Domestic investment funds re-visited
Last month, several firms announced plans to try their hand where others had failed.
The BZ WBK AIB Investment Fund Corporation has expressed its intention to raise at least zł.200 million to invest in property on the domestic market by the second quarter of this year. The offer is directed at both retail and institutional investors, though the fund will not disclose the proportion it expects to raise from either category of investor. Given the previous experiences of funds that tried and then failed in similar attempts, it is thought that the fundraising effort would largely target pension funds.
CA-IB and Skarbiec are also looking to launch such investment vehicles, following their earlier unsuccessful forays into the real estate market and Kredyt Bank is also laying the groundwork for this type of project.
Fund managers agree that Skarbiec's original initiative, coming as it did nearly two years ago, may have been a little early. They assert, however, that the market has matured since then.
The wave of interest in property on the part of domestic financial investors is largely explained by developments on the investment fund market itself.
Rafał Mania, president of CA-IB, points to the soaring assets now under management by investment funds, which took off in 2001 and have reached a level comparable to that of pension funds. Encouraged by the example of high-profile international investors, such as Europolis and Deutsche Bank, domestic funds are now looking to expand into new asset classes.
"The market is at a medium stage of maturity in terms of the funds being managed, even as the range of products on offer remains fairly rudimentary," Mania says, "So there is a sort of obligation to expand into new asset classes." He points, however, to the difficulties facing the trailblazers. Investors' knowledge of the market is still limited and they worry about the snippets of information that they acquire every now and then, such as the high vacancy rate in the office market.
"But we are not talking an exotic asset class here," he says, pointing to the fact that some five percent of the funds under management by pension funds tend to be allocated to real estate on the most developed markets. "There is no reason why we shouldn't go the same way," he adds.
Christopher Zeuner of Cushman & Wakefield Healey & Baker concurs, saying that Western European pension funds have been increasing their exposure to property because of the strong returns, a trend that is sure to capture domestic fund managers' attention, as pension funds tend to be conservative and closely watch what their peers are doing, rather than trying to race ahead of them.
Fund managers, however, are convinced that the developments on the real-estate market over the last 18 months or so have also been conducive to financial investors.
"The rising attractiveness of real estate for financial investors stems from several fundamental developments," says Krzysztof Samotij, president of the board at BZ WBK AIB. He insists that the market has become increasingly transparent, though Cushman & Wakefield's Zeuner argues that the process has only occurred gradually, and very slowly.
Aspiring real-estate investors all declare that their investment policy will be one of minimum risk, though they do also promise not inconsiderable returns of 10-12 percent a year, which is the case anyhow with BZ WBK AIB. Forewarned by the failure of Skarbiec, which looked into the opportunities of assets of relatively high risk, the new crop of funds will focus squarely on office space, with possible later interest in retail and warehouse projects.
"I would expect conservative investments in prime products, where the perceived risks are relatively low," says Zeuner, "In that market segment, yields of 8.5 percent to nine percent seem realistic. If you are looking for higher returns, you have to take a little bit more of a perceived risk." It would, however, appear that some fund managers are more optimistic. CA-IB's Mania says that it would make conservative investments and, if successful, would launch a new fund with a more aggressive investment strategy at a later date. At the same time, however, he promises yields in excess of those that, in Zeuner's opinion, such investments could bring.
Another possible problem that funds could face is that of supply. While the success of foreign players is an incentive for domestic funds to tap into the potentially lucrative market, it also means that they could face fierce competition from large players with a wealth of experience in the business. Mania concedes that foreign investors, "could be said to be a step ahead of us on this," but he says that the fund will still use the expertise of the same middlemen and real-estate agents, as is the case with foreign players. Samotij of BZ WBK AIB also points out that his fund would target investments to the tune of zł.49 million (E10 million), while foreign investors tend to look for larger prey, between zł.97 million (E20 million) and zł.398 million (E80 million). Moreover, international funds tend to focus on Warsaw, while BZ WBK AIB will also look for opportunities outside the capital.
Samotij also says that the number of high-quality buildings attractive to financial investors is on the rise. Zeuner agrees, and states that although yields are still declining, if purchasers are aggressive, the product is out there, even if supply is limited. He adds, however, that the success of any venture into the market would require funds to conduct very detailed research.
BZ WBK AIB's Samotij is keen to stress the expertise of the real estate team the fund has been building, though he also admits that the firm could benefit from the experience of the Polonia Property Fund, which also belongs to the Allied Irish Bank's (AIB) group and has been an active real-estate investor in this country and the region. CA-IB's Mania, on the other hand, seems to focus more on the benefits that cooperation with consultancies and agents would bring.
The time seems ripe for domestic funds to enter new territory. Interest rates are low, though they do not look likely to stay that way for much longer, and office rents are now near a sustainable level.
"I don't see a massive drop over the foreseeable future," says Zeuner, "Investment returns are also good, especially compared to stock market investments." The potential benefits are unquestionably there and it remains to be seen wheher this time round fund managers will avoid the pitfalls that plagued their previous attempts.
The BZ WBK AIB Investment Fund Corporation has expressed its intention to raise at least zł.200 million to invest in property on the domestic market by the second quarter of this year. The offer is directed at both retail and institutional investors, though the fund will not disclose the proportion it expects to raise from either category of investor. Given the previous experiences of funds that tried and then failed in similar attempts, it is thought that the fundraising effort would largely target pension funds.
CA-IB and Skarbiec are also looking to launch such investment vehicles, following their earlier unsuccessful forays into the real estate market and Kredyt Bank is also laying the groundwork for this type of project.
Fund managers agree that Skarbiec's original initiative, coming as it did nearly two years ago, may have been a little early. They assert, however, that the market has matured since then.
The wave of interest in property on the part of domestic financial investors is largely explained by developments on the investment fund market itself.
Rafał Mania, president of CA-IB, points to the soaring assets now under management by investment funds, which took off in 2001 and have reached a level comparable to that of pension funds. Encouraged by the example of high-profile international investors, such as Europolis and Deutsche Bank, domestic funds are now looking to expand into new asset classes.
"The market is at a medium stage of maturity in terms of the funds being managed, even as the range of products on offer remains fairly rudimentary," Mania says, "So there is a sort of obligation to expand into new asset classes." He points, however, to the difficulties facing the trailblazers. Investors' knowledge of the market is still limited and they worry about the snippets of information that they acquire every now and then, such as the high vacancy rate in the office market.
"But we are not talking an exotic asset class here," he says, pointing to the fact that some five percent of the funds under management by pension funds tend to be allocated to real estate on the most developed markets. "There is no reason why we shouldn't go the same way," he adds.
Christopher Zeuner of Cushman & Wakefield Healey & Baker concurs, saying that Western European pension funds have been increasing their exposure to property because of the strong returns, a trend that is sure to capture domestic fund managers' attention, as pension funds tend to be conservative and closely watch what their peers are doing, rather than trying to race ahead of them.
Fund managers, however, are convinced that the developments on the real-estate market over the last 18 months or so have also been conducive to financial investors.
"The rising attractiveness of real estate for financial investors stems from several fundamental developments," says Krzysztof Samotij, president of the board at BZ WBK AIB. He insists that the market has become increasingly transparent, though Cushman & Wakefield's Zeuner argues that the process has only occurred gradually, and very slowly.
Aspiring real-estate investors all declare that their investment policy will be one of minimum risk, though they do also promise not inconsiderable returns of 10-12 percent a year, which is the case anyhow with BZ WBK AIB. Forewarned by the failure of Skarbiec, which looked into the opportunities of assets of relatively high risk, the new crop of funds will focus squarely on office space, with possible later interest in retail and warehouse projects.
"I would expect conservative investments in prime products, where the perceived risks are relatively low," says Zeuner, "In that market segment, yields of 8.5 percent to nine percent seem realistic. If you are looking for higher returns, you have to take a little bit more of a perceived risk." It would, however, appear that some fund managers are more optimistic. CA-IB's Mania says that it would make conservative investments and, if successful, would launch a new fund with a more aggressive investment strategy at a later date. At the same time, however, he promises yields in excess of those that, in Zeuner's opinion, such investments could bring.
Another possible problem that funds could face is that of supply. While the success of foreign players is an incentive for domestic funds to tap into the potentially lucrative market, it also means that they could face fierce competition from large players with a wealth of experience in the business. Mania concedes that foreign investors, "could be said to be a step ahead of us on this," but he says that the fund will still use the expertise of the same middlemen and real-estate agents, as is the case with foreign players. Samotij of BZ WBK AIB also points out that his fund would target investments to the tune of zł.49 million (E10 million), while foreign investors tend to look for larger prey, between zł.97 million (E20 million) and zł.398 million (E80 million). Moreover, international funds tend to focus on Warsaw, while BZ WBK AIB will also look for opportunities outside the capital.
Samotij also says that the number of high-quality buildings attractive to financial investors is on the rise. Zeuner agrees, and states that although yields are still declining, if purchasers are aggressive, the product is out there, even if supply is limited. He adds, however, that the success of any venture into the market would require funds to conduct very detailed research.
BZ WBK AIB's Samotij is keen to stress the expertise of the real estate team the fund has been building, though he also admits that the firm could benefit from the experience of the Polonia Property Fund, which also belongs to the Allied Irish Bank's (AIB) group and has been an active real-estate investor in this country and the region. CA-IB's Mania, on the other hand, seems to focus more on the benefits that cooperation with consultancies and agents would bring.
The time seems ripe for domestic funds to enter new territory. Interest rates are low, though they do not look likely to stay that way for much longer, and office rents are now near a sustainable level.
"I don't see a massive drop over the foreseeable future," says Zeuner, "Investment returns are also good, especially compared to stock market investments." The potential benefits are unquestionably there and it remains to be seen wheher this time round fund managers will avoid the pitfalls that plagued their previous attempts.
