All about endurance
The fund's title occurred to the CEO and president of Orco, Jean Fran~ois Ott, while he was reading about the intrepid achievements of the early twentieth century British explorer Sir Ernest Shackleton, who sailed from sea to sea across the Antarctic Continent during the First World War in his ship of the same name. What was remarkable about that story was that all the ship's crew came out of the experience alive: a metaphor for better times ahead for the Polish real estate market, perhaps?
While learning about Shackleton's exploits on the southern seas, Ott says, "the thought came to me that if you want to succeed in real estate in Central Europe, you need to be able to 'resist frustration,' which is how we put it in French. The closest word in English is 'endurance.'"
The Orco Property Group first established its presence in Central Europe in Prague in 1991 and has since developed residential, office and hotel properties across the region in Prague, Budapest, Warsaw and Bratislava. Here in Poland, its initial efforts have been concentrated on the hospitality business, and its small luxury Hotel Le Regina in Warsaw's Old Town is just about to open (see related article on page 6). This will be followed by the 'extended stay' MaMaisons development in the Diana complex on ul. Chmielna (also in the capital) in October this year. However, as part of the Endurance fund (which has a target size of zł.697.4 million (E150 million) of equity capital, equivalent to an investment capacity of up to zł.2.3 billion (E500 million)), in which, like Invesco, it has a 50 percent stake, Orco will be looking to acquire office and retail products in the Czech Republic, Hungary, Poland and Slovakia. As far as retail projects are concerned, these could be situated in any town of over 200,000 inhabitants, but office buildings will generally be acquired in the capital city of each country. Of regional retail properties, Ott says: "We've been very successful in secondary cities in the Czech Republic [in the residential market] and I like these working towns. Maybe they don't look so good but people still go shopping there and part of the philosophy of the fund is that there can be very good cash flows and very sustainable revenues in these cities."
The 'lack of product' predicament in Warsaw's office market is something that any new fund arriving in these parts has to consider, and Ott is certainly aware of it, but he believes Endurance has a way of getting around the obstacle. The fund, he reveals, is to have "a 20 percent co-development capacity, which is quite unusual." This concession was accepted in Luxembourg (where the joint venture was incorporated) by the securities' commission there because Orco's main activity is as a developer. "Sometimes the way to create a better return for investors is to co-develop as Orco did with TriGranit in Prague," he maintains. "We can team up with developers and put some money together and do big projects. The fund will be able to do this and can create an extra four or five percent IRR." Orco's president believes that such partnerships will increasingly be the shape of things to come in the property market.
Invesco Real Estate Limited was established in the USA in 1983, "to provide real estate investment and asset management services to institutional clients," according to its publicity material. In Europe, the company manages zł.19.1 billion (E4.1 billion) worth of assets (as of December 31 last year) and it has just opened a representative office in Prague. It is also considering launching one in Warsaw "to support this [the Endurance] fund and our other activities," says Gren Carr-Jones, Endurance's fund manager, who works from Invesco's London office, adding, though, this "certainly won't happen this year." It is, in fact, Orco's long-established presence on the ground in Central Europe that has encouraged Invesco to join up with it: "They provide a very good local platform for us," he says.
Although Jean Fran~ois Ott suggests that anything from one-third to forty percent of the fund could be invested in Poland, he qualifies this by pointing to the current competitiveness of Budapest, where the situation is perhaps "a little less exciting, as there is more product on sale and there are fewer investors." Adding that the market in the Hungarian capital has now bottomed out, he admits that "we may do a few more deals in Budapest than in Warsaw, where there is a higher concentration of money searching for product at the moment." According to Gren Carr-Jones, however, the fund has "already submitted an offer for a particular property which does meet the criteria for Endurance" and this is an office development in Warsaw. Given the early stages of this potential transaction, he was unable to divulge any further details regarding it, except that Invesco has been working with "our colleagues in Munich, who have another mandate for buying property in Poland. It's an offer we made by splitting the portfolio between Endurance and another of Invesco's clients."
Endurance's arrival on the Central European scene comes, of course, after a number of other investors have recently begun searching for property to acquire in Poland. German, Austrian, American and Irish money is floating around in increasing quantities, it seems, and each new group of investors is having to keep a very sharp eye on the market's vicissitudes. Couldn't the Orco/Invesco initiative be accused of tardiness?
Gren Carr-Jones admits that the "competition is tough" but believes that Endurance can be distinguished from other funds, in that "they are looking for what we call 'core type assets,' whereas, because of the strength of the team we have on the ground, our strategy is based more on 'core plus'." These are assets that require either expertise or further investment for their maximum potential to be realized and, in Carr-Jones' opinion, "reduce the field for certain properties that are either coming to the market or are available 'off-market.'" He adds, "there are a lot of funds looking for buildings with pretty full rental incomes, but we can take a look at situations that perhaps aren't fully leased."
While learning about Shackleton's exploits on the southern seas, Ott says, "the thought came to me that if you want to succeed in real estate in Central Europe, you need to be able to 'resist frustration,' which is how we put it in French. The closest word in English is 'endurance.'"
The Orco Property Group first established its presence in Central Europe in Prague in 1991 and has since developed residential, office and hotel properties across the region in Prague, Budapest, Warsaw and Bratislava. Here in Poland, its initial efforts have been concentrated on the hospitality business, and its small luxury Hotel Le Regina in Warsaw's Old Town is just about to open (see related article on page 6). This will be followed by the 'extended stay' MaMaisons development in the Diana complex on ul. Chmielna (also in the capital) in October this year. However, as part of the Endurance fund (which has a target size of zł.697.4 million (E150 million) of equity capital, equivalent to an investment capacity of up to zł.2.3 billion (E500 million)), in which, like Invesco, it has a 50 percent stake, Orco will be looking to acquire office and retail products in the Czech Republic, Hungary, Poland and Slovakia. As far as retail projects are concerned, these could be situated in any town of over 200,000 inhabitants, but office buildings will generally be acquired in the capital city of each country. Of regional retail properties, Ott says: "We've been very successful in secondary cities in the Czech Republic [in the residential market] and I like these working towns. Maybe they don't look so good but people still go shopping there and part of the philosophy of the fund is that there can be very good cash flows and very sustainable revenues in these cities."
The 'lack of product' predicament in Warsaw's office market is something that any new fund arriving in these parts has to consider, and Ott is certainly aware of it, but he believes Endurance has a way of getting around the obstacle. The fund, he reveals, is to have "a 20 percent co-development capacity, which is quite unusual." This concession was accepted in Luxembourg (where the joint venture was incorporated) by the securities' commission there because Orco's main activity is as a developer. "Sometimes the way to create a better return for investors is to co-develop as Orco did with TriGranit in Prague," he maintains. "We can team up with developers and put some money together and do big projects. The fund will be able to do this and can create an extra four or five percent IRR." Orco's president believes that such partnerships will increasingly be the shape of things to come in the property market.
Invesco Real Estate Limited was established in the USA in 1983, "to provide real estate investment and asset management services to institutional clients," according to its publicity material. In Europe, the company manages zł.19.1 billion (E4.1 billion) worth of assets (as of December 31 last year) and it has just opened a representative office in Prague. It is also considering launching one in Warsaw "to support this [the Endurance] fund and our other activities," says Gren Carr-Jones, Endurance's fund manager, who works from Invesco's London office, adding, though, this "certainly won't happen this year." It is, in fact, Orco's long-established presence on the ground in Central Europe that has encouraged Invesco to join up with it: "They provide a very good local platform for us," he says.
Although Jean Fran~ois Ott suggests that anything from one-third to forty percent of the fund could be invested in Poland, he qualifies this by pointing to the current competitiveness of Budapest, where the situation is perhaps "a little less exciting, as there is more product on sale and there are fewer investors." Adding that the market in the Hungarian capital has now bottomed out, he admits that "we may do a few more deals in Budapest than in Warsaw, where there is a higher concentration of money searching for product at the moment." According to Gren Carr-Jones, however, the fund has "already submitted an offer for a particular property which does meet the criteria for Endurance" and this is an office development in Warsaw. Given the early stages of this potential transaction, he was unable to divulge any further details regarding it, except that Invesco has been working with "our colleagues in Munich, who have another mandate for buying property in Poland. It's an offer we made by splitting the portfolio between Endurance and another of Invesco's clients."
Endurance's arrival on the Central European scene comes, of course, after a number of other investors have recently begun searching for property to acquire in Poland. German, Austrian, American and Irish money is floating around in increasing quantities, it seems, and each new group of investors is having to keep a very sharp eye on the market's vicissitudes. Couldn't the Orco/Invesco initiative be accused of tardiness?
Gren Carr-Jones admits that the "competition is tough" but believes that Endurance can be distinguished from other funds, in that "they are looking for what we call 'core type assets,' whereas, because of the strength of the team we have on the ground, our strategy is based more on 'core plus'." These are assets that require either expertise or further investment for their maximum potential to be realized and, in Carr-Jones' opinion, "reduce the field for certain properties that are either coming to the market or are available 'off-market.'" He adds, "there are a lot of funds looking for buildings with pretty full rental incomes, but we can take a look at situations that perhaps aren't fully leased."
