The best way out is a good exit

Quite a lot has been happening recently at Develia. You have many advanced projects underway as you carry out your strategy to exit commercial developments. Which of these projects are you able to talk about?

Karol Dzięcioł, the business development advisor of Develia: None of them, actually. We are still covered by confidentiality agreements – but this could change at any moment.

So, in that case, can I ask how you intend to exit from these projects?

In very many different ways. This could involve property sales, or even investing in a joint venture that sells the completed project. The latter approach takes longer, but is normally more profitable. We are not ruling out anything.

You employ a rather unique JV model. Isn’t having two developers involved in one project one too many?

Absolutely not. We have a model relationship with Grupo Lar, if that’s what you’re referring to. Together we’re working on two residential projects in Warsaw and have a third in preparation. We already have some experience of working under such a system with Hillwood on a warehouse project.

Are all of your residential projects intended for the PRS market?

Not all, but most of them are. We have developed a strategy with clear and ambitious goals, which include reaching an annual level of 3,000 apartments within two years. We intend to operate on the PRS market on two levels: by negotiating forward-funding with funds interested in purchasing apartments, and also by creating our own PRS platform with a financial partner. We are already negotiating with several interested parties who could finance the purchase of several thousand apartments for the platform.

I hear you’re also looking for a buyer for Arkady Wrocławskie. What’s wrong with this place?

I believe that we have reached the end of the road when it comes to how that shopping centre operates and it now requires some radical changes. Nevertheless, it’s still an attractive property. It’s located on 3 ha in the centre of Wrocław and has very good communication links. As regards selling Arkady, we are negotiating over how such a transaction could be structured, but we have still not taken the final decision as to what to do with it. Not far from Arkady, we have another project that we originally acquired for an office project, but in all likelihood it will now mostly be a PRS development. Also, just north of Wrocław, we have another interesting development awaiting us on 170 ha in Malina next to the S5 expressway. This is where are going to develop a warehouse and logistics centre, which when built will compete with those in the Bielany Wrocławskie area.

It’s rumoured that you’re preparing a corporate acquisition.*

Yes. M&A forms another part of our strategy. I can tell you that we have done some research into a few developers in this regard and we’ve begun negotiations with a few of them.

When you say “a few developers”, are you talking about those in the residential sector that have had financial difficulties recently?

If you say so… (laughs)

Sorry, I had to try. What about your geographical expansion?

Again, we are not ruling anything out, but with the PRS market as it is, the large cities in Poland will remain crucial to us, such as Warsaw, Wrocław, Kraków and the TriCity.

Has the economy been hampering your plans and ambitions?

It is certainly not helping, but we always make plans for many years in advance to avoid getting bogged down by temporary setbacks. The outbreak of the war in Ukraine injected a lot of uncertainty into our sector, but after a few months the situation settled down and that’s how it is today. The investment period takes about five years, over which time interest rates and exit yields will change many times. We have to be prepared for many different scenarios. In my opinion, Polish real estate is currently very much undervalued and has huge potential when it comes to rent levels in the PRS sector. As a result, opportunities are arising to make much higher returns on investment than in such countries as Germany, which is very popular among investors despite the strict government regulations in terms of rents. Develia has a high financial standing and a lot of cash to invest, and our budget was recently augmented by the sale of the Retro Wola office building in Warsaw.

It seems that the life of a financial advisor is rather busy. Do you find any time for your private life?

Of course, my family is very important to me. And so is physical exercise, which keeps me fit, both physically and mentally. I often cycle to my office in Warsaw’s Wola district and not long ago I started going to the swimming pool every morning, even though lately this has been more like almost every morning.

Interview: Tomasz Cudowski

* This interview took place a few days before Develia announced a EUR 100 mln deal to acquire the Polish operations of French residential developer Nexity. For more details, check out the news at eurobuildcee.com