Build it quick

However, we do not want to compete with the biggest developers, so we are not interested in developing huge shopping centres. Instead, we are going to concentrate on smaller centres mainly located in small towns," declares Kurt-Georg Herzog, a member of the management board of Elbfonds Group. Elbfonds has been present on the property market for five years and has been active in Poland since 2006. In 2010 the company established its subsidiary Elbfonds Development to operate on the Polish market. Its portfolio now includes app. 80,000 sqm of retail space in projects at various stages of development. Most should be completed by the end of 2012, when the company's portfolio is likely to have been extended by up to 150,000-160,000 sqm. The company currently has around ten shopping centres under construction, with the number set to grow by another 10-15 in 2012. The total value of the projects is estimated at app. EUR 100 mln. Where is this money coming from? From Direkt Invest Polen closed investment funds. "These are funds that are addressed to investors across Europe. Some of the fund units go to institutional investors. Such a form of investment is attractive to individual buyers, such as lawyers, dentists and people looking for safe ways to invest their money. Investors co-develop our projects by making contributions starting from EUR 10,000. However, we also have those who have decided to entrust us with as much as EUR 1 mln," reveals Kurt-Georg Herzog. The rate of return on the invested capital tends to work out at 140 pct.

Looking for a niche
Elbfonds focuses on the retail market in smaller towns because it prefers to develop projects that can be finished within 18 to 24 months. "We are currently investing in towns such as Janów Lubelski and Myślibórz, where there are not too many rival developers active. All the facilities built will be earmarked for sale, and some will find buyers as early as the construction stage, but this applies only to those centres that have been fully leased. Around 4 or 5 shopping centres are currently being prepared for sale with the due diligence now underway. There is a lot of interest in such projects, and we have already entered negotiations with a number of interested funds," says Kurt-Georg Herzog. But is the economic gloom not going to set back the group's plans? "Of course, we appreciate the fact that the current situation will have an impact on the retail market. But we are not expecting any more serious turbulence. Our projects are relatively simple. They are not office towers or huge shopping centres. Our rent levels are also not excessive," replies Kurt-Georg Herzog.

Avoiding trouble
The company's projects can be found in such towns as: Ciechanów (a centre with an area of app. 15,600 sqm), Częstochowa (5,900 sqm), Lubin (2,000 sqm) and Poznań (app. 4,000 sqm). The company has already built hypermarkets in Oława and Świebodzin and sold them to Tesco.
The value of each project is mainly determined by its location. "Therefore we are very careful when choosing our plots. The price and the construction period are of key importance for us," claims Kurt-Georg Herzog. This is why Elbfonds Development has pulled out of a shopping centre project in Siedlce (supposedly one of the group's biggest projects in Poland). But it was only after extended negotiations with the land owner that the company finally decided to give up on the project. "We cannot afford projects that will take longer to develop than planned. Moving quickly is part of our strategy," explains Kurt-Georg Herzog.
The question now is, what is going to happen after the closing of the funds? "We are looking at the energy market and considering investment in the green energy sector. The financing for projects of this type would come from a fund established in Germany - just as in the case of Direkt Invest Polen's products. We are also planning to buy properties for our partners and manage them for 10 to 12 years," says Kurt-Georg Herzog. However, this is not the end of the story. Elbfonds is increasingly thinking about setting up a closed fund for Polish investors. "We believe that there is still a niche in this market for companies such as ours. The hope is that we will be able to present the concept for such a fund a few months from now," says Kurt-Georg Herzog.