Dude, where’s my cash?
The source is drying up. Since the early autumn of 2008, developers and investors have been pushed to the wall, having to contend with much more severe conditions when applying for financing. The few who have managed to secure finance have had to swallow terms that they are not exactly happy with. In 2009, the bankers are hoping for the best. But they are also not afraid to tell it how it is – this year, in fact, might be even more difficult than 2008, especially for players without significant portfolios of completed projects or a long track-record of cooperation with a bank. The banks are also very cautious when it comes to providing financing for projects on over-heated markets, with Romania being the most quoted example, whereas the majority of bankers remain optimistic when it comes to Poland and the Czech Republic. So, when are we going to see an end to all the drama?
Mladen Petrov
Michał Sternicki
general manager Poland, Aareal Bank
This year is definitely going to see a significant slowdown in both development projects and investment transactions. The first half of the year will be subdued, with further activity depending on the capital markets returning to a state of normality. As regards development projects, we will witness much greater developer participation in investment costs – by as much as 50 pct. In the case of projects in which the loan period is expiring and the investors are unable to obtain refinancing, banks will be forced to extend loan repayments, although certainly by no longer than 12-24 months. In any case, they will have to accept new conditions, including higher interest rates. The margins on investment purchases are already around 200 base points higher – and even by as much as 400 base points or more for construction projects. Developers are clearly beginning to shape rent principles, construction costs, turnover and the sales of retail outlets with a sense of greater realism. In 2009, as a bank we are aware of the possible benefits involved in financing retail and warehousing developments, and will also be keeping faith in the potential of smaller cities – with populations of between 150,000 and 200,000 and below 100,000, with good catchment areas and stable purchasing power. Poland and the Czech Republic are two countries in which a great potential still exists for economic growth. Both countries are part of the European Union and will be at the forefront of those to acquire refinancing potential when the capital markets reopen. We shall continue to be present in Russia, but cannot yet say by what means we will channel into that market. In 2009 we do not intend to finance new projects in Romania, although we shall continue to keep the real estate market of this country under active review.
Klaus Gugglberger
member of the board of management, Investkredit Bank
Since early autumn 2008 our bank has significantly changed its perception of the market, which, obviously, resulted in a reduced deal flow. We, as well as most other banks, focused on our key customers, with whom we have a long history of cooperating. Our goal became doing as much as we can for them, keeping them at least partially happy so to speak, given the harsh conditions. The prolonging of loans for existing clients by a 12-18 month period is our main business now. The new business levels have been dramatically reduced. Premiumred Real Estate Development, the real estate arm of the Volksbank Group, part of which is Invest Kredit, has decided to freeze all of the projects which it hasn’t started yet. The company is in the process of obtaining the necessary permits, but the priority is to complete the projects that have already been started.
Unfortunately, in 2009 I don’t think the situation is going to change. For sure this year our bank will steer away from Russia, Ukraine and the majority of the South Eastern European countries. Romania is our biggest concern – in fact all the credit lines for new real estate business have been closed there until further notice. For us as a bank, however, there are good opportunities for profit as the margins have increased. Our core markets remain Poland, the Czech Republic and Hungary, but we are now avoiding logistics and retail projects, while maintaining a keen interest in office projects. So we had better get ready for a difficult year and wait for 2010, since in the second half of next year we might just see the return of increased transaction levels, although almost certainly not at the overheated levels of 2006-2007.
Piotr Cyburt
board president of BRE Bank Hipoteczny
I do not expect any movement to be felt soon in the market for granting loans for real estate investment, that is, until the economy starts regaining a trend for growth. When will this happen? I would like to know that myself – in any case, it won’t be soon. The market information is worse than I expected last autumn. I feel we shall have to wait at least untilthe end of 2009. The first upward movement will probably be noticed in the second half of 2010. One of the most important reasons for this state of affairs is that the old global financial system collapsed and a new one has yet to take its place. The haphazard, emergency moves by governments, which have been on an unprecedented scale, have yet to show any of their expected results – if indeed they ever will. This year will not see many new real estate projects, since the banks have no money to finance them. This is connected with greater profit margins and more expensive money on the interbank market, since access to the international market has also closed. Some transactions may occur on the secondary market, but these will also be rare. Investors will focus on finishing the projects for which the financing has already been guaranteed. We were asked many questions by potential customers in October and November, although this has been happening less frequently since December. Banks are likely to grow much more slowly and will select only the safer investments. There is still a certain growth potential for projects in infrastructure construction. These orders can effectively keep the heads of construction companies in better financial health above water, which will be reflected by the entire economy. Such projects are guaranteed a significant amount of finance. The only question that remains is how the government and local authorities are going to find the money. (EG)
Maciej Tuszyński
executive director, head of eal estate finance Poland, Westdeutsche ImmobilienBank
This year is going to be difficult, but I am still trying to remain positive and be one of these bankers that still think the glass is half full. I don’t think that we are going to see all the bad scenarios that have been predicted coming to pass. There will be financing, obviously, but under significantly changed and quite conservative conditions. The loan to value factor is not to exceed 70 pct, with margins of 2-2.5 pct for investment loans – the ones our bank is focusing on. Some of our competitors are also giving loans for starting new projects; however, these are hard to obtain. The queue of investors interested in such loans is also not particularly long.
As a bank, apart from financing investment transactions, WestImmo is now refinancing already existing loans. I estimate that this year the number of such transactions will be 2/3 times less. Our bank, however, is still optimistic when it comes to Poland and in fact this year we have a bigger budget than in 2008. We are interested in financing high-quality retail and office projects as long as they have prominent locations and stable tenants. As far as warehouse projects are concerned, we are eager to work only with international operators with projects located in big industrial hubs or in the vicinity of the largest cities. Outside Poland, WestImmo is also present in the Czech Republic and Romania, which remains a very specific market right now due to the significant price changes. However, in 2008 we continued our activity on this market with a couple of big transactions, each worth more than EUR 30 mln, being closed. As of this year, due to the switching to the euro, we also expect interest in the Slovakian market to grow.