Aiming high

Alex Hayes, ‘Eurobuild CEE’: I’ve heard rumours that you’re planning to list on the Warsaw Stock Exchange.

Gábor Futó, CEO and co-founder of Futureal Group: It’s one of the options, but I’d rather explain where we are with the various strategies of the company.

Are we talking about Cordia or Futureal?

At the moment at Futureal Group we have 350 people in the development team across three Central European countries including Hungary, Poland and Romania, not counting our smaller operations in Germany and the US. The group’s residential business is run under the separate brand name of Cordia. It is Hungary’s leading residential property developer and our target is to become the leading regional residential developer. At the moment we have a presence in Warsaw, Kraków and Gdańsk as well as in Bucharest. In Budapest, Futureal Group has been a market leader for over a decade. But we believe that in both Poland and Romania the group has the potential to grow to be of a similar size to what it is now in Hungary. We believe that such a company could command a premium or at least a lot of interest from international investors because we’re able to balance the cycles in the different countries. The residential cycles of Hungary, Romania and Poland are not synchronised at all. Whereas in Poland it’s at its highest capacity ever, at the same time Hungary and Romania have massive pent up demand with very low interest rates: a perfect environment for residential.

From what you’re saying, you want to be almost as big in Poland and Romania...

I think in Poland we will be the same size as we are in Hungary, maybe bigger. In Hungary we sold over 1,000 apartments last year; this year the plan is for the entire group to sell close to 2,000 homes and out of this Hungary will account for 1,200 and Poland will be about 500 and there’ll be another 200-300 in Romania.

You’re saying that here in Poland the market is hot and that we are now at the very top of the cycle; surely this is possibly the wrong time to be expanding operations?

This is a real concern. It’s a fact that the economy is strong and we are probably in the late cycle. It’s very difficult to navigate in such an environment. I believe that the stock exchanges are overheating all over the world and the US bond market can only go one way from here. But then you read the reports of the big Wall Street firms, and they actually see quite a bright future for several years to come. We might just be in the longest real estate cycle. If you think that everything that goes up comes down, you should stop investing; but if you think that there’s going to be a period of extended economic growth, then you should proceed with caution. Our strategy is based on the duration of the land bank. It’s how many years ahead we are prepared to buy land for. In Poland this duration is short. There we buy land we can work on relatively quickly. In other countries we might enter into joint ventures for much longer term projects.

You mentioned Bucharest a little earlier. As far as I am aware, you have one project in Romania, but your strategy seems to entail a rapid expansion over there too.

First of all, we are not new to the market in the country. We built and sold Gold Plaza shopping centre there and today we’re investors in Park Lake Plaza.

I was talking about residential projects.

We have developed one project in Bucharest in the previous cycle. The residential market is coming back. Romania has been very bumpy, so we’re also very cautious there. But we’ve bought our first two-stage project with 550 apartments and we’re working now to secure additional plots. Romania is experiencing massive growth but the economy is possibly overheating. There’s too much consumption and government spending but I think that in the long term, many CEE markets represent years and years of real fundamental demand for residential properties. At the moment we’re searching for land and we’re trying to build up our brand just as we did in Hungary. The plan for 2018 is to launch 3,000 apartments across the five cities and to sell around 2,000. And we have a land bank of 8,000 apartments. But each market has its own story. We think we will be a truly regional brand.

Are you saying you want to be dominant across the CEE region?

Realistically, we’re not megalomaniacs. We just want to be a highly reputable, very well- recognised brand that happens to be the number one in Hungary. In Poland, we just want to be among the top ten recognised brands and that’s enough. Anyway, let me talk a little bit about Futureal. Altogether in the group we now have 49 projects under development with 1 mln sqm gross. A significant part of the portfolio belongs to Cordia, but we’re also developing the last dominant shopping centre in Budapest, the Etele Plaza. This project has been delayed for ten years. We acquired the first plot in 2006 and we assembled the final site of the project from 14 different plots. It took us a long time to work through the zoning and get all the permits. It’s very difficult to achieve this in Hungary and this project is a 54,000 sqm gla shopping centre at the country’s largest multimodal transport intersection. The terminus of the now-completed metro 4 line is also located here, while 50 bus lines, regional and international trains, and three tram lines meet at this junction. The development cost is EUR 200 mln with app. EUR 60 mln equity.

Could you tell me when you started the construction work?

At the end of Q4 last year. Now it’s starting to look impressive as the hole in the ground is quite big.In Poland, we’re looking to buy assets for repositioning. We believe it will be a significant business for the group and it will nicely supplement the development business.

Do you have your eye on anything to purchase right now? Yes, there are a number of options we are considering.

So we can expect an announcement within a couple of months or so?

In the case of everything going according to plan, then yes. We are very much looking for value-add opportunities with a view to redeveloping office buildings,shopping centres.We’ve already done a couple of very successful repositionings. We bought a retail park next toSziget Center in Budapest and in two and a half years we took the net operating income up from EUR 600,000 to EUR 1.8 mln.

Was that just through recommercialisation?

The centre was partially empty, but we did a lot of negotiating and some very active marketing on the tenancy side so it was in a way a recommercialisation. We changed the positioning; we also paid attention to details but most importantly we created an attractive retail mix, which had not been there before. We were ready with the required capex to back this up. We sold it to OTP Property Investment Fund. We have also been working on the repositioning a school to convert it into an office building in Szeged, the first really class ‘A’ building in the city. And we have secured a twelve-year lease on it.

To convert a school into a class ‘A’ office building sounds quite a feat...

It was done in record time: a year. The tenant wanted to enter the city and needed space for its IT operations. But there was nothing of the quality they wanted. It turned out that converting an empty school into a class ‘A’ office building was the way to satisfy their needs.Our vision was that this building with its fantastic location could be turned into an office building.

Going back to Cordia, two things come to my mind. Firstly, I wasn’t aware of any development in Gdańsk.

We made the decision in October to enter Gdańsk. We’ve signed the purchase agreement but it’s not a live project yet. We’re working on the design and then we will need to obtain the building permit and hopefully we’ll be able to kick the project off sometime at the end of this year.

Where is this site?

Gdańsk-Wrzeszcz.

And how many apartments are you intending to build?

About 250 homes and we’re actively looking for new opportunities not only in Gdansk but also Sopot and Gdynia. We are actively searching for new exciting projects in Kraków and there are several projects in the pipeline in Warsaw.

They say there's no smoke without fire, so what about these rumours of a stock market debut?

We’ve been approached by some experts on the capital market recommending that we should list. I am not sure that this is the way for us. If we were to list sometime in the future, it would probably be in Warsaw. We are rather considering accessing the Warsaw bond market. At the moment we’re generating a lot of cash flow ourselves, but if we think we need third party capital, then we will decide to make that step.

But no guarantees?

No. We will proceed when the time is right for the group.

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Chip off the old block

Gábor Futó co-founded Futureal with his father, Péter Futó after returning from his studies at Harvard University 15 years ago. He has led the group since its foundation as CEO and chairman. Under his leadership Futureal has become one of the leading real estate developers and investors in the CEE region with a team of over 300 professionals and with a project pipeline of over EUR 1.4 bln, including more than 6,000 residential units and over 350,000 sqm of commercial space. Futureal is currently active in five countries: Hungary, Poland, Romania, Germany and the US.