The power of concentration

Emil Górecki, Gergo Racz

The more concentrated the washing-up liquid, the better. Big companies are considering employing the same technique, taking another look at their premises and wondering how to use them in the most effective way

Everyone counts the pennies in hard times: this is what it takes to survive. Will many companies on the market manage to save money on their properties? Activities aimed at restructuring and property portfolio optimization are already being stepped up. “We are working on a few projects aimed at improving property utilization and the lowering of the costs related to them,” claims Kinga Barchoń of the property management team at PricewaterhouseCoopers. There are many utilization possibilities when it comes to freeing up properties, she adds, starting with the lease of the unused space, through to moving employees to cheaper locations and including the more effective use of the space by switching to an open-plan format. Consolidation of the premises used by companies that have identical or very closely related activities and needs while being situated in several different locations, is another option. Such an approach may even lead to a certain surplus of space, which can be sold or leased and can result in some additional income for the company. Sale and leasebacks are becoming a more and more popular form of frozen capital release. “This was the case with one of our clients, Telekomunikacja Polska, whose commercial property portfolio was the subject of one of the biggest investment transactions in terms of value in 2008,” recollects Kinga Barchoń. The company sold three of its Warsaw buildings with a combined area of 62,000 sqm (on ul. Twarda, ul. Moniuszki and ul. Obrzeźna) to the Baltic Property Trust. The total value of the transactions amounted to EUR 168 mln.

Hello, would you like to save money?

TP Group intends to inspect 7,000 of its properties as part of a savings plan that is being implemented. This is understandable, considering that the company announced significant redundancies some time ago. Some of the properties occupied by the company could be sold. In Katowice it released as many as half of its properties under a pilot project. Now the programme is being extended to the whole of Poland. The possible sale of the properties will depend on market conditions. However, there are already parties interested in the package deals, as the president of the company, Maciej Witucki, reveals. As a result of the review, the number of released properties throughout Poland may be as high as half of the 7,000 premises currently occupied, just as it was in the case of the pilot programme in Katowice.

The largest, government-owned or recently privatized companies, which have many different properties in their portfolios, have the greatest restructuring potential. However, the expert from PricewaterhouseCoopers is not willing to specify any industries where this is especially the case, as the companies are all very different. “It is hard to generalize the reasons which lead companies to make decisions about restructuring or the optimization of their properties. The difficult days of the economic slow-down that we are going through certainly contribute to a more careful review of cost sources and structure. Unthreatened income allowed for a certain degree of wastefulness earlier,” Kinga Barchoń remarks.

Railway stations next in line

The same process is taking place in the ever-restructuring Polish State Railways (PKP). Several dozen hectares and a number of other properties are set to be sold this year in the Wielkopolskie and Lubuskie voivodships alone. The corporation is planning to obtain nearly PLN 347 mln from the sale of properties in 2009. Are they going to achieve this? Last year 188 tenders took place. Around 59 pct of these had a successful outcome, while in H2 the figure has slipped to 40 pct. “Our properties are prepared for sale as they come. The crisis is not influencing the sale of the smaller ones. However, the economic slow-down is having a negative effect on offers with values of several million złoty and the large development projects related to railway stations and residential development. The resources obtained in this way are allocated for the repayment of our debts and for investment such as the renovation and modernization of railway stations. Unfortunately, we are not able to sell all our properties as fast as we would like to. One such example is a plot of land at the old Lech stadium in Poznań Dębiec, which we tried to sell twice and both times failed,” relates Barbara Leszczyńska of the PKP Marketing and PR department.

In addition to this, the company is getting rid of dispensable railway stations in smaller towns, which are often located in town centres. The company is giving them to municipalities as a form of repayment of their overdue property taxes. PKP plans in this way to hand over real estate with a total value of PLN 52.2 mln to local government and the state treasury in 2009.

Late reply to the crisis

There is no doubt that the crisis has accelerated the review processes of owned and occupied premises in many cases. It is already too late to restructure portfolios in order to protect companies from the effects of the recession, but it is nevertheless a good time to save money. “The sooner the process starts, the better for the company. In the case of companies with a large number of properties in different locations – and these are usually the ones that are being restructured – it is a complicated and lengthy enterprise, which can take from 6 up to even 15 months. However, the benefits gained from embarking on such a process are worth waiting for,” argues Kinga Barchoń.

When undertaking such restructuring programmes, PricewaterhouseCoopers’ advisors conduct a complex review of the portfolio and recommend concrete action depending on the use of the particular real estate. Then restructuring and optimization activities follow with regard to a certain number of properties. Is it difficult to find parties willing to buy or lease? “We get enquiries from companies interested in taking over the properties which have been properly prepared for sale. They are mostly foreign investment funds, although buyers from other market segments are also interested. The situation on the financial markets will certainly make the sale process longer, but there will always be demand for well-located and properly prepared properties. We suggest selling the less attractive ones in package deals,” Kinga Barchoń explains.

PZU Group is currently preparing for a review of its real estate; however, it does not want to talk about it at this point. “Analyses of this area are pending, so it is not a good time to talk about it,” Agnieszka Rosa from the PR office of the company says tersely. Restructuring is also planned at Ruch, the biggest press distributor in Poland. However, no one in the company managed to find time to discuss their next moves.

The bigger picture

Tenants, particularly larger companies on the Budapest office market, are increasingly opting to concentrate their operations into a single, bigger base, realizing that such a move could result in reducing costs, not to mention establishing a stronger corporate image. The first significant deal of the year involved just such a decision, with Budapest Bank, the local subsidiary of US-based GE Money, signing a pre-lease for 17,000 sqm in GTC Magyarország’s GTC Metro building. The company, as well as four of its local subsidiaries, will move into the new premises in the second quarter of 2010.

The deal that still has the Hungarian real estate sector in a state of excitement is the giant agreement between K&H Bank and developer TriGranit. The bank, the Hungarian arm of Belgium’s KBC, concluded a contract for two buildings housing a total of 40,000 sqm of office space in TriGranit’s Millennium City Center. As a result, the company will be able to streamline its real estate portfolio of six central buildings and a number of smaller office assets scattered throughout the city.

While on the surface these major transactions are closely connected to the economic crisis and the related pressure on prices, all of the deals were initiated before the downturn and are the result of careful preparation and extensive negotiations. “Potential tenants often seek out larger leases involving areas of 1,000 sqm or more and due to the nature of these contracts, a deal takes fairly long time to conclude, – between six and twelve months,” according to Gergely Pados, head of the office agency for real estate advisor Cushman & Wakefield.