The Szczecin express

Has the light at the end of the tunnel, which went out in the darkest hours of the financial crisis, appeared once more thanks to an investment of EUR 111 mln? Let’s hope so. German developer ECE Projektmanagement has been allowed into the vaults of Berlin Hyp to take the money needed to build the Galeria Kaskada shopping centre in Szczecin

Ewa Andrzejewska

We signed the first credit agreement for financing a new development project on the night of February 18th. I would like to emphasize that this is a new project. This is not a refinancing loan or for the extension of an existing facility, but the funds needed for the construction of a completely new project,” emphasizes Rafał Twarowski, the managing director of ECE Projectmanagment Polska. Negotiations with Berlin Hyp had been in progress since August last year. Five banks took part in the initial negotiations (including Eurohypo, among others) but it was the negotiations with Berlin Hyp that had the happy ending. It is easy to understand the fact that the developer has gone to no end of trouble in order to obtain financing in a crisis period, but such a decision from a financial institution was a rarity, at least last year. “We rarely deal with such a professional partner and such a well-prepared project. We believe in the power of the Polish economy and the local real estate market. Berlin Hyp is interested in investment in large cities and in well-grounded projects, and this project fulfils all our requirements,” explains Radosław Popko, the head of the Polish branch of Berlin Hyp. The institution specializes in refinancing real estate and in long-term investment loans, acquiring funds from issuing mortgage bonds. The most important transactions of the bank last year included the EUR 205 mln refinancing of the Galeria Mokotów shopping centre in Warsaw as part of a consortium, as well as the EUR 104 mln in refinancing for the Warsaw Financial Center office building. Berlin Hyp has put its faith in ECE for 12 years as the loan has been granted for a two-year construction period and a ten-year investment period. “Taking into consideration the current condition of the market, the terms of the loan are very competitive. Moreover, we have also managed to receive a declaration from the European Investment Bank concerning the refinancing of this loan,” adds Rafał Twarowski of ECE. In his opinion the agreement is good news for the whole real estate market. I think that this transaction will be considered a turning point in terms of emerging from the crisis,” argues Rafał Twarowski.

The first glimpse of light at the end of the tunnel came at the Expo Real fair in Munich in October last year, when Echo Investment was the happy recipient of EUR 100 mln in financing. Eurohypo granted the loan for the extension of Galeria Echo in Kielce.

ECE vs. Echo

The German developer will have to fight for customers in Szczecin with Echo Investment, where its flagship mall in the city is called Galaxy. The shopping centre, which has a leasable area of 42,000 sqm, made its bow on the market in October 2003. “Despite still being the most important shopping centre in the city, Galaxy is starting to get outmoded, which is a natural process. The mix of tenants is of course good and the facility still operates well. In a city of 400,000 inhabitants such as Szczecin, where the unemployment rate amounts to 8.1 pct, there is currently a shopping centre area of 466 sqm per each thousand inhabitants. Therefore, the potential of the local market is obvious; on the other hand, the number should grow to at least 830 sqm by the end of 2011. The average for the five biggest Polish cities will amount to 836 by then, which means that Szczecin will finally have caught up with the leading markets. From the point of view of the customers, competition in the form of Galeria Kaskada will be a positive factor, because they will gain a modern centre and the market offer will be expanded. The companies that wanted to enter Kaskada were dormant for quite a while and often opted for Galaxy because they could not wait until the opening of ECE’s project,” explains Agnieszka Michalczewska, head of the retail department at King Sturge.

Ten years and quite a few mayors

Galeria Kaskada will be built on Plac Żołnierza Polskiego, between the streets of al. Niepodległości and ul. Obrońców Stalingradu – the site of the former Kaskada entertainment centre, which burnt down in 1981. “All of ECE’s SPV companies have standard names, and the entity created for development of this centre is called Centrum Handlowe Polska 1. This means that this is the first project of the company in Poland. During its lifetime there have been six mayors of Szczecin and eight deputy mayors. Now, after ten years of effort, nothing can stand in the way of the successful conclusion of the project, that is, the opening of the centre in October 2011,” insists Rafał Twarowski. The project also has a sentimental value for the Otto family (the co-owners of ECE). Werner Otto was born close to the border with Poland in the 1930s and worked in the retail business in Szczecin.

The construction of the centre has generated much controversy, which has been fuelled by the prospect of a fight between a Polish developer and German competition. “We never underestimate the strength of the competition. However, we are convinced that the retail map in Szczecin will change after the opening of our centre. The best example of how such a mechanism operates is provided by our Galeria Bałtycka mall in Gdańsk, which had a significant impact on the already existing Madison and Manhattan centres,” explains Rafał Twarowski. Joanna Dybowska, the marketing director of Galaxy, agrees with head of ECE that the opening of Galeria Kaskada will change the market. “I think, however, that the shopping centres will complement each other. Customers are currently used to our centre. and I would even go so far as to say that it is fashionable for Szczecin’s citizens to frequent Galaxy. So I am convinced that we will not be seeing an exodus of customers. There are 1.2-1.3 mln customers visiting Galaxy every month. Admittedly, the number fell a little in H1 last year, but in H2 some optimism returned, even though a major place of employment – Szczecin shipyard – was closed down,” claims Joanna Dybowska. She also emphasizes the importance of Scandinavian and German shoppers, who constitute app. 25 pct of people visiting the facility. “The exchange rate between the złoty and the euro makes us an attractive place to go shopping. The demand has also been fuelled by the growth in medical tourism, for example to dentists’ surgeries, which is often combined with a visit to a shopping centre,” points out the director. The administrator of the facility adds that they are maintaining the attractiveness of the centre in terms of its marketing, the range of tenants as well as its modern appearance, but these are not special preparations for competing with Galeria Kaskada. The tenants of the centre, which – as the owners underline – has always been 100 pct leased, have been joined by Zara (1,400 sqm), Betty Barclay (60 sqm), and it will soon also be possible to go shopping in a Stradivarius boutique (350 sqm). “We are also planning a comprehensive modernization of the common area, including the atrium, which is the heart of Galaxy,” reveals Joanna Dybowska.

At full steam

While releasing the information about the securing of the financing, ECE announced at the same time the official launch of Galeria Kaskada’s construction phase. The general contractor, Strabag, is entering the site at the beginning of March. So far preparation work has been carried out, as well as the protection for the future earthwork (sheet pile walls and slotted walls), and now the earthwork is underway. Stump Hydrobudowa is in charge of the work. Galeria Kaskada will have a leasable area of 43,000 sqm, of which 55 pct has already been leased. The brands that have decided to enter this centre include: Van Graaf, Intersport, C&A, Humanic, Max Mara Weekend, Camaieu, Promod, Tchibo, Coffee Heaven, Rossmann, Douglas, Sephora, L’Occitane, Apart, Yes, Adidas, Nike, Lee-Wrangler, Levi’s and Wittchen. “Negotiations with tenants are not easy and we have to find common ground for agreement. Our location will be the best in the city for many years, so I cannot imagine that any of the leading tenants will fail to appreciated the quality of it,” claims the representative of ECE.

A long queue for a slice of the pie

And will retail chains appreciate other projects which are planned for the city? Echo Investment is getting ready for the development of another centre in Szczecin. This is to be built on the site of an existing shopping centre on ul. Struga, whose main tenant is the Nomi building materials store. “The launch of the work connected with the construction of Galeria Astra is planned for this year and its completion for 2011. We will apply for a building permit for the centre in the next few months; it will have a total area of 31,000 sqm and app. 26,000 sqm of leasable space. It will house around 80 shops and service centres, as well as a cinema with 9 screens, which will be built later,” discloses Marcin Materny, who is responsible for lease of the retail at Echo Investment’s facilities. The centre, whose design has been prepared by the locally-based Studio A4, will also have a car park for 
1,000 vehicles. The estimated cost of the project comes to app. PLN 100 mln.

Who does the sun shine for?

RE Project Development (part of the Austrian-based Raiffeisen Evolution group) also wants a slice of the proverbial market pie. Is the developer not afraid to battle it out with Michał Sołowow, the founder and biggest shareholder of Echo Investment? “Our centre, Ferio Pogodno,  will be built on al. Wojska Polskiego on the site of the former Polmo factory. It will not be in competition with Galaxy or with Astra. We bought the 5-ha of land in 2007, with the purchase being financed by a bank from the Raiffeisen group. Now we have a building permit, but we are still working on the final shape of the communication system. The launch of the work on the project will take place after the administration permits for the planned road infrastructure have been secured. It should be opened in H1 2012,” reveals Maciej Krenek, a member of the board of RE Project Development. He goes on to add that negotiations with two major tenants are close to being concluded. A few letters of intent have also been signed. “I think that by the time the construction work starts and the first tranche of the credit has been received, 60 pct of the facility’s leasable area (31,500 sqm) will have been taken up. I am not afraid of the competition. We have a good catchment area in Pogodno as well as other neighbouring districts. We will fill this particular gap in the market,” insists Maciej Krenek.

Mayland Real Estate is another developer hoping to prize open the wallets and purses of 
Szczecin’s shoppers in 2012. Aleja Słońca, which has been designed by the Chapman Taylor architectural studio, will contain 130 stores over a leasable area of 35,000 sqm. The new mall is to be built on ul. Ku Słońcu in the district of Mierzyno – and close to the existing Ster centre, which was opened in 1999 and whose main tenant is currently Real (formerly Géant). The developer’s intention is for the retail offer of Aleja Słońca to complement that of Ster, with both benefiting from the synergy effect. “We are currently working on the design and we are in the process of applying for the building permit. We intend to stick to the schedule for the project that was established earlier, and so we will launch the construction phase by the end of this year and should be opening the facility in H2 2012,” declares Fabrice Paumelle, project development and marketing director of Mayland Real Estate.

Each of the developers mentioned so far is sure that they will make money from their projects. But how long will it be before the investment in Galeria Kaskada pays for itself? “It depends of course on how well it performs and how attractive it becomes for potential investors looking for acquisitions for their property portfolios. We believe that, just as has been in case with our other projects, the 
Szczecin centre will soon be a tempting morsel on the real estate market. Our plan is for this centre, as well as two other German malls, to become part of a property fund which is now being established by ECE,” explains Rafał Twarowski. And Radosław Popko from Berlin Hyp infused us with some of his optimism when he mentioned that he foresaw the return of investors interested in buying property in Poland. “Poland is emerging from the credit crunch without any major damage, and is still registering GDP growth of more than 1 pct. It will be enjoying the fruits of this success now and in the future,” claims Radosław Popko, with some confidence. ν