An appetite for Poland

Alistair Calvert, the managing director and head of investment at Gramercy Europe: We are now committed to another logistics transaction, but we are not able to disclose any details about it. We are also working on a number of other Polish transactions for quite a large number of development sites. All will be single-tenant long-term leases at the end. (…) We would only acquire a site in partnership with a developer and we would only do that if we have already identified the tenant and signed the lease. The only reason we fund BTS developments is that once a long-term lease is secured we can then hold on to for a long time. We are not a speculative developer, we are not an opportunistic developer, we are very much an income fund. (…) We are also working on a number of other things, specifically other logistics leaseback deals. Our focus is on single-tenant long-term lease assets and we have a bias towards logistics assets because of their significantly lower capital requirements. But we are a generalist buyer: we buy retail and we buy offices – but not in Poland, in other European countries. (…) It is going to take another month or so, I think, before we can really reveal some of the other things we are doing in the country. To give you some idea where we are looking at and have transactions in process: south west of Warsaw, around Łódź, Poznań and then to a lesser degree in Silesia. Given that we are focused on logistics right now, we are in the markets you would expect a logistics investor to be.

Is Poland something of a property investment safe haven for you?

Every market has its pros and cons. In Poland we particularly like the macroeconomic situation, the very consistent but high real GDP growth, the continued decrease in unemployment, the gradual increase in industrial production, the increased retail demand, and so on. All of these macroeconomic metrics result in what we would describe as a tail wind for our investment return. The biggest negative with what we do in Poland, particularly in the logistics segment, is the amount of available development land and how easy it is to get planning for additional assets. The biggest issue we have with every development is that is very difficult to defend your own asset, it is very difficult to convince yourself it is not immediately replicable. If we develop a building today, and say this is a ten-year lease, it is very difficult to convince yourself that the tenant won’t just leave and turn to the developer of another building right next door. (…) I don’t see it as a safe haven. We definitely want to be present on the market and we definitely want to be a significant investor, particularly in Poland, wherever the opportunities arise. But the majority of our business is primarily focused on Germany and to a lesser degree on the Netherlands, France, the UK and other Western European countries. (…) We are most comfortable with Poland out of all the CEE markets, and in fact we have the most experience of Poland. Still, we are able to and have a desire to invest in other CEE countries, but our pipeline there is significantly less active.

Doesn’t the high supply on the Polish warehousing market worry you?

It is our largest concern with investing in Poland. To a much lesser degree the German market has a similar characteristic: it is relatively easy to obtain planning for logistics assets. And so that’s always a big consideration. The reverse tends to be more the case in countries such as France or the UK, where planning is much more difficult. The probability of your tenant leaving in France or the UK is dramatically less than in Poland and to some degree in Germany. The Netherlands, where we also were very active, is sort of somewhere in between.

How much do you aim to spend in Poland?

We have a very substantial investment appetite. We have a lot of capital to invest and to an extent we have a bias towards larger transactions. Our decision-making is made on the merits of the individual transaction, not on the deal size. We will carry out transactions from EUR 10 mln to a level that is just larger than the Polish market can provide. There is really no upper limit for these types of deals. Yet it is difficult to have a transaction larger than a EUR 100 mln in Poland. This will be entirely driven by the opportunities that we see. I would expect Poland to be somewhere around 10 pct to maybe 20 pct of our overall portfolio. And hopefully we will acquire app. EUR 700 mln or EUR 800 mln of assets this year, so that gives you an idea of what we are talking about.

How do you search for the opportunities on the ground?

We don’t have a physical office in Poland, but we come over to the country frequently, meeting with all the agents and we also have numerous contacts with the more entrepreneurial or boutique advisory businesses that actively source transactions for us that suit our investment profile.