Griffin two steps ahead

I have recently heard you say that one of the key fields which Griffin operates in is the apartments for rent market. This is news to me.

Maciej Dyjas, co-managing partner and co-CEO, Griffin Real Estate: Let’s start from the residential operations of Echo Investment in order to smoothly move onto apartments for rent. There are app. 600 active residential developers in Poland nowadays and Echo is one of the 15 largest ones, with sales of around 600 apartments last year. This year the company will sell app. 1,000 apartments and within two to three years it will reach an annual level of 1,500–1,800 apartments. We believe in the residential market and last year, having invested in Echo, we supported the company’s operations and purchases of land that would make it possible to increase the sales volume.

How much will the developer spend on land this year?

I do not want to disclose such details. Echo’s development strategy is being refined now. Generally there are two ways: organic development or acquisitions.

The market has been speculating about Griffins subsequent acquisitions. Companies such as Robyg and LC Corp were among those named.

It has turned out that Echo has competitive advantages and it is possible to grow relatively quickly thanks to well purchased land. There are few developers that can buy large projects and develop the area with mixed functions at the same time, from office to retail to residential construction. So the organic growth potentially makes it possible to develop in a fast and profitable way to a greater extent than it seemed to us only half a year earlier. Now we can admit that organic growth is an option which is worth considering in order to become one of the largest developers on the market. This is one part of the story. The other is the fact that we have looked at a lot of developers over the last few months that were private companies e.g. local market leaders to nearly all companies listed on the Warsaw trading floor, including LC Corp. We have not given up analysing the market.

Will residential operations be separated from Echo?

They will most probably stay within Echo.

And how to combine these operations with apartments for rent?

As Griffin we are the owner of the Student Depot platform, which was created in order to operate a chain of private student halls. The project turned out to be a success and that is why we have been developing it, but we also started to look at apartments for rent from this perspective. We identified a business model, we invited a few private entities to co-operate with us and we started to work – and the market is gigantic. In Warsaw alone there are over 100,000 apartments for rent. As far as the preparation of the model and the business plan are concerned, we started cooperation with Mzuri, which is involved in the management of apartments for rent to private people. Next, we identified app. 2,000–3,000 apartments in Echo’s portfolio which are suitable for renting. We are also talking about Echo’s land bank, which would make it possible to develop such operations over the next three years. I will provide an example: it sometimes happens that in one huge project it is difficult to sell more that, e.g. a few hundred apartments within a year, but if we arrange a different product in it, which is addressed to a different target group, i.e. people interested in renting rather than ownership we increase our sales possibilities. So out of Echo’s projects we chose the ones that could involve such investments and in some cases we redesigned estates and applied for changes to the building permits. We have started the construction process in some cases. The organisation will ultimately be similar to the Student Depot i.e. we will build a platform. The new company will buy land, Echo will build at that developer’s rate and then our company will be in charge of the operations. The new entity will eventually make an offer for purchasing the apartments for renting that are being built from Echo. The portfolio of the new company will consist not only of possible acquisitions from Echo but also purchases from the market. We are looking at various areas but also various projects of other developers.

When will the first apartments be ready for rent?

In H2 2017. The most advanced projects are located in Mokotów, Browary Warszawskie, Kraków and Wrocław.

There is little competition on the market nowadays, BGK is blazing a trail and the potential is huge. So your future is bright, wouldnt you say?

I think that building an operator of, for example, 10,000 apartments, only covers a few per cent of the market. We do not have to create the market because it exists, but it operates unprofessionally. We deliver a product at the same price but we offer professional service at the same time.

Griffin is often not just one step but even two steps ahead of its competition. Is it clear who you will sell the platform of apartments to?

First we need to build and rent something. A shopping centre or an office building can be sold before it is built, but this product will be possible to cash in on when we publish its first operational results.