Adios or welcome?

Martinsa-Fadesa has become the first major spanish real estate victim of the credit crunch. The inevitable question now is: who will be the next to collapse? only Time will tell whether the investors who were until recently splashing out money on buying Polish land are going 
to pull out or decide to settle here permanently

Mladen Petrov

It had been a hot, lazy afternoon in the Eurobuild CEE office, that is until press agencies started to send their first reports from Spain around 3 pm that Martinsa-Fadesa, a major operator on the Spanish real estate development market and quoted on the Madrid stock exchange, had filed for bankruptcy. Soon afterwards, the company started issuing declarations that despite debts to the tune of EUR 5 bln, none of the projects outside Spain – including those in Central and Eastern Europe – had been put in jeopardy by the company’s insolvency. Martinsa-Fadesa’s Romanian subsidiary insists that it still intends to invest more than EUR 700 mln in a number of projects in the country. The company’s expansion plans for Bulgaria, where Fadesa wants to start projects in the country’s 10 largest cities, are truly ambitious. When it launched its Bulgarian operations, Fadesa promised to announce a new project every 6 to 8 months. And in Poland the company made its presence felt in 2005, when it set up a joint venture with Prokom Investments.

All kinds of trouble in Paradise

A press statement from Martinsa-Fadesa has stated that: “The mother company’s problems do not concern our subsidiaries in other countries.” However, Michał Kubicki, managing director of the Volumetric MK Polska development joint venture, which he established with the Catalonian holding Group Volumetric SL (which has its head office in Mataro), is less than satisfied by this statement: “I would rather trust what the banks are saying that finance its projects,” says Mr Kubicki. “There are companies among the top ten Spanish investors who are in perilous situations, and most of these are also active in this part of Europe. The source of the problem lies in the purchase of land at hugely exorbitant prices, and now that the value of these projects has slumped somewhat, the banks are demanding re-payment of their loans. Only those who managed to restrain themselves from snapping up every bargain will survive.”

There is a jittery atmosphere in Spain, where the question being asked is: Will the Fadesa collapse, have a domino effect? It has been estimated that the combined debts of Spain’s five largest developers amount to more than EUR 30 bln. The Spanish government has not offered any assistance to the indebted giants, despite the fact that the Ahorro Corp investment group (owned by Spanish savings banks and their CECA association) has forecasted that only a third of the developers on the Spanish market will survive the crisis.

The question which now arises is what will happen to Spanish developers operating abroad? While alarming news is being received from Spain, everything seems to be in perfect order in Bulgaria and Romania. Hercesa has let it be known that it has earmarked EUR 340 mln for residential and hotel projects in Bucharest, while Anfora plans to invest EUR 90 mln in Bulgaria. These are two of the last Spanish investment announcements we have received. But the same statement has been given in every meeting with Fadesa officials in Bulgaria and Poland: “We have issued a statement and have nothing to add. We are forbidden to comment on growth plans.”

Do you want to know a secret?

So what is the general state of health of the Iberian companies active in the CEE region? Some of the experts we asked admitted – in quiet back offices once all recording machines had been switched off – that some Spanish developers are selling projects or refraining from going ahead with them in their homeland. There are increasing rumours about the serious problems being faced by Lubasa, which is also present on the Polish market. In late 2006, this developer bought the much sought-after site of the former bus station on ul. Inflancka in Warsaw for the mind-boggling sum of PLN 390.6 mln 
(PLN 28,700 per sqm). Many investors had been fighting over the property – but it was the Spaniards who won the day. Even then, experts were saying that the investor had paid way over the odds, guided by the over-optimistic view that house prices would rise at a two figure rate for several years to come. The company is now planning to develop office buildings on the land and also has a residential project in Warsaw’s Bielany district. We were flatly told by a representative we managed to contact of Lubasa’s mother company in Madrid (the 100 pct owner of the Polish unit) that: “Our company is experiencing no problems. Our operations are diversified, with residential development being only one of the many pillars of the company. Our foreign projects are going to plan and without delays.” The response from Fadesa-Prokom Polska’s head office was couched in similar terms – that the company, in which Polnord owns 49 pct of the stock, is continuing to keep its eyes focused on the market and is implementing its three projects. The company has taken out loans with Bank Pekao for its Wilanów and Powsin projects, and is currently negotiating a loan for a Wrocław investment.

At the root of the problem

Mikołaj Martynuska, the director of CB Richard Ellis’ residential department, who has just returned from Spain where he set up a new agency branch some time ago, provides us with this summary of the situation on the Polish market: “Spanish companies are looking for liquid assets, but now Spanish plots and homes are proving enormously hard to sell. To release finance and cover loans on time, companies are being forced to sell projects outside Spain.” He adds bluntly: “Two years ago everyone was looking for something to buy. Today they all want to sell.”

But Pablo Martinez Zabala, Grupa Espais’ managing director in Poland, which made its first purchases here in 2006 and recently launched its first Polish project – CityZen in Warsaw’s Mokotów district – expresses confidence in his fellow-countrymen: “The largest developers are definitely not going to abandon CEE markets. By selling plots it does not mean they have set their minds against any further activity.” But in Spain itself, projects are being put up for sale every day. Savills’ research reveals that late last year 68 pct of developers were looking for buyers for their projects. That figure is certainly higher today, since developers, as Savills explains, are scared to openly admit they have sold a project.

Don’t panic please

There are also those who are not worried by the number of projects being sold, being of the opinion that established companies with long-standing experience will be able to cope with the present conditions. Agata Jurek-Zbrojska, legal counsellor and property department manager for the Garrigues Polska law firm (which itself has Spanish roots) rejects the rumours about large-scale project pull-outs by Spanish investors. She remarks that: “The truth is that the financial crisis has affected Spanish investors, but that, in principle, concerns the real estate market in Spain and is additionally restricted to small and medium-sized companies. We know of only one company which has pulled out of projects in Poland since the beginning of the year, and that decision was taken at the preliminary contract stage. In this case, too, there was no issue about that company’s financial health in Poland. You can be sure that the number of Spanish investors who pull out of individual projects in Poland is no greater than the number of British or Irish investors.”

Tremon is another Spanish developer which had started a residential project in Poland before selling it. This development is on ul. Bielawska in Konstancin-Jeziorna, and the buyer was the Fartex company. But it does still have one project – Dom Zachariasza in Warsaw’s Praga district (its first in Poland) – on its books. Tremon’s portfolio also holds sites for future projects in Wrocław and Gdańsk. Outside Poland, this investor is planning projects in Bulgaria and Romania, while plots on which houses can be built have already been bought in the Czech Republic.

Good things lie ahead

Investors that have just entered the Polish market have hardly been fleeing the scene in the last few months. Major Spanish players such as Begar and Espais have now started developing their first Polish projects.

Diego Martinez Leon, Begar’s international director, who remains optimistic when it comes to his company’s prospects in this part of Europe, is of the opinion that: “The Polish market can not be compared with the situation in Spain. We have the financial background and sufficient know-how to realize that this is a normal course of events. 
It was no accident that we chose Poland. Comparisons have been made between our two countries, but what is of importance to us is we can do here what we have already achieved in Spain – a true real estate revolution. Poland provides us with such an opportunity.” Apart from work performed on its first residential project in Gdańsk, the Spanish company intends to win some infrastructure construction contracts.

But clouds are gathering

The Southern Centre is an almost 45,000 sqm piece of land in Wrocław city centre. A multifunctional residential-services-office centre is planned for the site of more than 180,000 sqm. The much sought-after plot was bought in October 2006 for PLN 369 mln, after which the new owner successfully applied for a rebate of 
the 22 pct VAT. GP-Investments was the buyer – a Spanish investor and a member of Grupo Prasa. This is a company which mainly focuses on residential projects and is also active on the Warsaw and Kraków markets. However, the Southern Centre project was altered this May, with the Spaniards deciding against the original plan to build several skyscrapers, and opting instead for a multifunctional complex consisting of two medium-height buildings. The change was justified by company officials in terms of the need to give the project a more human scale. The investor insists everything is proceeding according to plan and that they are now only waiting for a building permit to be issued, hoping that construction work can start this year. After these changes, Wrocław city council would have been within their rights to have organized a new tender, but chose not to. Tomasz Ossowicz, director of the Wrocław Office of Development, dismisses any suggestion that the investors who took part in the tender have been invited to renegotiations. According to him, the amended concept does not contravene the general town-planning assessment of the project’s features, and it was technicalities which led to the changes being introduced.

So why, then, have we yet to see any heavy machinery in operation on the site of the old Warsaw Brewery at ul. Grzybowska 58, which was bought by the Spanish company three years ago? The delay is said to have been caused by the time-consuming urban study negotiations and the year long talks with the city council on issuing a building permit. For now, all that exists is a model in the company’s office, where an empty rectangle covers the place where the breweries once were. While waiting for the building permit to be issued, GP-Investments is to start developing an apartment building on ul. Wronia in September, on a site neighbouring the breweries, while the ‘Apartamenty Przy Bulwarze’ project in Kraków has already got off the ground. Now the company is looking around for other good opportunities for future projects. Up to this point, the company has used its own finance for these projects, but will now be applying for Polish loans.

Who will remain?

Do Spanish developers really intend to leave Poland? It is a fact that a large number of leading managers who once worked for Spanish companies have already changed employers (including Maciej Mosiej of Fadesa Prokom and Lesław Chechelski of Grupo Prasa), but on the other hand, fluctuations in personnel in the past two years have been significant. However, it may just be possible that Martinsa-Fadesa will be the only victim of the running of the bulls that is now taking place in the Spanish real estate sector. ν