Time for the big boysFeature
Tomasz Cudowski, ‘Eurobuild CEE’: Your company was supposed to be celebrating its 20th year of operations, but it’s not turned out to be a very jolly anniversary.
Grzegorz Mroczek, the vice-president of CREAM Property Advisors: Unfortunately, what happened on February 24th was a shock for us all, forcing us to reassess our priorities. Thousands of firms and private individuals are helping refugees and we, too, are playing a small part in this. We’ve supported Polish Humanitarian Action with cash donations. On the ground floor of our office building a humanitarian centre for 200 people has been set up, which we help to keep operating on a daily basis by making small purchases, and we have also undertaken to buy washing machines and dryers for refugee centres. But this is just a drop in the ocean when you look at their needs, so if systematic changes are not made we are going to face the spectre of a humanitarian disaster.
How do you think this situation is set to affect the investment market?
Armed conflicts have a destabilising effect on all branches of the economy, including investment – and all the more so for a country bordering a war-zone. The question is how significant an impact it will have. The funds that finance a market usually have a multi-layered structure, so decision-making takes a long time and looks into the long term. We can therefore expect a slowdown in this sector. On the other hand, the world is a global village, so many companies are going to move from Ukraine to Poland, thus boosting our GDP and supporting some branches of our economy. A lot also depends on the reaction of the banks, which are not, for the moment, turning off the taps when it comes to lending. But decisions about launching new projects or purchases are sure to be more circumspect. Google has given the market a positive signal by buying The Warsaw Hub, and Futureal Group too by recently buying up retail centres. A big transaction is also in the works for the logistics sector and if it goes through it will be an important positive signal from international players.
This isn’t the first crisis your company has faced over the last twenty years. Which one for you has been the hardest?
You can’t compare a war with an economic crash, but it’s good to remember that in 2003 and 2004 the market came to a halt. Then there was the Lehman Brothers crisis in 2008, followed by the pandemic, and now there’s the war in Ukraine. Each crisis, although difficult, has a lot to teach us, since ‘what doesn’t kill you makes you stronger’, as they say. After the initial shock it takes less and less time to come to and adjust to the new circumstances while the losses incurred become smaller. After so many demanding experiences in the market, I can say only one thing, that CREAM is bullet-proof (laughs).
Does it help that you are a boutique agency in such circumstances? After all, you don’t have complex structures.
Absolutely. Due to our structure and many years of experience, we can take the right decisions quickly to adapt effectively to new circumstances. We follow the ‘Agile Philosophy’, with all of its lack of established structures, but also its dexterity and multifunctionality. We can quickly re-form and regroup our strengths and assets, from one sector to another. Moreover, we are creative and can quickly find our feet in difficult situations to manage events for our clients rather than just be a passive subcontractor that signs contracts. In these uncertain times, abilities become priceless. I can proudly say that we’ve passed the test of the pandemic with flying colours. The proof of the fact that we took the right decisions – even though they were not easy – is that we were thanked by both tenants and owners.
The pandemic has greatly harmed traditional retail so how is your retail division holding up?
Luckily, it’s doing really well. When other agencies were closing or selling up, with us it was business as usual. Certainly, the market was momentarily saved by retail parks, which are continuing to boom even though we can now see the first signs of saturation in this sector – in towns of 30,000 people we are seeing three such centres either operating or being built. So we have a situation similar to 2008– 2009, when we saw the height of the shopping centre boom – some of them won out, but others were completely converted into something else. I’m convinced that soon we are going to see the first examples of retail park projects that have completely missed the mark when it comes to the location. Maybe this may make us sound a bit full of ourselves, but it’s certainly not going to be one of our centres. The experience we have simply pays off, even when it comes to difficult projects.
And how well are your asset management platforms doing?
They are definitely growing in strength and, more importantly for the whole market, they are becoming necessary. While the market was hot, the entire asset management field was not well understood and did not develop. Most investment projects were backed by single players who were assured appropriate returns without any effort. In essence, asset management no longer existed as a third-party service. Owners just had their own departments that tried to manage the value of their portfolios, but they didn’t have much experience. There was a lot of talk about asset management in Poland, but for the last twenty years this sector has been nascent. It was only just a few years ago that the advantages of working with an experienced asset manager began to be seen – and the pandemic has only added to these advantages. For us, raising the value of an asset is a priority and we have turned this approach into a symbol of how we do business. We take care of a property as if we were its actual owner.
A year ago you moved into logistics. What have you learnt since then?
I can’t deny that we moved into this sector at the height of the warehousing boom. We had a very strong debut when we took over the management of the Fortress REIT Limited portfolio. We continue to broaden the scope of our collaboration by optimising the properties, offering help with leasing, and introducing environmentally-friendly solutions, such as solar panels. But we’re also seeing that this market is slowly becoming saturated. There are no easy projects to be done, so it’s becoming more important to have an experienced partner who is able to think strategically and offer a comprehensive service.
And can CREAM offer this?
Of course. The range of our services is not just comprehensive leasing and property management – we also offer a PR service and also, through our partnership with Grzesiak & Partners, legal advice. Our CNC Savings & Profits service is also growing well, through which we are able to offer annual savings of up to EUR 200,000 per centre, without (of course) lowering its standards. And this will raise a project’s NOI by a similar amount. CREAM has the experience of a developer in its DNA. On every project we have raised revenue by increasing the leasable space by at least 15-20 pct from the same footprint – for example, Galeria Wisla in Plock. But many developments were even much more spectacular – the Askana shopping centre in Gorzów, where the leasable area was raised from 12,000 sqm to 19,000 sqm, while the record in this respect was Nova Park in this same city, which went from 14,000 sqm to 32,000 sqm. We are now bringing these same abilities to retail parks. In Częstochowa we are converting a Tesco store into a retail park with over 17,000 sqm of retail space for the Dor Group. We are one stop shop responsible for property management, legal work, leasing and project management. Moreover, we are increasing the NOI by 15-20 pct by strategically managing our project space, which is consistently above the market. Recently we also opened a capital markets department in CREAM and soon we are going to be announcing our first transactions. In this respect we work quickly. Our clients and business partners come to us with many investment questions and we do our best work when we join them up with each other.
That’s a lot for a company that began in 2003 as a private equity fund.
We have had a lot of time to learn and we are quick learners. The Caelum fund from which CREAM evolved managed a large property portfolio worth over EUR 300 mln, and after the crisis of 2008 that became quite a challenge. Four years later the fund achieved its goals and began to sell up, so we were left with a decision to make as to what came next. The main reason for founding our company was to find a place for our team and we succeeded. Today, we are an independent advisor with a lot of experience, and because of our origins we understand much better the needs of private equity owners have than their agents who concentrate on brokerage and basic property services.
With such rapid growth, you must always be hiring or do you continually subcontract?
Currently, our team numbers 65 people in three separate teams: advisory, offices, and capital. We’ve managed to develop a great synergy between our teams and we have a great working atmosphere. We look for openness, inclusiveness and no politicking – and this is what our employees and clients appreciate. After all, the atmosphere at work is always reflected in business relations.
You said that there are no easy projects left in warehousing. So, in which segments can such projects be found?
Ok, in practice they can be found in none (laughs). All the different property classes have matured. The markets will no longer accept weak or mediocre projects. The time is past for easy universal solutions – and this also means the end of one-man agencies. It’s now time for the big boys and what counts is in-depth knowledge, good research and a strong multi-talented team with experience of each branch. It is becoming ever more popular to convert properties, which is happening on a large scale, even if you just look at the conversions of Tesco centres. Do you remember the stir just a few years back when they knocked down the Warsaw Mercure hotel to make war for the Q22 office building? People were screaming and shouting: how they could destroy such a lovely hotel?? But it turned out to be a visionary move at the time, so we have to look at projects in the same way. Many office blocks and shopping centres are going to be pulled down or converted, because it will turn out that, for example, apartments sell well in those particular places. While observing these changes, we opened our project management department, which is currently involved in the conversion of the former Tesco in Częstochowa.
Just to finish on a private question: do you find any time for your personal life?
Yes, but only because when I go on holiday I rarely turn off my telephone. The pandemic has changed the way we rest. You can work from anywhere on the planet and so it’s very important to change the scenery even more often to maintain your health and balance. One sport that I have just taken up is kitesurfing and I’ve already been to Egypt and Sardinia to test it out. I’m now planning further trips abroad. You have to continue to develop when it comes to your passions, too.
Cream with a distinctive taste
Grzegorz Mroczek graduated from the faculty of economics and management of the University of Economics in Kraków. He has 22 years of experience in the Polish and international commercial real estate market, having started his career in 1999 at Echo Investment. Later, he was involved in building the Caelum private equity fund up to a peak value exceeding EUR 300 million. For more than nine years, as vice-president of the management board and co-owner, he has been managing the Cream Property Advisors consultancy. Over his career, Grzegorz has been involved on the development side of 23 commercial projects on behalf of institutional clients. In his work, he is guided by a practical approach to the projects he has been entrusted with and focuses on increasing the value of the real estate. This has been recognised across the sector and has resulted in awards and nominations in many competitions, including those held by the Polish Council of Shopping Centres and the Eurobuild Awards.