We will rebuild you – in time

Manufaktura in Łódź, Stary Browar in Poznań, Palladium and Andĕl (Smíchov) in Prague and Corvin Promenade in Budapest – these are just a few examples of the renovations of historic complexes or entire quarters of urban development that could be regarded as quite successful. There have also been some examples of ill-judged projects, but this article is not about pointing out all the mistakes. Revitalisations have been firing up developers’, civil servants’ and urban activists’ enthusiasm for some time now. Over the last few years there seem to have been more and more of such projects and these do not only include individual tenement buildings but entire quarters or even areas the size of districts. The topic is a very interesting one and equally as demanding, and the current economic conditions favour such enterprises. “There is a clear interest among developers in revitalisation projects. Not all of them are possible in terms of costs; however, a good economic climate and increased optimism among investors create favourable conditions for the implementation of higher risk projects,” insists Mikołaj Martynuska, the senior director of the developer consultancy department at CBRE.

Little Dubais

The largest revitalisation schemes, which almost include entire districts, often changing their image completely, provoke the strongest responses. One of the largest projects of this kind that is particularly stimulating people’s imagination is the plan to restore life to the embankment of the river Sava in Belgrade. Muhammad al Abbar, an investor from the United Arab Emirates, has established the Eagle Hills company, which is to invest USD 3.5 bln in the Belgrade Waterfront. The project is being developed on 96 ha of a neglected river bank area in the Serbian capital. The complex is to comprise office, residential, hotel, exhibition, service and retail space (including the Belgrade Mall shopping centre with an area of 140,000 sqm) as well as 2 km embankment and city parks. This includes a 200m tower, 24 office buildings and
6,000 apartments. Its total development area will amount to 2 mln sqm. This might seem to be a huge development for a city that just this year opened its first office building in the last five years with an area in excess of 10,000 sqm. However, the investor can count on the support of the Serbian government and the mayor. So it is not surprising that the area of project is dotted with masts featuring the company’s flags and that the initial work has started. The project also has its first partner, American chain Starwood, which has announced that it will be the operator of one of the hotels planned. The sale of the apartments in one of tower blocks planned is also going well. “At the end of the first day of sales we managed to find buyers for over 75 pct of the apartments in the first of two tower blocks,” boasts Nikola Nedeljković, the general manager of Belgrade Waterfront. There is also increasing talk about the revitalisation of the damaged areas remaining after the Olympics in 
Sarajevo. Dubai developer Buroj Property Development is planning to develop a residential, hotel, retail and sports complex on the site in an investment of a few billion euro. However, this scheme cannot be considered a classic revitalisation because the area is to be transformed into a luxury, regional mountain resort. Also, in the case of the Belgrade project, the urban fibre is to be replaced with a new one, whereas revitalisation, strictly speaking, involves more than that.

Cities getting up off their knees

Revitalisations including areas ranging from a few to a dozen or so hectares that nod to the history of the location at least in a limited way are more common. Such schemes come into being as a result of the changes taking place in modern conurbations. “European cities are undergoing revitalisation by pushing the industrial fibre to the outskirts. Examples of this process include Split, Barcelona and Belgrade. In Poland we are also looking at a similar phenomenon,” says Emil Domeracki, a senior associate at Colliers International.

We can now cautiously start talking about a kind of boom for such projects, particularly in Poland, where there is no shortage of areas that need to be revitalised in virtually every large city or town. “The Polish State Railways [PKP] has been releasing very attractive areas in city centres. These used to be the blank spots on the development map. In Warsaw there are many areas set for revitalisation on right bank of the Vistula [Praga district], such as Port Praski, the former site of the FSO factory, Koneser, the former premises of Zakłady Tłuszczowe in Targówek and the post-agricultural area of the former state farm in Bródno. There are also plots belonging to the former Ursus factory and surrounding the Bielany district as well as Norblin, which are some of the most interesting post-industrial areas in the capital city. Land belonging to sports clubs is also attractive and waiting for a new lease of life. Investors are currently queuing up for a parcel of more than 10 ha belonging to KS Spójnia in Warsaw’s Żoliborz district. The local zoning plan allows sports and recreational facilities to be built on the site. But the land could be put to better use, particularly considering the fact that it is located along the river Vistula – a location attracting more and more residents. However, changes to the plan are needed and this is a time-consuming process,” comments Emil Domeracki. The list of projects waiting to be implemented or in progress also includes: Browar Lublicz in Kraków, former shipyard areas in Gdynia and Gdańsk together with the Spichrzów
Island, Ostrów Tumski in Poznań, EC Powiśle, Hala Koszyki and the old breweries on ul. Grzybowska in Warsaw, as well as the Stara Kopalnia complex in Wałbrzych and the Ludwik Grohman factory in Łódź. “Łódź has become the revitalisation Mecca as it implements a consistent policy for the development app. 100 ha of the city centre under the Nowe Centrum Łodzi project. This could be considered – and not without a reason
– a jump into the hyperspace of the Polish reality,” adds the expert from Colliers International. This is of course not the end of the list, yet it shows the scale of the phenomenon.

No way forward without patience or a strategy

However, the experts point out that revitalisation is not simple business and there is no way to do it without the right strategy, capital and many years of work. “First of all it needs to be understood that revitalisation does not just involve renovations and redevelopments. It is the introduction of a new function to a degraded section of a city or a plot and providing it with a new economic meaning in symbiosis with its surroundings. And the surroundings also include the local community,” remarks Michał M. Styś, the vice-president of OPG Property Professional. “Revitalisation could be successful if it is focused on a long-term return on the investment. It needs to be borne in mind that it involves a longer period for the preparations and project implementation. Because of this time, the costs of financing such a project and the cost of the equity increase. They are much higher than in the case of building a project on an empty plot. In exchange, provided that there is a revitalisation strategy, you receive a much more secure project in terms of investment. For revitalisation projects you often need to mix the functions to make them more interesting for tenants. They are usually not single function developments, because true revitalisation takes place over larger areas, which apart from retail and services also include offices or hotels. In this way the investor obtains different revenue sources, which are more resistant to changes in the economic climate. Because of this they have more secure cash flow in the future compared to a single function project that depends on one economic cycle,” argues Michał M. Styś. Mikołaj Martynuska is of a similar opinion and admits that revitalisation projects are an interesting purchase for eventual investors. However, key aspects such as the useable and functional qualities of a building are of crucial importance when buying – and in the case of revitalisations this could be a challenge. But facilities integrated with the existing urban fibre certainly have significant advantages, such as maintaining the value of the project over time. Usually they are in good locations, surrounded by an ordered urban area, and so they tend to retain their value better than facilities whose surroundings are only individually developed; the price-to-quality ratio is the most difficult aspect of revitalisation to control. Enterprises of this kind are usually more expensive to buy and to implement than greenfield projects, thus the investment cost management is of key importance,” explains the CBRE expert. In revitalisation projects you can also count on the help of local authorities and municipalities, even though this is not a given. “A well-carried out project requires slightly more effort, but it earns the acceptance of the locals and public. As a result, local authorities also come to the conclusion that support should be provided. However, it needs to be clearly emphasised that there are no shortcuts. There are cities and towns where it is easier to receive such support, but there are others where it is more difficult. Generally speaking, the larger the city, the more difficult it is to come to an agreement,” admits the managing director of OPG Property Professional.

Investors not scared of buying

The approach to revitalisation projects also seems to be positive from the investors’ side. Over the last few years there have been a few significant transactions involving such properties. Examples include Manufaktura in Łódź, Nowa Karolina in Ostrava and the above-mentioned Palladium in Prague, a transformation of a historic barracks into the most expensive office and retail complex in the Czech Republic. This year Union Investment paid EUR 565 mln for the property. “Its efficient management has resulted in the fact that the retail section of the building can boast an attractive tenant mix and the office section a high level of leases. This means that we can expect stable cash flows in the long term,” commented Henrike Waldburg, the head of the retail asset management at Union Investment Real Estate, after the purchase. The interest in such properties on the part of German investors is even more promising considering the fact that they usually invest in the best quality assets. The purchase of Palladium may not be the only transaction involving a German entity this year. RREEF Investment, part of the Deutsche Bank group, wants to buy Stary Browar in Poznań. However, the parties to the potential transaction have not commented so far. It is likely that as the number of revitalised buildings grows, there will also be more interest among investors. “I believe that revitalisation projects will gain in importance over the next few years. End users are more and more demanding and as a result are becoming better ‘consumers’ of sophisticated projects. On the other hand, the trend for the return to city centres is obvious all over the world and extensive urbanisation, typical for American cities, is currently on the way out. For example, the Urban Land Institute, one of the leading global organisations involved with the development of cities, is conducting an increasingly vivid discussion on how to restore the life to city centres. Investors will also follow this path,” believes Mikołaj Martynuska. However, it should be borne in mind that such projects do not generate quick profits. “Revitalisation should be discussed from a different perspective than that of typical development projects. Here we are not talking about two or three years but a decade or two,” cautions Michał M. Styś. This view is shared by Wojciech Nowakowski, the investment manager at the Capital Park group, which is planning to launch the revitalisation of Norblin in Warsaw in Q1 2016: “Revitalisation activities used to be understood as preparation of the buildings for use. In this way, office monoculture buildings, for instance, were developed in former industrial districts, but they turned into completely desolate places after working hours. Nowadays, the urban, architectural and – more importantly – business trends are for a broader understanding of the revitalisation issue. As Danish urban planner Jan Gehl, the father of the success of such schemes in Copenhagen as well as the latest changes to the public space in New York, explains: “First life, then the area and finally the buildings. It will never work the other way round.” And thus ‘restoring life’ is the essence of revitalisation.