BRE moves to Plac Teatralny; Pioneer raising $50 million
"After years of working in property consulting, I came to the conclusion that what was really missing was the institutional money - equity. There were a lot of projects turned down by banks because of a lack of capital," said Andrew Gutowski, general manager of Pioneer Real Estate Investment Company. "But (the capital) has to be educated capital, aware of the realities of the market."
While interest from institutional investors in Polish property has increased substantially over the past six months, many of them still see the property market here as a mystery - attractive returns from strong demand, but no real way to predict future movements, making it difficult to estimate cash flows and future returns.
Pioneer is hoping to give them a safer entrance into the market by combining local knowledge with a diversified portfolio. "The whole reason we're doing this is risk diversification. We want to be a facilitator for those coming in," Gutowski said. "There's a lot of demand from insurance companies and pension funds, but they can't invest now, because they don't know how to do it. This (property fund) keeps them from having all their eggs in one basket."
The company will be registered in January, and officials are planning to sign their first letters of intent by the end of March. At least 51% of the initial $50 million will come from Polish investors, with the remainder from foreign institutional investors. Pioneer will contribute "several million to the fund," but Gutowski declined to put an exact figure on Pioneer's share. The company hopes to constantly increase its capital base, allowing for increased investment activity.
The investment company will look to buy stakes in existing buildings (around $25 million worth) as well as to take an equity position in new projects. On existing buildings, Gutowski showed some concern over the leading role construction companies have played as contractor and developer. "I'm worried about contractors who have loaded down constructions costs only for the fees. And the one who gets screwed in that case is the owner."
The company will seek exposure to most major sectors, including office, warehousing and retail. Gutowski sees a lot of growth potential in shopping centers, pointing out that Poland has the highest GDP per square meter of leasable shopping center area in Europe.
While many property developers say it's still too early for developments outside Warsaw - drawing on the less-than-admirable performance of the Baltic Business Centre in Gdynia and the Radisson in Szczecin - Gutowski said they see a lot of potential in secondary cities like Wroclaw and Poznan. "Cities are the engines of growth," Gutowski said. "We're a long-term investor looking for long-term growth. We'd be willing to buy something cheap just to be there when things take off."
On the office side, Gutowski is predicting a decline in rents in four to five years but points out that the value of the property will increase even after the rents go down. "A Warsaw office building will be valued like Madrid or other second-tier European cities. Even though cash flows are declining, the underlying value of the property will be reaching European levels."
But the investment company will not confine itself to financial aspects of projects alone. "People aren't going to walk in with perfect projects - we're also architects, construction managers and advisers."
And as the one holding the cash, Pioneer will have leverage to change projects where other property consultants can only make suggestions. "One of the biggest problems is with Polish architects - they're not trained to be client driven," Gutowski said. "Once you build a building, it's there. It's got to be competitive today, and it's got to be competitive 10 years from now."
BRE moves next to Citibank
BRE emerged late last month as the winner in the battle over Warsaw's Plac Teatralny, signing on to buy the first building in the project developed by French construction company Bouygues.
Other bidders included end-users Powszechny Zaklad Ubezpieczen (which recently won the tender for site at Rondo ONZ), Societe Generale and an undisclosed German institutional investor. The second building was bought in May by Citibank.
The cost for the entire 32,000 square meter Plac Teatralny project, comprised of two distinct buildings, is $50 million. The construction signed between Bouygues and BRE is worth around $19 million, at $1,200 per square meter.
Bouygues is planning to apply for building permits this month.
MDM face lift complete
Hotele Warszawskie Syrena held the official inauguration last Friday of the newly remodeled MDM Hotel at Plac Konstytucji. The cost of the renovation was zl. 5.5 million ($2.24 million) and involved installing new doors and windows, roofing and putting a bathroom in each hotel room.
The hotel now has 29 single rooms, 86 doubles and five suites.
The Syrena hotel company is the owner of several other hotels, including Polonia, Metropol, Warszawa and Saski. The company is currently city-owned but is slated for privatization involving the sale of 80% of shares to a strategic investor, with 20% reserved for employees. No deadline has been set for the privatization.
While interest from institutional investors in Polish property has increased substantially over the past six months, many of them still see the property market here as a mystery - attractive returns from strong demand, but no real way to predict future movements, making it difficult to estimate cash flows and future returns.
Pioneer is hoping to give them a safer entrance into the market by combining local knowledge with a diversified portfolio. "The whole reason we're doing this is risk diversification. We want to be a facilitator for those coming in," Gutowski said. "There's a lot of demand from insurance companies and pension funds, but they can't invest now, because they don't know how to do it. This (property fund) keeps them from having all their eggs in one basket."
The company will be registered in January, and officials are planning to sign their first letters of intent by the end of March. At least 51% of the initial $50 million will come from Polish investors, with the remainder from foreign institutional investors. Pioneer will contribute "several million to the fund," but Gutowski declined to put an exact figure on Pioneer's share. The company hopes to constantly increase its capital base, allowing for increased investment activity.
The investment company will look to buy stakes in existing buildings (around $25 million worth) as well as to take an equity position in new projects. On existing buildings, Gutowski showed some concern over the leading role construction companies have played as contractor and developer. "I'm worried about contractors who have loaded down constructions costs only for the fees. And the one who gets screwed in that case is the owner."
The company will seek exposure to most major sectors, including office, warehousing and retail. Gutowski sees a lot of growth potential in shopping centers, pointing out that Poland has the highest GDP per square meter of leasable shopping center area in Europe.
While many property developers say it's still too early for developments outside Warsaw - drawing on the less-than-admirable performance of the Baltic Business Centre in Gdynia and the Radisson in Szczecin - Gutowski said they see a lot of potential in secondary cities like Wroclaw and Poznan. "Cities are the engines of growth," Gutowski said. "We're a long-term investor looking for long-term growth. We'd be willing to buy something cheap just to be there when things take off."
On the office side, Gutowski is predicting a decline in rents in four to five years but points out that the value of the property will increase even after the rents go down. "A Warsaw office building will be valued like Madrid or other second-tier European cities. Even though cash flows are declining, the underlying value of the property will be reaching European levels."
But the investment company will not confine itself to financial aspects of projects alone. "People aren't going to walk in with perfect projects - we're also architects, construction managers and advisers."
And as the one holding the cash, Pioneer will have leverage to change projects where other property consultants can only make suggestions. "One of the biggest problems is with Polish architects - they're not trained to be client driven," Gutowski said. "Once you build a building, it's there. It's got to be competitive today, and it's got to be competitive 10 years from now."
BRE moves next to Citibank
BRE emerged late last month as the winner in the battle over Warsaw's Plac Teatralny, signing on to buy the first building in the project developed by French construction company Bouygues.
Other bidders included end-users Powszechny Zaklad Ubezpieczen (which recently won the tender for site at Rondo ONZ), Societe Generale and an undisclosed German institutional investor. The second building was bought in May by Citibank.
The cost for the entire 32,000 square meter Plac Teatralny project, comprised of two distinct buildings, is $50 million. The construction signed between Bouygues and BRE is worth around $19 million, at $1,200 per square meter.
Bouygues is planning to apply for building permits this month.
MDM face lift complete
Hotele Warszawskie Syrena held the official inauguration last Friday of the newly remodeled MDM Hotel at Plac Konstytucji. The cost of the renovation was zl. 5.5 million ($2.24 million) and involved installing new doors and windows, roofing and putting a bathroom in each hotel room.
The hotel now has 29 single rooms, 86 doubles and five suites.
The Syrena hotel company is the owner of several other hotels, including Polonia, Metropol, Warszawa and Saski. The company is currently city-owned but is slated for privatization involving the sale of 80% of shares to a strategic investor, with 20% reserved for employees. No deadline has been set for the privatization.
