Yielding eastwards
Focusing predominantly on the office and warehouse sectors in Poland, Hungary and the Czech Republic until the end of 2005, the group hopes to then spend more of its money in both Russia and further south towards the Balkans. Perhaps belying the Germanic caution one might expect from the Viennese, Akron talks very optimistically about the riskier climes beyond Poland, even though one could argue they've yet to properly acclimatize to this market (only in the past couple of weeks was Joanna Chmielecka announced as the fund's Warsaw office head). As far as Stefan Ausch, CEO of AICEE, is concerned, however, Akron's sudden entrance onto the Polish market needn't prevent it from gathering momentum, and by the end of next year it should be no surprise to hear of an AICEE mark II, with Russia the hub of its activity.
Of the Central European countries Akron is currently concerned with, Ausch remarks: "I would say that in one to one and a half years time the price will be so high that the difference between Western European markets and these three countries will be very small and it will then be time to venture further east. We're already looking closely at the Russian market, as well as Bulgaria, Romania and Croatia."
Others would argue, however, that if it is yield compression Ausch is worried about, he should have made his purchases a lot earlier in this country: "The yield shift he [Stefan Ausch] is talking about has happened already," says Gareth Jones, Jones Lang LaSalles's head of capital markets CEE. "Poland, the Czech Republic and Hungary are all sub-eight percent; there's not much lower they can go."
Whether or not Akron is late in catching on to the lower yield reality in Poland, it is clearly preparing the ground for an eventual sortie into Russia. Ausch points to the recent appointment of a Russian-born employee to Akron's Vienna office to lead the research into the Moscow market, a market which he describes as a personal preference because of "how much office space there is compared to the population and its economic power," adding, "There is tremendous potential in Russia, and the yields are still interesting. We believe that the class A office buildings that institutional investment funds require are already available and the time will come soon that there will be quite a big movement towards Russia - in one and a half to two years time."
However, other players in the CEE region are wont to express a little more caution about the prospects a Central European investor might look forward to in a market such as Moscow. KeyInvest's Padraic Coll, who assists private Irish investors to find suitable product here in Poland, has, until recently, ruled out venturing into the precarious waters of Russia. Like Ausch, he's concerned about shrinking yields and is also having to look beyond the Polish border for opportunities, but not without some trepidation. "You can at least deal with the court system in Poland - it does exist," says Coll. "You can actually sue someone here. In Moscow and Russia there's a little bit more of an edge that you don't get over here. You can complain all you like about Poland, but it's not a bad place to do business, once you understand what you can or can't do."
Falling returns and the lack of high-grade product on the Polish market have meant that the Irish are themselves having to take more than a glance eastwards to spend their money. Coll acknowledges that despite the fact that some of his compatriot investors "got burnt" some years ago on the Russian market, he's to visit Moscow at some point later this year to assess the potential over there. But whatever happens, vigilance will be the watchword.
Because of the lack of institutional standard product in Warsaw, Irish investors have increasingly been drawn to retail and residential schemes outside the Polish capital. This approach, however, might not accompany them further east. As far as retail in Russia is concerned, Coll remarks that: "Lot sizes are quite big over there, whereas they're quite reasonable here in Poland. We'd want to dip our toes in the water with €10 million (zł.37.2 million). Are you going to get that in Moscow? Probably not. Irish investors don't just want to jump in and buy something for €60 or 70 million (zł.223.1 or zł.260.3 million); they want to get in on something a bit smaller and then wrap up on the next deal."
Caution aside, some figures argue strongly for Moscow's irresistible potential for investors, as Poland once did back in the more turbulent environment of the mid to late '90s. Padraic Coll's own experience is telling: "In 1995 when I came here, [Warsaw] to work for an Austrian investment bank we were paying 45 [USD (zł.167.30)] in the Atrium [a CBD building in Warsaw]," he says. These days, of course, $45 per square meter is around what the average tenant would expect to pay to work from a class A building in Moscow, while in Warsaw, where landlords are dreaming up incentives by the day to attract custom, and where 'presenting' a building that has, for example, stood at least half empty for five or so years is not unusual, they'd be very lucky to get any more than $20 (zł.74.36) per square meter in the CBD.
So, with some reservations, KeyInvest will begin making serious enquiries around Moscow before the year is out: "We'll meet the lawyers and other people around and see if we can control the risks, and if we can, we'll just go in and buy buildings. But it'll be blue chip stuff with good covenants," says Coll.
The Irish and Akron, however, are not the only Polish-based investors checking out the Russian market for opportunities at the moment. American Heitman, for example, which has invested in a series of residential and retail projects in Poland this year, (as part of joint venture agreements) and Austrian Europolis Invest, which owns high-profile buildings in Warsaw, have been to Moscow to assess the situation. And companies such as GE Golub and AIG Lincoln, more renowned for their developments than acquisitions, are making trips further east with a view to kick-starting projects there.
According to Gareth Jones, however, the lack of debt finance in Russia is preventing some CEE-based investors from going into the Russian market earlier than they might: "Though their financing banks are beginning to look up there, the finance is not yet available and that's holding back their market entry to Russia," he says.
Most investors, he adds, naturally look for new markets with higher return possibilities, but first they'll consider Bucharest, Sofia and the Baltics. "Russia might be on their lists but very few have significant funds to invest there just yet."
Of the Central European countries Akron is currently concerned with, Ausch remarks: "I would say that in one to one and a half years time the price will be so high that the difference between Western European markets and these three countries will be very small and it will then be time to venture further east. We're already looking closely at the Russian market, as well as Bulgaria, Romania and Croatia."
Others would argue, however, that if it is yield compression Ausch is worried about, he should have made his purchases a lot earlier in this country: "The yield shift he [Stefan Ausch] is talking about has happened already," says Gareth Jones, Jones Lang LaSalles's head of capital markets CEE. "Poland, the Czech Republic and Hungary are all sub-eight percent; there's not much lower they can go."
Whether or not Akron is late in catching on to the lower yield reality in Poland, it is clearly preparing the ground for an eventual sortie into Russia. Ausch points to the recent appointment of a Russian-born employee to Akron's Vienna office to lead the research into the Moscow market, a market which he describes as a personal preference because of "how much office space there is compared to the population and its economic power," adding, "There is tremendous potential in Russia, and the yields are still interesting. We believe that the class A office buildings that institutional investment funds require are already available and the time will come soon that there will be quite a big movement towards Russia - in one and a half to two years time."
However, other players in the CEE region are wont to express a little more caution about the prospects a Central European investor might look forward to in a market such as Moscow. KeyInvest's Padraic Coll, who assists private Irish investors to find suitable product here in Poland, has, until recently, ruled out venturing into the precarious waters of Russia. Like Ausch, he's concerned about shrinking yields and is also having to look beyond the Polish border for opportunities, but not without some trepidation. "You can at least deal with the court system in Poland - it does exist," says Coll. "You can actually sue someone here. In Moscow and Russia there's a little bit more of an edge that you don't get over here. You can complain all you like about Poland, but it's not a bad place to do business, once you understand what you can or can't do."
Falling returns and the lack of high-grade product on the Polish market have meant that the Irish are themselves having to take more than a glance eastwards to spend their money. Coll acknowledges that despite the fact that some of his compatriot investors "got burnt" some years ago on the Russian market, he's to visit Moscow at some point later this year to assess the potential over there. But whatever happens, vigilance will be the watchword.
Because of the lack of institutional standard product in Warsaw, Irish investors have increasingly been drawn to retail and residential schemes outside the Polish capital. This approach, however, might not accompany them further east. As far as retail in Russia is concerned, Coll remarks that: "Lot sizes are quite big over there, whereas they're quite reasonable here in Poland. We'd want to dip our toes in the water with €10 million (zł.37.2 million). Are you going to get that in Moscow? Probably not. Irish investors don't just want to jump in and buy something for €60 or 70 million (zł.223.1 or zł.260.3 million); they want to get in on something a bit smaller and then wrap up on the next deal."
Caution aside, some figures argue strongly for Moscow's irresistible potential for investors, as Poland once did back in the more turbulent environment of the mid to late '90s. Padraic Coll's own experience is telling: "In 1995 when I came here, [Warsaw] to work for an Austrian investment bank we were paying 45 [USD (zł.167.30)] in the Atrium [a CBD building in Warsaw]," he says. These days, of course, $45 per square meter is around what the average tenant would expect to pay to work from a class A building in Moscow, while in Warsaw, where landlords are dreaming up incentives by the day to attract custom, and where 'presenting' a building that has, for example, stood at least half empty for five or so years is not unusual, they'd be very lucky to get any more than $20 (zł.74.36) per square meter in the CBD.
So, with some reservations, KeyInvest will begin making serious enquiries around Moscow before the year is out: "We'll meet the lawyers and other people around and see if we can control the risks, and if we can, we'll just go in and buy buildings. But it'll be blue chip stuff with good covenants," says Coll.
The Irish and Akron, however, are not the only Polish-based investors checking out the Russian market for opportunities at the moment. American Heitman, for example, which has invested in a series of residential and retail projects in Poland this year, (as part of joint venture agreements) and Austrian Europolis Invest, which owns high-profile buildings in Warsaw, have been to Moscow to assess the situation. And companies such as GE Golub and AIG Lincoln, more renowned for their developments than acquisitions, are making trips further east with a view to kick-starting projects there.
According to Gareth Jones, however, the lack of debt finance in Russia is preventing some CEE-based investors from going into the Russian market earlier than they might: "Though their financing banks are beginning to look up there, the finance is not yet available and that's holding back their market entry to Russia," he says.
Most investors, he adds, naturally look for new markets with higher return possibilities, but first they'll consider Bucharest, Sofia and the Baltics. "Russia might be on their lists but very few have significant funds to invest there just yet."
