Samsung backs out of Zlota Centre; gmina, partner not shedding tears
Jerzy Guz, director of promotion and economic development with the Centrum gmina, said financial problems in South Korea forced Samsung to drop out. Last year, Samsung agreed to be a 50% partner with ING Real Estate to develop the project, which will contain an office building, hotel, cinema, retail center and auditorium.
"Samsung is no longer a partner in this project. That is official," Guz said.
Still, the managing director of ING Real Estate's Warsaw branch, Jaap Joldersma, insisted the project was "not in danger." The Centrum gmina will proceed with plans to sign a joint venture deal with ING Real Estate that will give ING ownership of the land - a huge, 32,000-square-meter parcel between Warsaw's Central Station and the Holiday Inn Hotel - planned for the project.
"All I can say at this point is that an announcement will be made soon, and it will be positive," Joldersma said.
According to a gmina official who did not want to be named, Samsung will not be missed. "They were very, very difficult to deal with," he said. "I don't know if you've ever had any experience dealing with Koreans, but they are not easy negotiators. In this case, it was completely impossible to understand their way of thinking."
For instance, Samsung insisted that it be appointed general contractor on the project. The gmina's development department refused that request, insisting that it was a conflict of interest since Samsung was already acting as co-developer on the project. Samsung "didn't seem to understand the idea of a competitive tender and an open bidding process," the source said. "This project will proceed much, much faster now that (Samsung) is out of the picture."
Liquidity, liquidity, liquidity
Property developers seeking start-up financing from the European Bank for Reconstruction and Development (EBRD) need not waste money on the telephone call.
In an effort to promote liquidity on the Polish real estate market, the EBRD will look to invest in already completed projects rather than greenfield schemes, announced Marc Mogull, EBRD's director of property, tourism and banking development, at a conference two weeks ago in Cannes, France.
"Poland is a big market, a transparent market and a dynamic market. What it's not, at this time, is a liquid market," Mogull said after his speech. "Until you can show people that you can sell buildings, then the floodgates to this market will never open."
To promote the buying and selling of completed buildings, the EBRD will invest $10 million in the Pioneer Polish Real Estate Fund, a $60 million commercial property fund expected to close next month. The EBRD only agreed to give the $10 million if Pioneer agreed to invest a "significant amount" of its portfolio in completed real estate projects, Mogull said.
This focus on buying finished buildings may sound a bit strange coming from a bank that has poured ECU 79.2 million into start-up financing for new property projects throughout Poland. That includes loans to the 31-story Warsaw Financial Center on ulica Emilii Plater, the Atrium Business Centre on Aleje Jana Pawla II, and the Warsaw Distribution Center, a warehouse and distribution facility on ulica Szyszkowa.
According to Mogull, EBRD financing is no longer needed for greenfield projects. What developers really need, he said, is an exit strategy - a way to sell their properties once they are completed.
Chris Sims, senior representative of Pioneer Polish Real Estate Advisors, agrees. "How do you prove that a real estate market is attractive and mature unless something is bought and sold?" Sims asked.
Sims pointed to Commercial Union's recent purchase of a 5,000-square-meter building in the Wisniowy Business Park, a Class A office development along ulica Zwirki i Wigury, as a "potential signal" that Poland's real estate market is becoming more liquid. "That was certainly good news," added Mogull, referring to the deal. "But remember that's just one transaction."
Unless more of these sales are made, Poland's real estate market will remain in the hands of speculative developers, who are less prepared to weather economic downturns than institutional investors, Sims noted. "Developers that can't find an exit route now could be hit hard when yields start falling."
But until yields fall, institutional investors will have difficulty finding developers eager to sell their buildings, said Sven Von Der Heyden, owner of Von Der Heyden Group, a German real estate developer that has built office buildings in Warsaw and Poznan. "There are very high returns on those early (office) developments," he added. "The fact that developers aren't selling is a sign that yields are still very, very attractive."
No room for pessimists
The warm breeze, palm trees and endless cocktail parties injected a mood of optimism and good feeling among Warsaw brokers who gathered at the MIPIM '98 conference in Cannes two weeks ago.
And it put this writer on the defensive for penning an article on Warsaw's office market, headlined "Flood of new space could drown developers," just one week before the MIPIM conference.
The story suggested that the supply of new office space threatened to exceed the demand for space as early as next year, possibly making it difficult for developers to find good tenants at today's high rental rates.
"Hey, why don't you guys write something bullish next time," said Rob Mathias, marketing director for Golub Europe, developer of the Warsaw Financial Center, a 50,000-square-meter office building under construction along ulica Emilii Plater.
Eelko Korteweg, managing director of DTZ Debanham Zadelhoff in Poland, had the same reaction. "We've got to talk," said Kortaweg, as he sipped a glass of beer at a MIPIM party. "We're signing deals left and right. Why don't you write about that?"
Unlike many developers who are beginning to prefer investments in mixed-use retail schemes to large office projects, Warsaw's agencies are as bullish as ever.
"Warsaw's sort of a strange place," noted one official with Deutsche Bank at the conference. "The agents are far more positive than the developers."
According to a recent study by Healey & Baker, Warsaw is still the top choice in Central Europe for companies looking to expand. Of 513 companies surveyed, 90 said they would open offices here in the next five years, compared to 81 in Prague, 72 in Moscow and 62 in Budapest. And many companies are already snatching up office space.
According to its latest monthly survey, DTZ estimates 351,000 square meters of office space is expected to come on line in Warsaw in 1998, of which 235,000 square meters is committed. Looking ahead, DTZ projects that demand should continue to exceed supply through 1999. And rental rates for downtown space should remain at $35 to $40 per square meter per month.
"Samsung is no longer a partner in this project. That is official," Guz said.
Still, the managing director of ING Real Estate's Warsaw branch, Jaap Joldersma, insisted the project was "not in danger." The Centrum gmina will proceed with plans to sign a joint venture deal with ING Real Estate that will give ING ownership of the land - a huge, 32,000-square-meter parcel between Warsaw's Central Station and the Holiday Inn Hotel - planned for the project.
"All I can say at this point is that an announcement will be made soon, and it will be positive," Joldersma said.
According to a gmina official who did not want to be named, Samsung will not be missed. "They were very, very difficult to deal with," he said. "I don't know if you've ever had any experience dealing with Koreans, but they are not easy negotiators. In this case, it was completely impossible to understand their way of thinking."
For instance, Samsung insisted that it be appointed general contractor on the project. The gmina's development department refused that request, insisting that it was a conflict of interest since Samsung was already acting as co-developer on the project. Samsung "didn't seem to understand the idea of a competitive tender and an open bidding process," the source said. "This project will proceed much, much faster now that (Samsung) is out of the picture."
Liquidity, liquidity, liquidity
Property developers seeking start-up financing from the European Bank for Reconstruction and Development (EBRD) need not waste money on the telephone call.
In an effort to promote liquidity on the Polish real estate market, the EBRD will look to invest in already completed projects rather than greenfield schemes, announced Marc Mogull, EBRD's director of property, tourism and banking development, at a conference two weeks ago in Cannes, France.
"Poland is a big market, a transparent market and a dynamic market. What it's not, at this time, is a liquid market," Mogull said after his speech. "Until you can show people that you can sell buildings, then the floodgates to this market will never open."
To promote the buying and selling of completed buildings, the EBRD will invest $10 million in the Pioneer Polish Real Estate Fund, a $60 million commercial property fund expected to close next month. The EBRD only agreed to give the $10 million if Pioneer agreed to invest a "significant amount" of its portfolio in completed real estate projects, Mogull said.
This focus on buying finished buildings may sound a bit strange coming from a bank that has poured ECU 79.2 million into start-up financing for new property projects throughout Poland. That includes loans to the 31-story Warsaw Financial Center on ulica Emilii Plater, the Atrium Business Centre on Aleje Jana Pawla II, and the Warsaw Distribution Center, a warehouse and distribution facility on ulica Szyszkowa.
According to Mogull, EBRD financing is no longer needed for greenfield projects. What developers really need, he said, is an exit strategy - a way to sell their properties once they are completed.
Chris Sims, senior representative of Pioneer Polish Real Estate Advisors, agrees. "How do you prove that a real estate market is attractive and mature unless something is bought and sold?" Sims asked.
Sims pointed to Commercial Union's recent purchase of a 5,000-square-meter building in the Wisniowy Business Park, a Class A office development along ulica Zwirki i Wigury, as a "potential signal" that Poland's real estate market is becoming more liquid. "That was certainly good news," added Mogull, referring to the deal. "But remember that's just one transaction."
Unless more of these sales are made, Poland's real estate market will remain in the hands of speculative developers, who are less prepared to weather economic downturns than institutional investors, Sims noted. "Developers that can't find an exit route now could be hit hard when yields start falling."
But until yields fall, institutional investors will have difficulty finding developers eager to sell their buildings, said Sven Von Der Heyden, owner of Von Der Heyden Group, a German real estate developer that has built office buildings in Warsaw and Poznan. "There are very high returns on those early (office) developments," he added. "The fact that developers aren't selling is a sign that yields are still very, very attractive."
No room for pessimists
The warm breeze, palm trees and endless cocktail parties injected a mood of optimism and good feeling among Warsaw brokers who gathered at the MIPIM '98 conference in Cannes two weeks ago.
And it put this writer on the defensive for penning an article on Warsaw's office market, headlined "Flood of new space could drown developers," just one week before the MIPIM conference.
The story suggested that the supply of new office space threatened to exceed the demand for space as early as next year, possibly making it difficult for developers to find good tenants at today's high rental rates.
"Hey, why don't you guys write something bullish next time," said Rob Mathias, marketing director for Golub Europe, developer of the Warsaw Financial Center, a 50,000-square-meter office building under construction along ulica Emilii Plater.
Eelko Korteweg, managing director of DTZ Debanham Zadelhoff in Poland, had the same reaction. "We've got to talk," said Kortaweg, as he sipped a glass of beer at a MIPIM party. "We're signing deals left and right. Why don't you write about that?"
Unlike many developers who are beginning to prefer investments in mixed-use retail schemes to large office projects, Warsaw's agencies are as bullish as ever.
"Warsaw's sort of a strange place," noted one official with Deutsche Bank at the conference. "The agents are far more positive than the developers."
According to a recent study by Healey & Baker, Warsaw is still the top choice in Central Europe for companies looking to expand. Of 513 companies surveyed, 90 said they would open offices here in the next five years, compared to 81 in Prague, 72 in Moscow and 62 in Budapest. And many companies are already snatching up office space.
According to its latest monthly survey, DTZ estimates 351,000 square meters of office space is expected to come on line in Warsaw in 1998, of which 235,000 square meters is committed. Looking ahead, DTZ projects that demand should continue to exceed supply through 1999. And rental rates for downtown space should remain at $35 to $40 per square meter per month.
