Three's company

Alterco still defines itself as an integrator  of the property market, but it is currently focusing  on investment. The company has acquired over  PLN 140 mln from the issue of series 'D' shares  and has announced the signing of preliminary agreements of more or less the same value

Emil Górecki

"We have concluded a number of big conditional agreements and are now finalising the transactions - fulfilling the conditions, signing final agreements and setting up the particular companies and projects within Alterco's structure," explains Zbigniew Zuzelski, the president of the management board of the company. He goes on to add that the activities of the group will be divided into three departments: residential, commercial and tourism.  "The first will be established on the basis of a listed company, Trion - 66 pct of the shares of which we acquired in December 2010. We will include the development of both single-family and multi-family projects within its remit. We plan to give the commercial development department to  Reinhold, which is now being taken over. For the third department we are planning to take over another listed company and establish its business line on a similar basis to that of Trion, which previously manufactured windows, or on Alterco itself, which was created after taking over the listed company Śrubex. A process carried out in this way is shorter, cheaper and more secure than the standard procedure of listing a new entity on the stock exchange," he reveals.

A risky task
Alterco has contributed four plots of land to Trion: one with an area of 8.7-ha on ul. Bysewska in Gdańsk-Kokoszki, where 91 single-family houses are to be built, one in Złocień near Kraków, where 280 houses are to be developed, a 13-ha plot of land in Gruszczyn near Poznań, where 160 houses are planned and one in Kiekrz also near Poznań.
"Trion will be an all-Poland developer. So far nobody has managed to create something like this, particularly not in terms of single-family construction. Companies that have tried to do so have taken over developers that were purely local," remarks Alterco's president. The company is now in preliminary negotiations concerning a purchase of land in Warsaw. The Diamentowe Wzgórza project in Katowice, whose 51 pct stake the company bought from Cyprus-registered Pamrot Properties and from Acero, will probably also be included in this department. The latter company is the sole perpetual lessee of the 10-ha site of the project. The three entities are to carry out the project jointly.
Alterco executives have revealed that Trion is currently holding negotiations with a big European developer. "We are hoping that we will soon start cooperation,? claims Jerzy Domański, the director of the residential department at Alterco. "It will probably have an operational character due to the extensive experience of this company in single-family residential development. Will there be cooperation with regard to capital? We do not know that at this point," he adds.

The engineering of moves
Whether Reinhold will be taken over by  Alterco itself or together with Irlandzka Grupa Inwestycyjna (IGI) depends on the Swedish financial supervision authority. Having this opportunity in view, the management of Alterco signed a cooperation agreement with IGI in December. Both companies are to establish a joint SPV entity. The Irish are to contribute a stake in the Solaris shopping centre project in Toruń with an expected net value of PLN 28 mln, as well as a stake in IGI Łomża - set up in order to develop a shopping centre project with an expected net value of PLN 28 mln in Łomża - and a stake in Coufal, which owns the existing Solaris shopping centre in Opole with a net value of PLN 32 mln. In return Alterco will contribute its stake in Aero 4, which is developing a logistics centre in Słubica near Warsaw, on an area of 6.5-ha.  After the initial contributions the joint entity will be worth app. PLN 80 mln and the partners will structure it so that the shares are split equally between them. "Next our joint company will acquire the relevant shares of Reinhold, contributing its assets in exchange," Zbigniew Zuzelski explains.
Irlandzka Grupa Inwestycyjna has several projects under preparation, but could not move them on to the construction phase due to a lack of capital. The amount of bank finance for each project was reduced, and the traditional sources of financing for the company  Irish investors - itself had dried up. "We figured out in mid-2010 that the best source of capital for our Polish projects would come from Poland itself. The funds which were interested in our portfolio were too aggressive. They wanted to impose impossibly high hurdle rates over a very short period of time, but we were not so desperate that we needed to accept such terms. Working with Polish companies gives us greater confidence to stay longer in the country. We have decided to access money from Polish pension and investment funds, which is why in September  2010 we began to speak to Alterco," reveals  Padraic Coll, the president of the management board of IGI. It is no secret that Reinhold has been embroiled in a difficult situation and is trying to work through it. They were also seeking the capital which would allow them to put these problems behind them. The partnership with Alterco is a great opportunity for them and for us as well," IGI's president adds.
According to Padraic Coll, IGI's Irish investors have not withdrawn any capital from the company. The transaction still needs permission in Sweden as Reinhold is under the supervision of the Swedish financial authorities. "This does not make the transaction easier, but we will make a very strong case to the Swedish supervisory authority that will make them understand that this is in the best interests of the company. Are we experienced with this kind of transaction? I used to work for an Irish Stock Exchange listed company. Alterco has been present on the Warsaw exchange for a while, and Rubicon Partners, another of our partners, is very familiar with it as well. Going forward, each of us will take something from our table: we can divide the area of our responsibility according to our competences," explains Padraic Coll.
There will probably be two more Warsaw hotels included in the department formed out of Reinhold that have been bought by Alterco recently. The first is the shell of a building which has been standing at the junction of ul. Sobieskiego, ul. Sikorskiego and ul. Witosa for a few years now. This had been the planned site of a Hilton Garden hotel. The seller, Hotel System Sobieskiego, will receive PLN 24 mln for the property provided that the following conditions are fulfilled: the filing for bankruptcy submitted by Colliers International is withdrawn and the seller reaches settlements with Bank Millennium (over the repayment of a loan of over PLN 83 mln), Marcin Nowak-Buczyński (the repayment of a debt of over PLN 776,000)  and others. "We are not afraid of bankruptcy proceedings. Not only do we have extensive knowledge but also substantial experience in the implementation of complicated enterprises on the property market. A more difficult project equals a potentially higher margin," explains Zbigniew Zuzelski.
The other Warsaw hotel project is located at the junction of ul. Wspólna and ul. Chałubińskiego, and includes the perpetual usufruct of the 0.09-ha plot and the shell of a hotel building. The price for the property is PLN 48 mln plus VAT, but this contract also comes with certain conditions.
The next project of the commercial department of Alterco is located on a 1-ha site on  ul. Św. Mikołaja in Gdynia, which was sold to the company by Polnord for PLN 8.6 mln. The property has a building permit for the construction of an office and retail complex including a shopping entertainment centre with a total area of up to 15,000 sqm. Mr Zuzelski is now wondering whether to develop this project alone or to look for a partner. However, he would like to start the construction work sometime this year.
Alterco executives are not specifying whether their projects will be sold upon the finalising of the agreements or the completion of their construction. This all depends on the suggested yield on the investment and the opportunity for the alternative investment of the acquired funds.

On Alpine peaks
Creating the third, tourist, department, is the least advanced of the stages so far. It is clear, however, that this is to include two properties in Poland: 50-ha in Sztynort, Masuria, with a jetty for 600 yachts and infrastructure, as well as over 20-ha in Komorze in West Pomerania. The head of Alterco also prides himself on a recent acquisition in the Austrian Alps. 'This is a completed ski station with an area of app. 18,000 sqm, including 160 luxury apartments, a swimming pool, a garage allocated to each of the apartments, and completed infrastructure in the Villach area. You can reach it directly by train from Warsaw. The seller is one of the best Swiss time-sharing organisations," reveals Mr Zuzelski. The value of the contract has not been revealed because the deal has yet to be closed. However, the president insists that the price offered is very attractive.
Alterco is taking its first confident steps. But has the market shown any appreciation for this? So far, not really. The value of the company's assets has been falling since September last year. Despite this, the company wants to hold its next share issue this year. Trion is also planning an issue worth several dozen million złoty this year, and it is possible that Reinhold, after the planned issue addressed to  Alterco and possibly IGI, will also manage to float further shares. "After sorting out our structures we will only be carrying out owner-supervision of our companies. The decisions will be left to their respective managements," reveals Zbigniew Zuzelski.