situation the best facilities are full after 3–5 years and then they are on the verge of profitability. This is what we have heard from a number of investors who, having analysed the market, have not opted for such an investment. The National Institute of Silver Economy has not lost hope for the development of the market. However, the Ministry of Labour and Social Policy has admitted to ‘Eurobuild CEE’ that the department is not planning to introduce incentives for private investors from Poland or abroad to invest in round-the-clock care facilities for the elderly, the ill and the disabled. “The operation and development of the infrastructure of inter-municipal care homes and referring people to them is a public task that is the local borough’s own responsibilities,” insists the media office of the Ministry of Labour and Social Policy. As Prime Minister Ewa Kopacz has declared in a policy statement, the government is more likely to invest in the day care homes often referred to as “nursery schools for pensioners”.

What does the market look like now?

In spite of the lack of a promise of clear profit, there is now more and more talk about investment in this market. One of the first higher standard facilities for senior citizens was the ‘Nad Świdrem’ retirement home in Otwock just outside Warsaw. New players are now entering the market, with more and more having foreign capital at their disposal. Angel Care is currently renovating a 19th century former maternity hospital on ul. Dyrekcyjna in Wrocław. The company plans to create a comprehensive care centre for 250 elderly people. “For senior citizens who are independent there will be some places in specially designed monitored apartments. For more frail elderly people there will be a care centre, while those requiring specialist care will have this guaranteed in a senile dementia illness centre,” says Ron Ben Shahar, a partner of the developer Angel Poland Group. The sections will operate as part of one campus but they will be separated – with a separate entrance and lifts with an access control system,” he adds. The general contractor for the revitalisation work is Eiffage Polska Budownictwo, with the design being the work of Modulor. Angel Care is a project by Israeli capital backed Angel Poland Group in cooperation with British company MD Nursing. Investment costs for the Angel Care project come to PLN 50 mln, with financing being provided from a loan by Alior Bank. MD Nursing operates similar centres in the UK, Scandinavia, the Benelux countries and Germany and is also considering Greece. A total of 6,000 places for senior citizens are to be eventually created by Angel Care over five years, which translates into as many as 15 centres. The investment programme is estimated at PLN 300–350 mln. “We are currently at the stage of looking for locations and negotiating the purchase of plots. We want each care centre to have as attractive a location as the one in Wrocław,” declares Ron Ben Shahar. One company not directly connected with the real estate market, copper giant KGHM, is also thinking about a similar investment. “KGHM has purchased a number of health resorts including Zespół Uzdrowisk Kłodzkich, Uzdrowisko Świnoujście and Połczyn. Retirement homes could potentially be operated in these resorts,” Krzysztof Brzostek of the KGHM Interferie subsidiary has told us. Such a facility can be successfully operated by a firm involved in medical care on everyday basis. In 2010 the Luxmed chain purchased one of the largest private retirement homes in Poland – Tabita in Konstancin. A commercial stay, with no support from the national health service, costs PLN 4,590 per month. The price includes round-the-clock care and nursing, consultations, doctor’s supervision and a stay in a double room including bathroom as well as catering. Tabita, like the majority of existing or newly-built centres of this kind, is located in a historic building, which in this case means the architecture of the early 20th century. Tabita and Willa Kalina in Konstancin, which offers similar prices, are rated as the most successful centres in Poland. Another company profiting from this market niche is the Evangelical Diaconate Neuendettelsau of Germany. Its centre in Katowice, an investment of EUR 11 mln, was completed within one and a half years. Senior Residence has 198 beds and has been specifically designed for the care of people suffering from senile dementia and Alzheimer’s. Diaconate Neuendettelsau is a charity run by the Evangelical Church of the Augsburg Confession, one of the largest organisations of its kind in Germany. The diaconate has almost 200 care facilities in Germany for a total of 90,000 people. The centre in Katowice, which is located on the Bażantowo estate, was built by the same company that developed the entire estate – Millenium Inwestycje. The building does not have any architectural barriers and is surrounded by a 4,000 sqm garden. In line with Polish regulations, the Senior Residence building has had to be divided into two parts. One wing includes a private centre with round-the-clock care and the other is a public nursing home. Both sections have the same standard and their residents have access to both of them. The centre has total of 198 beds here for the elderly – 101 in the private section and 97 in the public part. The monthly cost of a stay in a single room is PLN 4,000, while in a double room it comes to PLN 3,900. These payments are structured according to the legal regulations – 70 pct of the individual’s income (retirement money, pension or permanent benefits) with the remaining amount contributed by their families and the local council that has referred the resident. Another large player on this small market is Asto with its care centre in Chorzów. This offers places for patients suffering from chronic conditions, such as Alzheimer’s, Parkinson’s and the victims of strokes. The company admits that the main target of its services are German citizens. The centre was developed as part of a project carried out by FIZ AN DNK Satus fund, BIG Zarządzanie and Silmed. The owners emphasise that such an investment has to be co-financed by the national health service, but with the significant participation of private firms and funds. Such payments to the fund will eventually amount to PLN 50 mln. The fund is able to invest in new investment products directly without the need to cover the costs of the developer’s activities, but when it comes to projects carried out in cooperation with a developer it is interested in projects at their initial stages, which are more difficult to implement but enable a higher rate of return. Coming back to retirement homes, another facility of this kind is being developed in Sulejówek near Warsaw. A representative of the investor, Warmus Investment, has told us that the construction process is in progress even though it is quite slow. The home, which has been designed as a luxury facility, is to be opened in a year’s time at the earliest. Warmus Investment is a company with Australian capital that has so far operated in the hotel and development sectors. Dom Seniora Bryza in Osieki Lęborskie in Pomerania, which opened in 2009, is another success story. The price of a stay in the home ranges from PLN 2,000 to PLN 3,000 per month. The owner waited three years for the home to be fully occupied. According to representatives of the sector, filling a facility is one thing and the return on the investment is another – you need to wait a dozen or so years for that. Existing retirement homes support themselves by offering medical and rehabilitation services financed by the national health service, so the patient does not have to pay for them. Unfortunately, a national health service contract is only valid for a year, which does not provide any stability, complain the sector representatives. It seems that investors of Dom Opieki Spokojna Przystań in Baniosze near Góra Kalwaria are happy with their business. The owners of the home are Polish émigrés to the United States. Following the success of the home they have decided to invest in another centre – in Jazgarzew near Piaseczno and Zalesie near Warsaw.

Meanwhile, Polish construction group Unibep is already active when it comes to silver construction. The only thing is that it builds them... in Germany. The management of the company regards silver construction as a promising market and certainly one that is worth considering. “We are building up experience by working there,” claims Wojciech Jarmołowicz of Unibep about the prospect of taking on similar projects in Poland. However, Unibep is the general contractor not the investor behind the German projects.

What is standing inthe way?

Representatives of the sector in Poland claim that one obstacle in the way of the development of the market is the prevailing mentality. Older people want to stay in their homes until the end of their days. If they are not self-sufficient, their children usually decide to employ a carer at home because putting their parents or grandparents in a care home is perceived to be a drastic way of tackling the problem. Besides, luxury retirement homes are not cheap. Only a small percentage of Polish society is able to rent a room in such facility for a few thousand złoty per month. There is also some talk about the grey market. There are care homes for senior citizens that get round the regulations for such centres by pretending to conduct other types of business. As far as the requirements are concerned there are now more and more of them: the number of bathrooms and staff, the minimum area per resident and the furnishing. In spite of the fact the requirements are growing, there are many people who would like to use this form of care for their close ones, but who have concluded that the level of services provided leaves a great deal of room for improvement, so they have instead opted to employ a carer. Therefore there is much to be done in this field, in every area of the market. And it could be the boldest and most tenacious players that blaze the trail and end up cashing in the most from such risky investment.