Irish 'buyaspora' emerge as a force
The major announcement concerning them in 2003 was that Allied Irish Bank Capital Markets was establishing the Polonia Property Fund, which was planning to invest zł.1.9 billion (400 million) in the CEE region over the next three years, zł.1.5 billion (320 million) of which was earmarked for Poland. Since then, there has been news of high profile acquisitions, such as that of Żoliborz Plaza for zł.56.4 million (12 million) in Warsaw (from Skanska Property Poland), which have involved private Irish investors with little or no background in the real estate business and who are keen to protect their anonymity.
For Irish people with cash to spare, the tradition has always been to invest in property rather than in stocks and shares, and they have found their way to this region partly because "it doesn't make any sense to invest in Ireland anymore," according to Padraic Coll of KeyInvest, a firm which assists investors from the Emerald Isle to find the right product in Poland. Back home in Ireland, anyone looking to invest in property has to contend with a ninety percent stamp duty for commercial property, as well as very low yields and high capital prices. Initially turning to the UK to spend their excess cash, the Irish 'buyaspora' (as they have been termed by the Irish Independent newspaper) have also found the yields there too low and have increasingly looked further afield, most recently to Central Europe.
Though we all know about the success of the 'Celtic Tiger,' the fact that the Irish spent more on property in Poland than the British last year, despite coming from a far less populated island, is a curious phenomenon. Ironically, one of the reasons for it was Ireland's constitutional obligation to hold a referendum on the Nice Treaty, which it initially rejected. On its eventual ratification at the end of 2002, however, Irish investors were drawn here because they'd heard so much about this part of the world in the debates leading up to the vote.
Austrian and German institutional funds, particularly, had gained a firm foothold in this market long before then and this has led some to suggest that the Irish have left it too late to make any money from Central European real estate. An article published by the Economist Intelligence Unit on February 10 this year made the point that as "real estate returns across the region are already tumbling," anyone investing here now has probably missed the boat.
"There's definitely no question about it," says Padraic Coll, adding, "if you'd bought property here five to eight years ago, the yields would have been higher. But there was also a lot of over-renting on the market then, so you might be buying at a fourteen percent yield, but if you had tenants paying zł.141-165 (30-35) per square meter, you'd have to take into account that they'd be negotiating a much lower rent."
John Banka, head of Colliers International's Investment Advisory Group in Poland, and who represented Skanska Property Poland in the Żoliborz Plaza transaction, agrees with Coll, but goes further in rejecting notions that the Irish are tardy entrants to the Polish market, and indeed describes any such idea as "absurd." Adding that "you can't say on the one hand, [as some people do] that there's no product in this market and then on the other, that the yields are too low," Banka insists that the Irish are "filling an important gap in this market," and elsewhere has referred to them as "a new breed of fast-moving private investor." "It's never too late to 'cash in,'" he argues.
Padraic Coll's KeyInvest was established in April 2001 and though there was a dramatic slump in interest after September 11, it has carried on representing Irish individuals and syndicates interested in buying real estate here, particularly after the second Nice Treaty referendum. The company helps investors with finding lawyers and engineers and securing finance from banks, among other services. The private, small-scale nature of the parties KeyInvest deals with, Coll believes, means that it can avoid the red tape that encumbers the large institutions.
Of his clients, Coll says: "They are small investors and syndicates but the syndicates will typically have one guy who makes all the decisions. I can imagine that if you were dealing with some of these big funds it would be a longer process. We can turn around the acquisition of a property an awful lot faster."
Though Coll insists his compatriot clientele would be keen on acquiring class A office buildings in the center of Warsaw if there was an adequate supply up for sale, he says, "For every project I come across there are at least five Irish guys willing to take it off my hands," adding that they are increasingly turning their attention to property in the regions, particularly to retail projects.
"We'll have to be a little more imaginative," says Coll on the new chapter of Irish investment that is about to begin. In his view, hypermarket development in Poland "has reached saturation point," so the next wave of money will in all likelihood be washing over "smaller retail units in residential areas," which to him "seems to be the one gap left in that market."
That'll mean KeyInvest will be out and about doing the legwork in the provinces, where doing business is not always plain sailing. However, a crucial advantage for the investor, according to Coll, is that "you have a long lease and you don't have to get involved in the day to day management of the property: it's an alternative product." With office buildings though, property management is "more straightforward" and is something KeyInvest is prepared to take on. "There'll be a guy on the ground," says Coll, "who'll deal with the day to day stuff and we make sure the tenants are happy with him."
Another group of investors that KeyInvest is dealing with are focusing all their energies on the residential market, which is making a steady recovery in Poland. This in fact entails a development project, for which a plot of land has already been purchased and another two are in the pipeline. "We are involved in the equity part of it," Coll reveals. "They have the residential know-how from Ireland and we have the knowledge on the ground. We'll do everything to keep an eye on the market here," he says.
Although some of the investors KeyInvest works with are beginning to turn their attention to less developed markets, such as Bulgaria, where the yields are higher, Coll sees no pressing need to follow them just yet. "Though one guy's asked me to go down there with him on a scouting mission," he says. The immediate reality is that with EU accession, Poland will serve as a magnet for an increasing number of Irish investors: "A lot of people are queuing up," Coll maintains. "They're not actually selling their property first but taking out a second loan to come and invest over here," he explains.
The Irish are here to stay, it would seem, but in the longer term, they won't just be building portfolios but new projects as well. "The emphasis will be more on development," says Coll, "because there aren't enough straight investment deals. The earlier you get involved in a project, the more you can make out of it. We're building a knowledge base here as well, so we can add value to projects and not just bring in cash."
