Echo from the top

Rafał Ostrowski, Tomasz Szpyt, ‘Eurobuild CEE’: Why have you decided to take over at the helm of Echo Investment?

Nicklas Lindberg, chief executive officer of Echo Investment: I spent 15 fantastic years at Skanska, but there came a time when I wanted to do something new. And it was a great opportunity for a change, as I saw so much potential in Echo Investment. It was also an opportunity to be really on top of this company. At Skanska, of course, I was deciding things as well, but I reported to the next layer above me.

What strategic changes are you planning for Echo?

We have already carried out many strategic changes. We concluded the deal with Redefine, where we have taken all the assets we have on the balance sheet and shifted them to a new company, Echo Prime Properties. This is the first step in transforming Echo
Investment from a company that builds and keeps assets to a developer that is not the end keeper of these buildings. Some of the assets may be sold to Redefine as a part of the deal with the latter, some will be sold on the open market, but we will be much quicker when it comes to the turnaround of capital than we have been historically.

But does this also mean you will be delivering more product faster?

I don’t know if we will be producing it faster, because the construction time and the leasing time have always been pretty good, but we will be recycling the capital much quicker. So what will improve above all is the use of capital. Of course we want to pay dividends to our shareholders, which will be a big part of the strategy we are preparing. Because now we are owned by Oaktree and Pimco, who have invested a lot of money in us, and their intention is to receive their returns as well. And all the shareholders who have invested in Echo also want to receive their dividends. All of this makes a lot of sense to the company. So what we are planning to do now is to grow the business much bigger than it is today and focus on the three core businesses that we have: retail, office development and residential.

Which of these sectors will be the most important for you?

They are equally important. What is important for me is the spread of the risk. Today the residential market is very hot and is unlikely to stay that way forever. So what we are also working on is both how to spread the risk between those three different areas and at the same time how to work on the cost levels. That is why I have set up a different entity for construction and how we can make sure that we achieve the synergies a large company has. Once the markets go down we need to be ready with very competitive construction costs, because what will happen is that rent for offices will fall, retail rents will fall, residential prices will fall. The market will still be there, but at a different level.

Do you intend to operate exclusively in Poland or in other CEE countries?

Today we are only looking at Poland. And that is because we see so much opportunity here. For us to go to a new market today would make no sense. We would need to set up a new management team and all that goes with that – and I don’t think we have done everything we could do in Poland yet.

But you have some land outside of Poland too. There is, for example, the site for the Mundo shopping centre in Budapest. What will you do with it?

We are today divesting our land outside Poland, because according to our strategy it makes no sense to hold on to it. In my philosophy it doesn’t make sense to go to a new market and carry out just one project, because this requires setting up the same business as you would need to build ten projects in Poland or more.

So what do you intend to do in the coming months as the CEO of Echo Investment?

We have already started changing the way the company is set up. We are dividing it into different streams, to make it clear what we are doing. We have construction, we have residential, we have retail, we have office, and then we have a big office in Kielce – which is supporting the whole business. This is fantastic, because Kielce is a great location, just two hours from Warsaw now – and with the new motorway it will be just a 1.5 hour drive. So we are making sure that Kielce is the support centre for the whole business, while we are also moving to Q22, where we will have our front office. So what I am doing as the CEO right now is to make things clearer than they were before. We are becoming more of a developer and also putting a clear focus on growth. But we are only going to grow when we make money. We are not here to take a share of the market. We only want to take this to make money. And we are going to be much more transparent. We will give our forecasts to the analysts and to the stock market, where we are making the money. And all of this will be revealed when we publish our second quarter reports. So everybody will know what we are doing.

What are your targets for growth? How big do you want Echo Investment to be in the next two, three or five years?

If you look at residential, we want to double our business. If you look at offices, we are at the size today where we can lease 100,000 sqm per year and I am pretty happy with that level. I think this is a good level to stay at. For retail it will be much more opportunity driven. So it is hard to say that we are going to achieve a certain size. This depends on the opportunities on the market we come across and based on which we make any decisions.

Will you put your residential activity into another company or will it stay within Echo?

It will stay within Echo. We have looked at different opportunities for residential and the key question for it is not so much if it will stay within Echo or whether we are going to put it in a separate entity. Our main focus is now on how to grow the residential business. It has been growing in sales by app. 100 pct annually. So we are doubling the business year-on-year. But we cannot double the money we have today by always doubling the volume. We need to find smarter ways of doing it. Our target in all the different areas – in office, residential and retail – is to be the number one or number two on the market. We need to have a dominant position in what we are doing. Because this where we are going to achieve the synergies we need and get much more volume, which will also help us in securing much better deals from subcontractors.

Are you planning to acquire another residential developer?

We have been looking at that one and we are still looking at it. We are also looking at growing organically. As has previously been said, the market today is pretty hot and everybody is valued quite highly. For us in order to go out and buy something, we need to find an angle for why we should buy it. Today we are looking for that angle. At the same time we are looking at going out and buying land. There are pros and cons for both. Buying a company would be quicker, but you also buy its history. When buying land you just buy land and while this is a slower process, you know more about what you are buying. So to answer your question, we don’t know yet, we are still looking at the different scenarios.

Griffin holds land for a big shopping centre in Towarowa. Will you be starting that project too?

That is a single product that Griffin first has to make up its mind about what to do with. Then with the new buildings it will all be up to the new owners how they want to structure it. So I don’t know how this will be done yet.

What are your plans for retail?

Retail is changing now, so there won’t be any more huge shopping centres. We are looking for different retail where we can find a different angle to build it. So that will be a different strategy.

What kind of angle?

There are many second generation malls that we think are very interesting. We will see if there is any way to either extend them or look at the tenant base. So we are considering different ways of achieving all this, but it will not be the same as we did in the past, buying a huge piece of land and building a huge shopping centre. Because that is getting more and more difficult

What about apartments for rent? Have you already started any construction for these kinds of projects?

We have already started with Griffin and we are going to start up more projects now. But it will not be Echo doing that. Echo will be responsible only for the development. Leasing and management will be done by a separate company.

Will Browary Warszawskie contain some of this?

Browary will contain some resi for rent. If you want the complex to have life and diversity, we need to have some renting, some sales, different things.

Where else?

There are ten other locations around Poland that we are looking at. In Warsaw, Kraków, Wrocław…

So when will the first apartment for rent be available?

I think we are talking about late 2017 at the earliest.

In Browary?

I don’t think it will be that early in Browary. The thing is, if you want that business to work you need build up the scale. It doesn’t make sense to have one rental unit in Browary.

Maciej Dyjas in a recent interview for Eurobuild mentioned that one of Echo’s strong points is that they can develop large projects, mixed-use – with residential, offices and retail. Does your current land bank allow this?

No, but our future land bank will.

So you are looking for bigger plots, where you can build really big projects?

Browary is a fantastic example of what we want to do. But we will also buy bigger plots for doing residential only, since our strategy is to buy bigger plots and to stay in one area for longer. If you only develop one building, you are not building a destination.

There are not so many big but nicely located plots available on the market, are there?

But you don’t need so many. You need just a few of them to be happy. You cannot buy too many because it is a pretty big ticket to buy even one of them.

What will you start to build this year?

A huge amount of projects. The biggest is the shopping centre in Katowice, the Libero mall. We are going to start on the brewery site this year, on an office project and a residential one. We are now looking at how we are going to do it, setting up a marketing strategy and so on. It is a huge area of Warsaw, and the key point here, which is important, is that it should be alive after six pm. So that it will stand out among all the other projects in Wola, which is an office district that just closes down after six. So there will be a mix of residential and of restaurants, and there will be offices and other amenities around that. So I want it to be a destination. And another thing that is important to me is that what we are looking into now is how we preserve its history, because there is a wonderful history associated with the brewery.

How big will is the first stage going to be that you are starting?

It will be a small office building. Around 14–15,000 sqm and then another building with 100 or 200 apartments. And this should start in the second half of this year.

When will all of this be ready?

That would be 18 to 24 months from the start. Yes, in one and a half to two years we will be seeing the first buildings standing there and hopefully more things will then be going on in this location.

Will there be any skyscrapers?

No. I don’t think that Wola needs more skyscrapers, I think the district has enough of them. And also my target is not to compete with these skyscrapers, my target is to build a destination. We are going to be different to everybody else, and Wola also needs a destination people will go to, that will attract people after work to stay in the neighbourhood.

How long will this investment take to complete?

A minimum of five or six years and this also depends on how it will lease. But we are in no rush.

You also have Park Rozwoju. There is probably another office stage to build there. Will you start it this year?

Not this year.

Taśmowa?

We are looking into it and what we are going to do with it. The thing is that we are now trying to work out the optimal use for the plot. I think that part of that plot is ideal for office, part of it is ideal for residential, and what we now want to do is to find the optimal mix between the two.

How do you see the Polish investment market right now? How will it have evolved in one or two years time?

I think today we have a market that is extremely hot. I think it will not be this hot going forward. And this is something we are talking a great deal about and how to prepare ourselves for what lies around the corner. If you look at the world today, it is not such a stable place as it used to be. And nobody knows what will happen after the Brexit. There are many things around you that you always need to be concerned about. The Polish economy as it is, is very stable. The inflow of tenants is very stable. The rents in Warsaw have been pushed out to historically low levels. So if you look at that issue, the rents in Warsaw cannot go down any further, because this makes no sense. In some way they have to go up. I am not scared to invest more in Warsaw, I am not scared to invest more across Poland, but we are always keeping a close eye on what is happening in the world.

Echo Investment’s new catchphrase is “Space for leaders”. What do you mean to say by that?

We are planning to build up a new brand around Echo. We are first going to build a platform that will emphasise that we are the biggest Polish developer, and that is going to be our overall brand – “the biggest Polish developer”, which we are by far. And with that we are going to do different things: space for leaders will be the focus of our office activities. In other words, we are going to create not just offices, but space where tenants can grow. We want to attract people who are leaders – “leaders” meaning that they don’t need to be bosses, but those who people will follow. Those who want to create the next generation, who want to develop society in a different way. They could be leaders in the field of development, in innovation, and so on. So our building should foster this kind of creativity. It should offer space that is different.

More prestigious or what exactly?

Prestigious is not important for us, but it should be more creative – space that you can grow into. Because prestige is a word connected to status, and we don’t want that. We want to connect it to how we foster the future generations coming through. Poland has changed as an office destination. The demands of people are different than they were three or five years ago. And we are seeing more of this. Office buildings are becoming more and more like hotels, with public areas where people can meet and socialise. When you go to Q22, you will see that we have a gym that is free of charge for the tenants; they can also use the auditorium we have provided. Our aim is to make it easier for people to develop and to grow in our buildings.

The way to the top

Nicklas Lindberg has been the chief executive officer of Echo Investment since April 2016. Before joining Echo he was employed by Skanska, where in 2011 he was appointed president of Skanska Commercial Development Europe (the group’s business unit for property development in the CEE region), after being the head of Skanska Property Poland for three years. Prior to that Mr Lindberg had been employed for four years by Skanska Russia as both CFO and CEO.