The Slovaks who crossed the mountains

Investment & Finance
When he was just starting out in Poland, there was just the two of them in the office. Now he’s in charge of a company that employs 150 people and is responsible for 40 pct of the international operations of the development and real estate group. Stanislav Frnka, the country CEO of HB Reavis Poland, tells us how a small real estate agency eventually became the dominant player on the market on the southern side of the Tatras, its beginnings in Poland and its ambitious European expansion plans.

Eurobuild Central & Eastern Europe: What can we expect from HB Reavis in the near future?

Stanislav Frnka, country CEO, HB Reavis Poland: We are active on a number of different markets, and one of the reasons for this is to be able to diversify the risk in the case of some kind of crisis hitting the sector. Crises have different impacts in countries. I personally believe that there is going to be a repeat of 2008. Whether it will be this year or the next... only time will tell. Land prices are going up and the forecasts for this year are for a growth in inflation and interest rates. I think that we have reached the peak of the cycle and a decline should be expected any time soon.

Will things really be so bad?

It is difficult to estimate at this time how deep and what the character of the crisis will be. There are many geopolitical risks: the possible escalation of the conflict in Ukraine, the unpredictable situation in Turkey, the continuing instability in North Africa. It is also not clear what Trump will do. Foreign investors are also concerned about certain signals from the Polish economy, such as lower GDP growth. This has resulted in a lot of insecurity on the market.

So lets move to different possibly less insecure times, for the moment. How did HB Reavis come about?

The company was established in 1993 in Bratislava as a real estate agency. As early as 1995 it was the largest agency in the city. At that time there was a supply-side problem, as there was a shortage of modern buildings for rent. Our partners decided, therefore, to develop an office building. They needed the funds to do this, so a company from the IT sector helped to finance the first project. The partnership with these IT specialists turned out to be fruitful for both parties and four buildings were developed as a result. This was Bratislava Business Center. It allowed us to build up some momentum and for HB Reavis to be independent in investment terms. The purchase of the plot for our first shopping centre – Aupark in Bratislava – was a milestone in the development of the company. It was opened in 2001 and subsequently sold to Unibail-Rodamco in 2006–2011. The project was a great success and generated the highest return on an investment in the company’s history. The office projects that followed this also turned out to be commercial successes and allowed the company to expand further. This decision was made in 2006 and it was also around that time that I joined the company. We were then taking a close look at a few countries, such as Romania, Bulgaria and Ukraine. Eventually we opened our first foreign office in the Czech Republic, followed by one in Hungary. We also have offices in Istanbul and London.

When was it time for Poland? What was it like in the early days here?

We made our debut in Warsaw in 2008. I visited Poland for the first time in 2006 and at first it was not on our expansion map. We were more interested in the Balkans, Bulgaria and Romania at that time. We even had an office in Croatia, but because of various reasons we had to close it. There was also Ukraine, but it disappeared from our expansion plans quite quickly. And Poland emerged on our map because we were familiar with what was going on in the country thanks to Eurobuild magazine, for example. Compared to Slovakia, there were many developers and a great deal of competition. We had a 60–70 pct share of the Slovakian market in terms of the supply of offices and still have app. 40–50 pct. When we came to Poland we saw that there were still a lot of areas suitable for development and despite all the competition it would be possible to take our own slice of the cake.

Things were probably not so easy when the credit crunch took hold.

Indeed. Lehman Brothers had collapsed in the meantime and we had to wait a dozen or so months for the first few purchases of plots. We were ready financially, but we did not want to overpay for the land. Compared to the rest of the sector, we were a relatively young development company, but we knew about economic cycles. We believe that just having the funds is not a good enough reason to make purchases – you have to wait for the right moment, price and location. We made our first purchase on ul. Konstruktorska in Warsaw in 2010. Prior to this, in 2007, we participated in a tender for the development of the area around Warszawa Zachodnia station, but we did not stand any chance as the company was then unknown in Poland. A French company won the tender, but the deal was not finalised. When PKP returned to the issue of Warszawa Zachodnia, we were the only ones to take on the challenge and so we are now finishing the West Station project. Our next move was the purchase of a parcel on ul. Chmielna from PKP. The market considered the plot to be too expensive [HB Reavis purchased the 1.7 ha plot for PLN 171 mln – editor’s note]. It was not our cheapest purchase, but the location in the city centre has provided us with many opportunities. Our next purchase was Lubasa’s plots on ul. Inflancka in 2012. In reality, La Caixa bank was managing the sale. The bank had earlier financed their purchase by the Spanish developer [in 2006 Lubasa bought 2.87 ha for PLN 390.6 mln, or PLN 13,600 for 1 sqm and then the record purchase in a municipal tender – editor’s note]. It was not a cheap purchase, but the Spanish bank reduced the loan burden so the equity invested by us was not high. The project that was built there – Gdański Business Center – turned out to be a substantial commercial success. Our next purchase was a plot at ul. Postępu 14. This project turned out to be quite troublesome due to the construction of an overpass above ul. Marynarska that had not been planned to happen so early, but you can’t control everything.

If you were to compare the beginning of HB Reavis operations in Poland to its current situation... are things now easier, more difficult or simply different?

At the beginning I was alone for a while. Then in 2009 I employed Sebastian Proć. Now HB Reavis employs 150 people in Warsaw. This is a big difference. The Polish part of the company has a 40 pct share in the operations of the entire group and it is our most important market. Our second largest office, in London, is responsible for 25 pct of the value of group’s operations. The rest is attributable to other countries. It needs to be emphasised that the cost of projects in London is ten times higher than here and even a project with an area of 20,000–30,000 sqm could have the same value as Varso. But now it seems that the prices of plots are starting to go down to acceptable levels over there following the Brexit vote and perhaps we will be announcing a new purchase soon.

What event in 2016 had the biggest impact on the company?

The result of the Brexit referendum was quite a surprise for the group. The sale of our 33 Central office building on King William Street [for app. EUR 360 mln – editor’s note] was a significant event. The 21,000 sqm building, which is to be completed in Q3 this year, was eventually purchased by American banking giant Wells Fargo. In Poland we sold the first stage of Gdański Business Center for EUR 186 mln and Konstruktorska Business Center [app. EUR 120 mln – editor’s note]. HB Reavis and funds affiliated with us sold properties worth app. EUR 1 bln last year. Obtaining the permits for the construction of the Varso development was also very important for us.

How important is that project for the company?

It is currently the most significant enterprise for the entire group. Still, we have other projects of comparable size in Bratislava that are also important, such as Twin City or Nivy Mall, which we have recently obtained a building permit for and will be launching the construction work on in May. Our next large project will be in Budapest, but it is still in the preparation stages. The area of the project will be comparable to Varso – app. 140,000–150,000 sqm.

The 310m Varso tower will be the tallest building in the city and the region. Why did you opt for a project of this scale?

We did not look at just the financial aspects but also the prestige and location of the plot in the inner city centre. This required a design of a suitable quality that would stand out in terms of its scale. In the initial negotiations the city encouraged us by saying that ‘the sky is the limit’, provided that we resolved the issue of the light it would obscure. This was not a problem above a certain height, but the city curbed our aspirations slightly for other reasons and reduced the height of the building by 10m.

However, this is not the only skyscraper HB Reavis is planning to build in Warsaw.

We have purchased a plot on ul. Burakowska, where we are planning an app. 80,000 sqm business campus and a dominant feature with a height of more than 100m. The design work is currently in progress and we will be able to reveal the final form of the project in the near future.

Are there any further expansion plans?

We will soon be opening an office in Berlin and we will be able to announce our plans for the German market. We will be focusing on offices and retail there. In Poland we are also preparing to undertake a retail project, but we are still looking for a suitable one.

In Warsaw or perhaps also in other Polish cities?

We have taken the decision to expand outside Warsaw with our projects and so we are looking at plots in other cities. We tried to buy a plot in Łódź, but Ghelamco outbid us [the Belgian developer purchased 2 ha next to the EC1 complex for PLN 85.2 mln – editor’s note]. However, we have not given up and will keep on looking.