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13 May | Bank Center | Budapest

Volume 16 | Issue 5 | May 2010

w w w . c i j j o u r n a l . c o m

CZK 107 | HUF 929 | PLN 15 (7% VAT incl.) | RON 14 | RUB 140 | € 4.48 | index 37332X


Why clear regulations

could help unlock
2 MAY 2010 Editorial

After the rather harrowing past two years, it would be nice to believe that the world was slowly but surely
getting back to normal. But in truth, this would be getting ahead of ourselves. We’re now looking at a prop-
erty sector in CEE that’s showing signs of life again, but to use a television metaphor, not even Dr. House has
a diagnosis yet. So he can’t know how quick the patient’s recovery will be.

Let’s not discount the good news: Lending is happening again, both on investments and on developments.
But it’s still sporadic, and it’s at nowhere near the levels seen three to five years ago. Getting back to 2007
levels isn’t necessarily the goal, of course, as everyone admits that the world was over-leveraged even back
then. But as a very practical matter, all of the loans made back in the boom times will eventually have to be ei-
ther payed off or refinanced. Once the loan is made, it’s in the system, it’s out there. It doesn’t just disappear.

So on some macro-level, is the minimalist lending currently going on just a way of banks savings up for when
push starts coming to shove? For all the problems it’s causing, a bit of austerity is probably in order. After all,
the only way to cure the global economy of over-leveraging is to, well, not provide as much leverage.

If fears about future refinancing is making banks slow to lend out new funds, not knowing what levels of
equity they’ll need to cover loans in the future isn’t helping either. There’s great uncertainty among bank-
ers today not only over how much leverage they’ll ultimately be able to provide but also what contribution
demands government will have for new bail out funds. Taxpayers are unlikely to want to foot the bill, and it’s
no wonder. From the United States to Europe, they’ve already witnessed a massive transfer of wealth from
the public to the now-stingy financial sector.

It’s a vicious circle. In order to protect long-term global liquidity, international regulations have to be strength-
ened. But banks and their shareholders see such regulations as threats to their profitability and are fighting
the process. Meanwhile, not knowing how the tussle will turn out is in part leading to tougher credit condi-
tions. It’s a complex issue we don’t pretend to grasp entirely. But one of the most sensible ideas and one that
would go a long way to preventing Lehman Brothers-type disasters, would be requiring major institutions to
create “living wills.” These would spell out precisely which steps would be taken if an institution were to get
into trouble. Ultimately, it wasn’t the fact that Lehman Brothers collapsed that was so damaging: it was the
chaos and the uncertainty that surrounded it.

Robert McLean
Editor In Chief
CIJ Journal MAY 2010 3

Editorial, 2 | Real Talk, 4 | Indicators, 5 | Company News, 6 | Euronews, 8 | Banking report, Part
II: Can regulatory clarity unlock finance?, 50 | Regulatory reform a touchy subject, 51 | Q&A: Tomas
Rask, Inter Ikea Poland, 52 | Retail parks also feeling the hurt, 55 | Events, 56 | Appointments, 57 |
RPMG Calendar, 57 | Ten Years Ago in CIJ, 58 | Pictorial DBH, 59 | The fundamentals of real estate
transactions, 60

Komerční banka tender down to two, 10 | Dock scheme sets sail, 11 | Little appetite for land, 12 |
Rare industrial land sale planned for Brno, 14 | Sekyra introduces Rohan Island plans, 16 | Reflecta
buys out Finep scheme, 18 | Bouwfonds gives Prague a try, 20 | Deals: Logistics leads the way, 21

Class B not immune to crisis, 22 | Salamon: Quality offices still strong, 24 | ToPark passes another
milestone, 27

CEDEP 2010 Survey: Risks and structural change, 28 | Valuations still falling, 30 | New developments to
neighbor Sea Towers, 32 | Residential revival?, 34 | CBRE: Polish retail pulling ahead, 36 | Capgemini,
Raben and FM Logistic top deals listing, 39

Good news from the health front, 40 | Orhideea to bet on efficiency, 42 | Costs under control at the
latest PLP seminar, 44 | Hilton eyes Romanian growth, 45

CEDES 2010 Survey, 46 | CEDES 2010: No easy answers to the crisis, 48

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4 REGIONAL Real Talk


...We have increased the initial prices
Five months after the first Czech residential auction suggested a buyer/
seller disconnect on prices, another auction will be organized by the auc-
tioneering firm Gavlas. Scheduled in Prague for May 27, the event has at- ...Libeskind himself sent a letter to Warsaw mayor
tracted substantial interest from developers. But unlike the first round, auc- ORCO ZŁOTA 44 HOPES RENEWED WITH A COURT DATE SET | 10
tion company owner Ivo Gavlas, says the main goal for the sellers appears to ...250 meter skyscrapers
be selling, rather than simply testing the market. Ten developers are on the LAND STUDY FOR WARSAW DRAWS NEAR, WITH CHANGES | 7
list to auction 30 units in 13 projects. Gavlas says smaller flats of up to 80 sqm
form the majority of the offering this time, as they’ve proven most attractive
to buyers. On the other end of the spectrum will be high-end family homes It’s a tricky situation, to be sure, especially in Romania, but we’re guessing
exceeding 200 sqm for just south of €400,000. that if there were an offer to come in on a JV basis for something like The
The number of properties on offer has been reduced and the initial prices Park in Prague it would be doable. Europolis, too, doesn’t care to react to
12 have been set at 60 percent of the catalogue price instead of 40. “We have market rumors, although in that case, there doesn’t seem to be much of a
increased the initial prices because then the reserve prices are much more secret about which of its shareholders has had a change of heart.  
likely to be achieved and the deal will happen,” explains Gavlas. Those
winners whose prices are accepted by the vendors will be informed im-
mediately, a move that hopfeully will avoid some of the confusion seen at
the last auction.

The fate of Orco’s famed Złota 44 residential skyscraper in Warsaw, de-

signed by Daniel Libeskind, changes almost every month. The latest de-
velopment is that there’s finally a date set – for June 24 – for a session
of the Supreme Administrative Court that will rule on Orco’s motion to
restore the construction permit for the project, which was withdrawn last
Recent pressure to review the case faster than the usual 12-month aver-
age may have had the desired impact. The mayor of Śródmieście, Warsaw’s
central district, called for a “quick decision” from NSA, to end the state of
10 suspension that Złota 44 is in. Separately, Libeskind himself sent a letter to
Warsaw mayor Hanna Gronkiewicz-Waltz asking for city hall support in the
case. Warsaw city hall reacted cautiously, however, about acting on behalf of
the project, afraid of sparking accusations that the government is favoring a
private company.


Assuming Złota 44 is completed someday, it will overlook another endless

planning saga in Warsaw: Plac Defilad. The master plan for the area has
been in the making for years, resulting in a lasting makeshift appearance
PORTFOLIO DOWNSIZING? of what should be a prestigious quarter of the Polish capital. In April, the
Warsaw city hall made public the most recent changes to the all-important
What do Europolis and DEGI have in common? For one thing, when you ask land study for Warsaw. (No master plan can be effective without being
their top people if rumors that they’d like to sell off parts of their portfolios 7 in line with the land study.) The latest changes included the approval of
are true, they won’t say a thing. In fact, they won’t even talk off-record about a 250-meter skyscraper to be developed along Emilii Plater and Chmielna
what people on the street have been saying for weeks. streets.
We’re left, for example, with with an official statement from Aberdeen As- The Świętokrzyski Park, allegedly eyed as a potential area for property de-
set Managers: “We do not comment on market rumours. We are focused on velopment, will be expanded. Elsewhere in Warsaw, the land study will al-
creating additional liquidity that will permit the Degi funds that are closed low for more skyscrapers on Świętokrzyska, Jana Pawła II, Grzybowska and
to re-open and meet redemption requests in an organised way while not Twarda streets, where some high-rise projects were either built or are un-
disadvantaging those investors wishing to remain invested.” derway. Changes to the study will be voted on by the Warsaw city council
in the fall. 
Indicators REGIONAL 5

RATES 2009 / 2010 MAIN ECONOMIC INDICATORS 2009 / 2010

MONTH 6 7 8 9 10 11 12 1 2 MONTH 8 9 10 11 12 1 2
Canada 107.6 107.2 107.2 107.2 107.1 107.7 107.3 107.6 108.1 Unemployment rate 8.5% 8.6% 8.5% 8.6% 9.2% 9.8% 9.9%
Czech Republic 113.9 113.5 113.3 112.9 112.7 112.9 113.1 114.5 114.5 No. of unempl. (in th.) 493.8 500.8 498.7 508.9 539.1 574.2 583.1
Slovak Republic 114.9 114.2 114.0 114.0 114.2 114.4 114.3 114.7 114.7 CPI monthly change –0.2% –0.4% –0.2% 0.2% 0.2% 1.2% 0.0%
Switzerland 104.2 103.5 103.6 103.6 104.3 104.5 104.2 104.1 104.3 CPI yearly change 0.2% 0.0% –0.2% 0.5% 1.0% 0.7% 0.4%
United Kingdom 111.0 110.9 111.4 111.5 111.7 112.0 112.6 112.4 112.9 22. 4. 2010 | Source: ČSÚ, MPSV
Norway 109.9 109.2 109.0 109.9 109.7 110.0 110.3 110.5 111.9
Hungary 124.3 126.1 125.6 125.5 125.5 125.8 125.7 127.6 128.0
Poland 112.9 113.0 112.6 112.6 112.7 113.0 113.0 113.8 114.0 SLOVAK REPUBLIC
Japan 100.4 100.1 100.4 100.4 100.0 99.8 99.6 99.4 99.3
United States 110.4 110.3 110.5 110.6 110.7 110.8 110.6 111.0 111.0 MONTH 8 9 10 11 12 1 2
22. 4. 2010 | Source: OECD Unemployment rate 12.1% 12.5% 12.4% 12.4% 12.7% 12.9% 13.0%
No. of unempl. (in th.) 319.4 329.8 369.0 373.4 379.5 391.5 396.2
CPI monthly change –0.2% 0.0% 0.1% 0.3% –0.1% 0.2% 0.0%
CPI yearly change 5.0% 0.6% 0.4% 0.4% 1.0% 0.4% 0.4%
22. 4. 2010 | Source: ŠÚSR
MONTH 6 7 8 9 10 11 12 1 2 POLAND
Canada 1.13 1.09 1.09 1.08 1.05 1.06 1.06 1.04 1.06
Czech Republic 18.89 18.29 17.95 17.38 17.45 17.32 17.90 18.27 18.96 MONTH 8 9 10 11 12 1 2
Hungary 199.77 188.85 188.85 186.29 181.05 18.48 187.36 188.42 198.03 Unemployment rate 10.8% 10.9% 11.1% 11.4% 11.9% 12.7% 13.0%
Japan 96.63 94.89 94.89 91.34 90.30 89.14 89.92 91.12 90.11 No. of unempl. (in th.) 1,718.3 1,731.6 1,745.2 1,778.3 1,867.2 2,016.6 2,077.1
Norway 6.39 6.07 6.10 5.90 5.64 5.64 5.77 5.74 5.91 CPI monthly change –0.4% 0.0% 0.2% 0.3% 0.0% 0.4% 0.4%
Poland 3.21 2.89 2.89 2.85 2.84 2.79 2.84 2.85 2.93 CPI yearly change 4.3% 4.0% 3.8% 3.8% 3.8% 3.9% 3.4%
Russian Federation 1.11 1.08 31.63 30.81 29.48 28.98 29.94 29.94 30.19 22. 4. 2010 | Source: GUS
Switzerland 1.08 1.07 1.07 1.04 1.02 1.01 1.03 1.03 1.07
United Kingdom 0.61 0.61 0.60 0.61 0.62 0.63 0.62 0.62 0.64
22. 4. 2010 | Source: OECD
MONTH 8 9 10 11 12 1 2
Unemployment rate 6.6% 10.3% 10.4% 10.5% 10.5% 10.8% 11.4%
No. of unempl. (in th.) 601.7 436.0 440.0 445.0 442.0 456.0 479.0
CPI monthly change –0.2% –0.1% 0.0% 0.3% 0.0% 1.4% 0.3%
LONG-TERM INTEREST RATES, PERCENT PER ANNUM CPI yearly change 5.0% 4.9% 4.7% 5.2% 5.6% 6.4% 5.7%
22. 4. 2010 | Source: HCSO
MONTH 6 7 8 9 10 11 12 1 2
Czech Republic 5.5 5.4 5.1 5.0 4.5 4.2 4.0 4.3 4.3
Slovak Republic 5.1 5.0 4.9 4.7 4.3 4.2 4.1 4.1 4.8 ROMANIA
Japan 1.4 1.4 1.3 1.3 1.4 1.3 1.3 1.3 1.3
Norway 4.2 4.1 4.2 4.2 4.1 4.0 4.0 4.1 3.9 MONTH 8 9 10 11 12 1 2
Poland 6.3 6.2 6.1 6.2 6.2 6.1 6.2 6.1 6.1 Unemployment rate 6.6% 6.9% 7.1% 7.5% 8.0% 8.2% 8.3%
Russian Federation 9.7 10.0 10.1 10.2 9.6 9.1 8.9 8.5 8.1 No. of unempl. (in th.) 601.7 625.1 653.9 683.1 733.6 751.1 762.4
Switzerland 2.5 2.2 2.1 2.2 2.2 2.0 2.0 2.0 1.9 CPI monthly change –0.2% 0.4% 0.4% 0.6% 0.3% 1.6% 0.2%
United Kingdom 3.7 3.8 3.7 3.7 3.6 3.8 3.9 4.0 4.1 CPI yearly change 5.0% 4.9% 4.3% 4.6% 4.7% 5.2% 4.5%
Germany 3.5 3.3 3.3 3.3 3.2 3.2 3.1 3.3 3.2 22. 4. 2010 | Source: WS, MMSSF

22. 4. 2010 | Source: OECD


Australian Dollar AUD 1.44
MONTH 6 7 8 9 10 11 12 1 2 Canadian Dollar CAD 1.33
Euro area 1.2 1.0 0.9 0.8 0.7 0.7 0.7 0.7 0.7 Czech Koruna CZK 25.29
Canada 0.6 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Danish Krone DKK 7.44
Czech Republic 2.2 2.1 1.9 1.9 1.9 1.8 1.6 1.6 1.5 Hungarian Forint HUF 264.13
Hungary 10.6 10 9.0 4.2 7.3 7.6 7.5 6.9 6.6 Japanese Yen JPY 124.65
Japan 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.4 Norwegian Krone NOK 7.89
Norway 1.9 1.9 1.9 1.9 2.1 2.1 2.1 2.3 2.3 Polish Złoty PLN 3.87
Poland 4.4 4.2 4.2 4.2 4.2 4.2 4.3 4.2 4.2 Pound Sterling GBP 0.87
Russian Federation 12.2 10.4 9.3 9.3 10.9 8.1 8.7 7.2 7.3 Swedish Krona SEK 9.59
Switzerland 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Swiss Franc CHF 1.43
United Kingdom 1.0 1.0 0.8 0.6 0.6 0.6 0.6 0.6 0.6 US Dollar USD 1.34
22. 4. 2010 | Source: OECD 22. 4. 2010 | Source: ECB
6 REGIONAL Company News

PZU. Following Goldman Sachs’ decision, there deliver in 2013. In a separate project, Mayland
are only two major investment banks that don’t said it obtained a construction permit for the
PLAZA CENTERS have offices in Warsaw yet, Barclays Capital 20,000 sqm expansion of its Jantar mall in
and Morgan Stanley. Morgan Stanley, however, Słupsk. Set to finish in 2011, will feature a six-
Plaza Centers confirmed plans to develop said it is preparing to launch in Warsaw as well. screen movie theater complex, the first of its
€260m worth of retail projects in Poland over kind for Słupsk. Earlier this year, Mayland sold a
the next couple of years. The company says that mall in Dąbrowa Górnicza and another in Opole
it had four projects currently underway in to the Australian fund MGPA. MGPA has an op-
Poland – 45,000 sqm in Toruń, 44,000 sqm in tion for a third mall but isn’t officially confirming
Łódź, 35,000 sqm in Kielce, and a 20,000 sqm ECHO INVESTMENT that the option is for Jantar. While still MGPA’s
scheme in Suwałki. All four are set to finish by head of investment for CEE, Daniel Harris told
2012. Once done, the company will have Echo Investment is hoping to buy PKS Kielce, CIJ that the option would become clear “within
invested more than PLN 2bn (€520m) in Poland. a transport company based in Kielce, Echo’s weeks.”
The Toruń and Łódź projects alone account for home town. If it wins the privatization tender,
about 70 percent of the total short-term Echo would take over the transport company’s
investment value of Plaza Centers’ activities in attractive 4 ha plot, located on Czarnowska
Poland. The developer has carried out 28 street. According to Echo, it’s well-suited for the
projects across Europe, 22 of which are currently development of “services or leisure functions.” SKLEPY KOMFORT
underway. Plaza Centers posted a loss of Echo maintains that it would keep the profit-
€64.77m in 2009, a slight improvement over its making parts of PKS Kielce active. Echo is cur- The sixth Komfort store in the Czech Republic
€67.68m loss in 2008. rently carrying out a similar project by pushing opened in Ostrava at the end of April. Sklepy
forward with Amber mall, which is situated on Komfort, a Polish retailer specializing in floor cov-
land that used to belong to a local bus transport erings, landed in the Czech Republic last year and
company. quickly expanded with three more additional
shops set to open by the end of 2010. With a sur-
STRABAG face area of around 600 sqm, Ostrava’s Komfort
store offers a wide selection of laminated panels,
Polish State Railways (PKP) has revealed the wooden floors, carpeting, PVC tiles, and carpets.
names of seven construction companies vying C&W AND KING STURGE “Since our investment, Sklepy Komfort has been
to reconstruct the Warsaw East train station, growing its network dynamically in Poland and
one of the capital’s three key train stations. Cushman & Wakefield was appointed proper- other CEE countries, including the Czech Repub-
Strabag handed in the cheapest offer, PLN ty manager for Ghelamco’s most recent com- lic and Slovakia, with a total of 37 openings
31.8m (€8.23m), while Warbud offered the most pletion, the 16,200 sqm GLA Crown Square. The planned for 2010,” said Agnieszka Kowalska, a
expensive at PLN 47.37m (€12.26m). The other agency now manages around 500,000 sqm of partner at Enterprise Investors, Sklepy Kom-
companies being considered for the job are property in Warsaw. King Sturge was appoint- fort’s private equity owner since 2007.
Eiffage Budownictwo Mitex, Mostostal ed by Heitman Private Equity as exclusive
Warszawa, PRI Pol-Aqua, Budimex, and Winnicki. agent for the Warsaw Trade Tower and Europlex
The Warsaw East station is to be ready before in Warsaw. The 44,300 sqm WTT is leased to ten-
the Euro 2012 football tournament. PKP has ants like KPMG, AXA Polska, PKN Orlen, Reckitt
budgeted PLN 45m (€11.65m) for the Benckiser, MSD Polska and NASK. Europlex is a METRO GROUP ASSET MANAGEMENT
reconstruction of the heavily neglected 25,000 sqm office project on Puławska street in
building. The money will come from PKP capital Warsaw, leased to tenants like PZ Cussons, Lib- Metro Group Asset Management took over
as well as the state budget. erty Direct, Elavon and HBO. King Sturge was the management of Magnolia Park, the biggest
also appointed the leasing agent for WAN Logis- shopping, leisure and entertainment center in
tic Park in Pruszków. Lower Silesia with a total floor space of 74,400
sqm. Metro Group is assuming all activities as-
sociated with the strategic management and
GOLDMAN SACHS INTERNATIONAL administration of the shopping mall in Wro-
claw. Opened in 2007, Magnolia Park features
Goldman Sachs International  has applied to MAYLAND 250 retail outlets, including restaurants, cafés
open a branch in Warsaw, positioning itself to and service points, 2,800 free parking spaces
take part in the Polish government’s plans to Mayland has finalized redesign plans for the and an amphitheater seating 500 people. The
privatize state-owned companies in the energy, Wzgórze mall in Gdynia, a project contracted to property management division of the Metro
telephone, insurance and chemicals sectors. Mayland by the mall’s owner Fonciere Euris in Group is now responsible for 10 shopping cen-
Goldman Sachs is hardly a newcomer to such 2009. The remodeled Wzgórze will feature tres in Poland. Altogether, the company runs
activities, having been involved, for example, 63,000 sqm of retail space on two levels, with 70 retail centers in Germany, Turkey and Po-
with the privatization of the national insurer room for 250 shops. The project is scheduled to land.
Company News REGIONAL 7

renovation and clean-up of Warsaw’s main same time, the company has announced a new
train station, Warszawa Centralna. Even if PKP partner at the firm, Jiří Bárta. Bárta comes to the
CPI GROUP said earlier that it’s earmarked PLN 22m firm from Lovells, where he worked for ten years,
(€4.89m) for the purpose, the cheaper of the most recently as the head of the company's real
The Czech investor and developer CPI Group bids, from PORR, was for PLN 47m (€12.02m). estate practice.
acquired 14,000 sqm of retail space in the Czech The other bid came from Karmar and totaled
Republic that was once part of the PLN 51m (€13.04m). Apparently unfazed by the
Betonstav  portfolio. The space is leased to 100 percent jump in the estimated price tag,
retail chains Interspar, OBI and Penny Market. PKP now says it is considering paying whatever
The portfolio cost CPI CZK 600m (€23m). CPI is necessary to carry out the renovation or an- CTP
owns a total of 15 retail properties throughout nouncing a new tender.
the Czech Republic that it leases to Albert The Dutch industrial developer CTP completed
Hypermarket, Tesco, Interspar and OBI and five 11 new projects in 2009, bringing its total
CPI Retail Parks, connected to the hypermarkets lettable area to 1.65m sqm. Last year, the
and offering electronics, fashion, drugstores, developer also reported a 19.9-percent
sport fashion, pet centers and furniture. BPV BRAUN PARTNERS increase in gross rental income, which reached
€87,686,000. CTP has major ambitions for this
Despite having what it describes as an extreme- year, too. The company plans to add an
ly successful year in 2009, the legal firm bpv additional 15 buildings to its portfolio, which
Braun Partners has carried out major would bring its rental income to €95m. More
POLISH STATE RAILWAYS organizational and ownership changes it than half of its future projects will be taken by
expects will increase its effectiveness on the existing clients, looking to expand. Major
Polish State Railways (PKP) said in late April market. The goal of the new arrangement is clients include CEVA, CCI, Wistron and
that it received two bid offers from construc- based on long-term partnership both between Honeywell.
tion companies to carry out the much-hyped the owners and between employees. At the

C&W: SHOPPING CENTER DEVELOPMENT ON DECLINE slower rate than in Europe. Accor estimates its economy hotels will need
Shopping center developments across Europe have been on another six months to catch up to its upscale brands.
the decline since 2009 and aren’t likely to pick up steam until Germany in particular has seen considerable gains. Revenues for Accor’s
2012, according to new data released by Cushman & Wakefield. upper and mid-level facilities in Germany rose by 3.8 percent, occupancy
In its European Shopping Centre Development report, the real estate ad- was boosted by 2.6 percent, and RevPAR, excluding VAT, climbed by 7.7
visor notes that 2009 saw the sharpest decrease in new space in almost 15 percent. For its economy-class hotels in Germany, Accor announced a
years, with around 7.4 million sqm of new shopping center space completed, a 4.8-percent increase in revenues, 0.7 percent higher occupancy and a
19-percent fall from 2008 figures. This year should see around 6.1 million sqm 6.7-percent growth in RevPAR. One of the world’s leading hotel groups,
completed, while shopping center development is expected to hit its lowest Accor is just months away from splitting into two separately listed com-
level in seven years in 2011 with around 5 million sqm due to be completed. panies. The company said last month that listing its service business,
That’s a 46-percent drop from the 9.3 million sqm finished in 2008. which sells luncheon and childcare vouchers, could come as early as July,
However, if the European economy bounces back quicker than expected, pending shareholder approval.
Cushman & Wakefield says a large number of shelved projects could be re-
The French hotel group saw ever-so-slight growth
vived relatively quickly, boosting the development pipeline. in the first quarter of 2010
Russia dominates Europe, with 2.5 million sqm of space in development and
scheduled to open by the end of 2011. Meanwhile, Romania has had one of
the most significant falls, as a large number schemes have been put on hold.
Development there is expected to slow to 130,000 sqm in 2011, compared
with its peak of around 750,000 sqm in 2008.
“Emerging markets such as Russia, Turkey and Poland will most likely lead the
way in terms of a recovery in shopping center development activity, with fa-
vorable demographics and healthy demand from (international) retailers for
the best space in prime locations,” said Alexander Colpaert, a retail researcher
at Cushman & Wakefield.



Capital raised for unlisted European property funds fell by
60 percent in 2009, according to INREV, the industry body
that oversees this market. Unlisted property funds reported
a 7.8-percent return in 2009, compared with the 19.8 percent they hit the
year before. Results from the INREV Capital Raising Survey 2009 show fund
managers raised just €5.9bn last year. In 2008, the pot hit €14.8bn.
Source: Cushman & Wakefield Market observers expect fund managers will raise €10.9bn this year. In 2009,
funds called in €6.2bn. In 2008, €7.5bn was called in. That’s a 17.5-percent
drop, however it also marks the first time more capital has been called in
ACCOR: REVENUE GAIN IN FIRST QUARTER than raised in a single year, indicating activity in underlying markets as capi-
Accor, the French hotel and services group, saw a 3.1-per- tal was earmarked for new investments or called in to support underper-
cent increase in sales in the first quarter of 2010, in which forming funds.
revenues came in at €1.67bn, up from €1.62bn last year. In Core funds raised 87 percent of the capital in 2009, which supports the trend
its hotel business, revenue rose 1.6 percent compared to last year, with that investors are seeking funds with lower risk/return strategies. Core funds
the company’s upscale brands – Novotel, Mercure and Pullman – leading also called in the most capital in 2009 at 91 percent of the total, according
the recovery effort. The group’s economy outfits, however, are still lag- to the INREV Index.
ging behind. Weighing heavily on Accor’s performance is its US budget Pension funds were the dominant investor group, representing 54 percent
chain, Motel 6, with a 14 percent revenue decline reported for the first of the capital raised last year, while life insurance companies were the sec-
quarter. The group said the US economy hotel business is improving at a ond highest with 15 percent.

Construction has started on a
43,500 sqm regional distribution
center at Andover Commercial Park, among one
of the largest preleased transactions seen in
the UK in the last 12 months. The Co-operative
Group, the UK’s fifth largest food retailer, has
signed a 20-year lease on the property. Good-
man, a global provider of industrial and busi-
ness space, is steering the development, backed
by Legal & General Property, which is handling
the project funding and acquisition.
“We are experiencing renewed customer and
investor demand in the UK and across our mar-
kets around the world,” said Greg Goodman,
the CEO of Goodman Group. “This transaction
demonstrates our ability to successfully deliver
on our pre-let and pre-funded development
strategy, with high quality investment partners
such as LGP.”
The new regional distribution center will be
going up in the northwestern corner of the An-
dover Commercial Park, a former airfield site in
southern England, which has direct transit links
to London and the South West. Goodman was
represented by Savills and Carter Jonas, M3 act-
ed for LGP and Thomas Round acted for The Co-
operative Group. Goodman will soon start mar-
keting the site, with fully serviced plots available
by the end of the year.
The 40 ha Andover Commercial Park has the po-
tential to accommodate an additional 110,000
sqm mixed-use development that could be
used for distribution, office, hotel and retail.


Westdeutsche ImmobilienBank AG
(WestImmo) pushed through the
global economic crisis to report a
record high in revenues for 2009. The bank saw
its operating profit hit €147.7m from €141.8m the
previous year. New business also rose to €6.2bn.
“The growth in our operating income reflects
our greater acquisition power,” said Peter
Knopp, WestImmo board chairman. “Our work-
ing business model and our conservative risk
policy enable us to concentrate fully on our
customer business, which is a great advantage
on the markets at this particular time.”
The bank asserted itself on the bond market.
The total WestImmo issue volume for 2009
reached €4.3bn, up from €2bn in 2008. West-
Immo is forecasting a strong performance for
2010 as well. It is already reporting that its new
business is higher than last year.
10 CZECH REPUBLIC Office Optimize costs | 12 Offload three other properties | 23

Komerční banka Two properties are still in the running for one
of the biggest requirements in the Prague
tender down to office market

two Nina Fibigerová

Komerční banka, which is looking for 15,000 FINEP – West City is one of the candidates
sqm of space in a secondary location on the
metro’s B line has reduced the list of candidates
to just two names: Letňany Office Islands
offered by Hochtief Development and West City
by the Czech developer Finep. Monika Klucová,
spokesperson for Komerční banka, says that the
bank will make its choice during the first half of
2010. By that time it will also decide whether to
lease or buy the property.

Klucová says that the bank’s prime motivation

12 is to optimize costs. “We have been leasing
a number of buildings in Prague, and the
way we use and operate the space is often
not economical. In a move to centralize and
rationalize our operations we started looking
for appropriate space that would better suit
our requirements and offer a convenient
environment to our employees.” She says the
bank will keep its buildings on Na Příkopě
street and at Wenceslas Square in the center edge of Prague, Hochtief plans to build 68,000 Construction should start in the third quarter
of Prague, while instructing the Knight Frank sqm of office space in six buildings, to be of this year, but the final decision of Komerční
23 agency to offload three other properties in named after six islands: Ithaca, Svalbard, Luzon, banka is crucial. Hochtief Development
Prague 7, 8 and 10. As required by the bank, Andros, Niau and Dalma. The developer could spokeswoman Sylvie Samková admits that
both developers should complete their projects complete the entire project, which it bought further potential lease contracts are in
by 2013, when the bank would move in.  with valid planning from the developer Trigema negotiations, but nothing has been signed yet.
by 2014, though this probably assumes having
Near the Letňany metro station on the eastern sufficient preleases.  Nearly an hour away on the western end of
the metro’s B line in Stodůlky, Finep is flexing
Winning the tender would enable Hochtief to start construction in Letňany
its muscles to continue construction on West
City – a new neighborhood it’s developing
with new office, retail and residential buildings.
From a total of 44,000 sqm built in three office
buildings, 75 percent has been leased, including
a large chunk that went to Siemens. Unicredit
financed the construction.

How quickly it starts on the next phase of

West City, however, depends on whether it
wins the Komerční banka tender, according
to Tomáš Pardubický. “We have three
bids from banks for financing, but these
assume Komerční banka as the tenant,” says
Pardubický. “Without it, I expect the banks
would require standard preleases of between
30 to 40 percent.”
On the shortlist | 20 Suits their needs | 29 Development CZECH REPUBLIC 11

Work has finally gotten underway on Dock, a

Dock scheme mixed-use scheme that will be one of the few
in Prague to offer riverside living
sets sail Nina Fibigerová

Developer and investor Crestyl started shortlist of one tenant, that would take Crestyl has begun demolition work on its
project Dock in Prague 8
demolition work on its Dock project in Prague 42 percent of the total office space, which
8–Libeň. The clearance, ground work and means we would have all we need to tap
cleaning of the surrounding water areas are into financing from Unicredit,” says Koleilat. 
scheduled to continue until summer, followed
by the start of construction of the first phase The first phase is scheduled for
of the project, which will offer 120,000 sqm of completion in 14 or 18 months. “Some of
commercial space and 346 apartments over the tenants already expressed interest in
four phases. The total cost of the development the second phase of Dock, as the space
should go up to CZK 7.5bn (€293.9m), with 29 suits their needs better,” he adds. “The
clearance to bite away CZK 20m. Omar Koleilat, mood in the market is improving. Even
CEO of Crestyl, says he’s in negotiations with the banks are more active. Six months ago
a few potential tenants for office space in there was no confidence, no one was sure
the first and second phases at Dock. “The if and when the market would recover. If it along the Vltava river, Dock will include a hotel,
level of pre-sales in the residential part of the is a question of demand, psychology or price. a restaurant and a café. A marina scheduled
project indicates we should be able to start These days they only speculate how much to open to the public in June this year. The
construction shortly,” says Koleilat. Currently, risk they are willing to take: 20–30–40 or 50 developer is moving carefully: three buildings
the developer has reservations on 21 percent percent.” with 20 flats each will be built in the first phase
of the 52 flats in the first phase, and pre-leases together with a 9,700 sqm office component in
20 for 13 percent of office space. “We are on the Located near the Palmovka metro station the Dock 01 building.

International Business Forum


May 25 – Jalta Hotel, Václavské nám. 45
8:30 – 12:30 | The Changing Paradigm in Real Estate
Hosted by the International Business Forum & CIJ
CONFIRMED SPEAKER LIST: Ronald Dasbach – MultiDevelopment
Ian Worboys – PointPark Properties Ben Maudling – Aston REIM
Robert Neale – Portland Trust John Ruane – Apollo Real Estate Advisors
Pavel Sovička – Panattoni Michael Kroeger – Helaba
Roger Dunlop – Avestus (QPG) Karim Habra – JER Partners
Iain Sellers – Discovery Group Daniel Harris – AEW Europe

Please RSVP to by May 19 Limited seating available

Members: CZK 600 Guests: CZK 800
12 CZECH REPUBLIC Investment No pressure to sell | 16 Prices could drop | 58

There’s no lack of development land on the

market, but as in the market for completed
Little appetite for buildings, buyers aren’t willing to buy at the
land prices they’re being offered

Nina Fibigerová

Most of the projects talked about at the high prices,” Ekonomické stavby has begun offering plots to its clients to build homes on
moment are residential schemes, as developers says Anderle.
strive to reduce the fat from their portfolios.
Red Group, for example, is trying to sell the He’s not the
residential portion of its Waltrovka project in only one in no
Prague 5–Radlice. Sekyra Group is expected rush to buy.
to close a deal soon on the sale of a small “I am getting
Prague 6 residential project called Radimova, to about 10 offers
Immorent. The same developer could offload a every week.
650-flat scheme in Malešice. There are quite
a lot of projects
Sekyra’s development director Leoš Anderle available in
admits his company is trying to sell two various stages,
others: one in Hřebenka (Prague 5) and one from pure land
called Manovka II (Prague 6–Ruzyně). He to projects
claims, however, that Sekyra Group is under with valid
16 no pressure to sell, and rather than reducing construction
prices, the company will complete the projects permits,” says
itself. “We’re also getting a lot of offers [from Petr Kouřil,
vendors], but all of the projects sell at relatively managing
director of residential developer years ago. “They typically bought the land in
Bouwfonds isn’t planning to reduce its portfolio Bouwfonds ČR. “But I think the right 2006. Meanwhile, the price has risen by some
time is yet to come. The sellers’ 30 percent, but now as they withdraw from
prices are still unrealistic, having the market or need cash, when they try to
dropped slightly only in the regions, sell it, they find they are back at 2006 prices.
while in Prague they remain almost And this is sellable,” explains Gavlas. “I have
stable.” yet to meet anyone who paid the extravagant
prices of 2007, 2008, who’s been forced to
David Mencl, CEO of the accept a real loss of say one-third of the initial
development company Ekonomické investment.”
stavby, warns this seeming stability
might not last forever. “Many Jan Hospodář, who specializes on commercial
owners of locations have been land sales at CB Richard Ellis claims prices
under pressure from banks to sell. have remained stable. “Retail, for example,
But buyers are scarce, as the banks has not been affected to the point where the
refuse to finance the purchase of price would drop considerably. Developers are
land, and there is a lack of equity in betting there are plenty of potential partners
general,” says Mencl, “This is what’s to negotiate with in the market, but demand is
starting to push down prices of limited. The result is stagnation.” 
large locations, and the trend will
continue this year. Prices could drop 58 He says nearly half of the food retail chains
by tens of percents.” currently on the market are looking for land.
One example is Globus, which recently bought
Ivo Gavlas of the Gavlas auction the former Agmeco plot in Prague 4–Chodov
company says sellers of land are from Sekyra Group and another plot from the
already willing to accept a non- developer RPG located in Havířov in north
profit situation, where they only Bohemia.
get back what they invested a few
14 CZECH REPUBLIC Development Necessary infrastructure | 10 Strong industrial players | 29

Rare industrial land With industrial demand outstripping supply

around Brno, the city’s sale of 55 ha could end
sale planned for up providing some rent relief

Brno Nina Fibigerová

About a third of Brno’s expansive Černovická tenants to step back. The city announced opportunity for Brno, a city where only
terasa industrial zone will soon be up for sale. that four companies have recently expressed relatively small plots from private individuals
The city is getting ready to launch three tenders interest in leasing and buying the land. tend to be on the market, says Ferdinand Hlobil,
on 55 ha of the area’s 180 ha. The land will head of Cushman & Wakefield’s industrial team
initially be leased out and later, 39 ha will be Brno is the only city in the Czech Republic in Central Europe. “There are more and more
sold, according to city officials.    where demand for industrial sheds exceeds plots coming on the market, but these are 1 to
supply, as there has been little land available 2 ha of land.“
The administration hopes to attract interest for a couple of years. Jan van Geet, CEO of the
from industrial developers, who would be able industrial developer VGP, who has been looking The lack of suitable land has made Brno the most
to build and operate warehouses there and for the opportunity to enter the Brno industrial expensive location for big box users, with rents
10 invest in the necessary infrastructure. The lease market, says he will consider the Černovická exceeding Prague levels by 10 to 15 percent.
and purchase contracts are scheduled to be terasa offer. “We would be interested in a “The tenants usually pay about €4 per sqm in
signed in September. The zone appeared to much greater area, and the city has not yet Brno, while in Prague the rent is in the range of
be headed towards success, until the financial announced the conditions, but anyway it is an €3.5,” says Hlobil. “And we cannot expect this
crisis broke out, leading some of the potential interesting opportunity for us,” he says. will change in a short term as vacancy in Brno
is the lowest among the established industrial
29 Other strong industrial players are also said locations. Nothing is being built at the moment,
Enter joint ventures | 36 to be interested. The 55 ha is an exceptional all projects are on hold.

Red Group selling plots at Waltrovka

Red Group has put land up for sale at Wal- Cullen suggests that the developer is pre- changes to the city’s master plan. Even
trovka, one of Prague’s biggest brownfields. pared to start construction on spec. “To roll though Waltrovka was scheduled for
Its CEO, Barry Cullen, says the company is in out an aggressive development strategy changes as part of a series of projects, and
negotiations with potential strategic part- in the post-crisis financial world, we would was recently approved by city councilors,
ners, which it found through market con- like to start the construction of the first deputy mayor Martin Langmajer has taken
tacts. The sale of the plots on the edge of phase of the commercial development. We it out insisting the traffic solution was not
the 24 ha industrial area in Prague 5, Radlice can jump start this and hopefully beat the sufficient.
should enable Red Group to start construc- competition with product available in the So far, Red Group has transferred the pro-
tion on the commercial part of a project that market in 2012 if we sell peripheral parts duction of aircraft engines from the Wal-
will also offer apartments. of the site, which can be developed inde- trovka complex to Hlavenec a village just
The developer claims that work on the pendently,” he explains. “Given that the outside Prague. This opened the way for an
30,000 sqm, nine-floor office block, worth total development budget for the entire environmental clean-up, while maximizing
CZK 2bn (€79.3m), will get underway as Waltrovka site is in excess of €400m (CZK the current rent roll overall of the Walter-
soon as the construction office gives it the 10bn), it has always been a part of our long- ovka Portfolio, to cover interest payments
thumbs up. At the same time, Cullen’s team 36 term strategy, to either enter joint ventures indefinitely, explains Cullen. “The strength
is working intensely on documentation for with strategic partners, or to sell-on serv- of the GE Aviation covenant at Letňany, to-
the planning permit of the main square and iced plots and concentrate on the commer- gether with the strong rent flow from the
finalizing a design for the adjoining resi- cial aspect of the project, where Red Group redeveloped 13,000 sqm TRW facility at
dential apartment section. The hillside area has expertise and a proven track record.” Hlavenec and the Prague Casting Services
of the site should accommodate low-rise The development has been split into sev- rental at Radlice means that our debt is
townhouses. eral phases, some of which still require covered going forward.”

COUNTRY OF LIES PLANNED companies, who would appreciate space in a of the tools producer Narex in Prague 10 for CZK
FOR HATĚ modern and energy-efficient building,” says 21m (€822,596), and at the end of April, it sold a
Work on Country of Lies, a new Pavel Jirásek, CPI’s leasing manager. Nothing zoned, 27,000 sqm development plot in Borská
entertainment park to be built on has been signed yet, and the company isn’t pole in Pilsen for UniCredit, which seized the land
the Czech-Austrian border at Hatě is scheduled specifying anything about the leasing proc- from AIG/Lincoln after unsuccessful negotiations
to begin later this year, following a number of ess. CPI spokesperson Michaela Winklerová ex- to reschedule the loan with the developer.
delays. The park will be a CZK 300m expansion plained there is fierce competition for tenants in
of Hatě’s existing shopping and entertainment Ústí. CPI started selling the space at the begin-
area, Excalibur City. The 37 ha area is scheduled ning of the year. COLLIERS: INDUSTRIAL
for completion in 10 years. If the developer can VACANCY FALLING
be believed, Country of Lies will be the first of its Earlier in the year, CIJ reported
kind in the Czech Republic. BANKRUPTCIES SPARKING that developers had been notic-
LAND SALES ing an increase in Western manufacturers mov-
The properties of struggling, non- ing into the Czech Republic. It’s a trend that
CPI LOOKING FOR TENANTS property companies are starting could actually be gathering pace. Colliers CZ re-
IN ÚSTÍ to hit the market. ports that while vacancy is still in the high teens
The outer shell of CPI City Cent- Bohemia Crystalex Trading is trying to offload a
er project in Ústí nad Labem in building on Štěpánská street in Prague 1 along
northern Bohemia has been completed and the with a garage and storage area in Liberec. The
whole project is scheduled to come online by properties had served as collateral for Citibank.
next spring. The mix-use scheme will include an The outstanding debt behind the glassworks
office building, a four-star Clarion hotel, retail company is CZK 5.25bn (€205.6m).
and service space and underground parking. In the Moravian capital, the auction company
Naxos has been entrusted with finding a buyer
CPI City Center
for the plot, where a mixed-use scheme called
Centrum Brno on Mendlovo square has been Source: Colliers
planned. The owner of the land is Gaspra. The
bid deadline for the 2.5 ha of land is May 10. The (17.8 percent) take-up rose in the first quarter of
project proposed for the site would offer 27,500 2010 to 152,000 sqm. That’s the sort of numbers
sqm of retail, 28,000 sqm for services and enter- not seen since the third quarter of 2008, having
tainment and 9,500 sqm of office space. Howev- fallen to a mere 50,00 sqm in Q2 2009.
er, the planning could be changed to 50 percent If current demand levels hold up, Colliers MD
residential. Karel Stránský predicts that vacancy could come
Also in Brno, Jan Hospodář of Land Acquisitions in at under 10 percent by the end of the year.
and Disposal in CBRE is now working with TEVA He goes so far as to warn that some regions, in
pharmaceutical company in Brno to offload a 19 particular western Bohemia area around Pilsen,
ha, in part to pharmaceutical companies that could run out of large-scale available stock. The
The center will offer 5,700 sqm of office space would use the existing buildings and equip- question remains, however, what sort of lease
over three floors with units ranging from 190 to ment and divide the rest into 16 plots to be sold conditions it would take for developers to actu-
2,130 sqm. It is being developed by CPI Group. to investors. ally start producing new sheds. That’ll be the ul-
“We’re negotiating with local and international A month ago, Naxos auctioned off the complex timate litmus test on this alleged recovery.
16 CZECH REPUBLIC News Could take until 2028 | 27 Self-financing | 44

Progress on urban planning in Prague 8 is

Sekyra introduces paving the way for a major new mixed-use
project to be built on Rohan Island
Rohan Island plans Nina Fibigerová

Sekyra Group hopes to start work on an The whole project, budgeted at CZK 15bn The plans for Rohan Island represent one of the
largest development schemes in Prague
expansive mixed-used project in Prague (€586.9m), will be divided into phases, with
8 within the next two years. The company each  delivering around 200 apartments
plans to develop more than 250,000 sqm of and between 12,000 and 16,000 sqm of
commerical and residential space on 20 ha of office. Construction is scheduled to begin
land between Pobřežní street and the renewed in 2011 or 2012, but the entire scheme
river arm around Rohan Island in Karlín. 27 could take until 2028 to complete.

The 20 ha area will be divided into three The exact volume of the investment is of
main segments. The first section to be built course dependent on the level of demand
would be a central square. Leoš Anderle, the for new real estate, but the developer is
development director at Sekyra Group says it confident in its predictions. “We believe
would offer offices, retail, services, restaurants the market can absorb the planned space,”
and cafés, near the Invalidovna metro station. says Luděk Sekyra, chairman of the board
Residential space would then go up on both at Sekyra Group. “Demand for flats has been The first phase is estimated to cost CZK 1.5bn
sides of the square, with high-end units going reviving lately. The prices have bottomed out, (€58.7m) and will be financed by a mix of
up first on the Karlín end, closer to the city, and we expect a moderate increase in both sale equity and debt. Sekyra expects that by 2014
followed by mid-range units placed closer to prices and rents.” The company will start selling the company will cash in profits from the first
Libeň bridge. Office buildings are to border the project in 2011, during the construction 44 phase, and the project will be self-financing by
Pobřežní street and will separate the busy traffic permitting process. the third phase.
artery from the residential section.

w w w . c i j j o u r n a l . c o m

May 27, 2010

Feeling the Pinch: Legal tips for protecting real estate
owners and landlords in dealing with pressures from banks,
tenants and other creditors.
The financial crisis has introduced a new set of problems for owners of real estate. Distress, repossession,
rent reduction, loan acceleration, insolvency and handing the keys back – expressions not really heard by
owners and landlords in the Czech Republic until 2009/2010. How are owners and landlords coping with
the pressures that many are now facing and what can be done to mitigate the risks. Practical issues and
examples with practical solutions.
Presented by: Bryan Wilson, Partner; Wilson & Partners and Karel Doktor, Partner; Wilson & Partners
This session is aimed for all those who own or manage real estate property.

For further information please contact: Organized by:

Dušan Krnjaja I email: I tel.: +420 222 220 800
All PLP Czech Republic classes are held at the Hotel Jalta, Václavské náměstí 45 in Prague, on the indicated dates starting from 5pm.
You won‘t find a solution
by saying there is no problem!


C O R P O R AT E / M & A A N T I T R U S T / R E G U L ATO RY & C O M P E T I T I O N

Please contact: ... a better law firm

Bryan Wilson
Tel. +420 724 919 280

Karel Doktor
Tel. +420 724 919 274
18 CZECH REPUBLIC Development It will be unified | 21 Two houses per month | 41

Reflecta has purchased a residential

Reflecta buys out development plot from Finep that it’s re-
working as a villa-only scheme
Finep scheme Nina Fibigerová

Reflecta Development has acquired part of the the deal was not a distress sale. “The price was “There will be variations in the design, but in
Na Hvězdárně site in Prague 5, where it plans realistic. It met our expectations by the time the 21 general it will be unified by some elements
to build 100 villas and sell for roughly CZK 25m deal was done.” Reflecta’s strategy was to erase either in the materials or shape,” says Sklenka.
(€993,509) a piece. the plans for apartments and concentrate solely “Also when creating the villa, we worked from
on stand alone family homes. the inside out. We designed all the interior
Reflecta bought 120,000 sqm of land from rooms to be optimal for future use and then
the developer Finep, which had planned to Architect Boris Redčenkov and his studio, wrapped it into a nice box.”
construct apartment houses and 20 villas there. Atelier A69, are working on different housing
designs for the location: three to five bedrooms The villas will offer 180 to 340 sqm of space and
Jakub Sklenka, a Reflecta board member, says and one two-generation villa, a range that plots will vary from 500 to 1,500 sqm. Homes
will cover 95 percent of the client’s demand, are priced between CZK 60,000 and CZK 70,000
Wishful thinking | 21 according to Sklenka.  per sqm, while an additional CZK 7,300 per sqm
will be paid for the land.

The first phase of the project will cost the

developer CZK 400m (€15.9m). As soon as a
Doubts surround South planning permit is secured, Reflecta will start
negotiations with the lenders. Sklenka doesn’t

Town tower Nina Fibigerová

think finding a lender will be a problem,
however, given the CZK 300m of equity that’s
been invested into the land, while 20 out of 25
A private investor associated with the worked closely with CB Richard Ellis on villas planned for the first phase have already
Melit company recently stepped forward the feasibility study. In what could be an- been sold.
with plans to build a 120-m high-rise other case of wishful thinking, he claims
in the middle of the Jižní Město (South pre-lease requirements will change be- 41 “We’re selling two houses per month just
Town) housing estate at Háje metro sta- fore the project passes the permitting off plan, and I believe that before we start
tion in Prague 11. The project, dubbed process, which could take three to five construction early next year, half of the houses
Porto Háje, would offer 57,000 sqm of of- years.  in the second phase will be sold, too,” says
fice and 26,000 sqm of retail space. The in- Mikuláš Molnárfi, a senior surveyor at Sklenka. “We’ll start by building 20 houses all
vestor insists it has already signed future CBRE, says it will be extremely challeng- at once and continue with further villas so that
purchase contracts for the 25,000 sqm of ing to lease such a large building. “There we always have two products in each category
land. are two demands in the market from two on offer.”
The project, still in the planning phases, banks that would suffice as prelease, or
has elicited mixed reactions from mar- I can imagine headquarters of a govern- A commercial building on the central square
ket observers. “It can’t be divided into ment office to take part of the building. of the new neighborhood will offer space for
phases, which is a serious handicap. You The problem is that transport access is a restaurant, café, and a small grocery store.
will not be able to secure sufficient pre- not ideal, and the anchor tenant wouldn’t Four medical offices will share the rest of the
leasing to get a bank loan,” says Eduard have its own identity,” says Molnárfi. “It space, while 150 sqm will be reserved for local
Forejt, associate director at Jones Lang would have to share lifts with other ten- authorities. The building will be financed and
LaSalle. “The lender would require pre- ants in the building.” He argues that the operated by Reflecta.
leasing at least 30,000 sqm, which is landlord would have to charge less rent
21 wishful thinking these days.” than the going rate in Chodov, where it “We will even invest into the fitout of the
Jan Horčička, a project manager at Edi- is €14 per sqm on average. Molnárfi says restaurant, and we are in negotiations with
fice, which is working with the investor, €10 per sqm may attract a tenant to Háje. three potential partners, who will operate
says his client is looking “to build the It’s estimated the project could cost up to it without paying rent during the first year,”
whole project in one go”, adding that it’s CZK 4bn. Sklenka says. “We realize that no one would
take the risk of starting a restaurant in a brand
new location in current climate.”
20 CZECH REPUBLIC Residential Transfer ownership | 23 No unsold units | 40

After years in the regions, the developer

Bouwfonds gives Bouwfonds ČR waited until the crisis hit to
tackle Prague’s residential sector
Prague a try Nina Fibigerová

The Dutch developer Bouwfonds ČR has started The villas in the first phase of the Cikánka project have been all sold
construction on the second phase of Cikánka –
a project in Prague 13–Stodůlky, scheduled to
offer 18 villas after completion in 2011. Eight of
the villas built in the first phase have been sold,
followed by reservations on four homes in the
new portion of the project.

The developer has also directed the contractor

CEK stav to move forward with the first building
of its Biografy Barrandov scheme in Prague
5. Called Adina, this apartment building is 63
percent pre-sold and should be followed by
another, larger building (called Hugo) in 2011.
Bouwfonds is also working on projects in Brno
and Jihlava.

Petr Kouřil, managing director of Bouwfonds

ČR, says the company is one of only a few
residential developers who started construction
on two projects last year, but he claims its sales allows clients to use the property as collateral regions. The Cikánka villas are priced at CZK
strategy gives clients enough confidence to get for a mortgage, and reduces their risk of losing 12m.
on board even in times of recession. the units to creditors, if the developer was to
suddenly go bust. “Our average pre-sale level was 50 percent,
Rather than waiting until completion, the Dutch even in the boom times 2006–7, and this
23 developer will transfer ownership of the new Kouřil claims this has boosted sales, as has what conservative approach has paid off, as we have
units to clients once the shell is completed on he describes as reasonable pricing of about CZK 40 no unsold units in our completed projects, and
an apartment building, or with family homes, 45,000 (€1,771) per sqm for homes in Prague we have not been caught by surprise by the
upon completion of the basement slab. This and CZK 30,000 per sqm in the surrounding changed requirements of the lenders after the
crisis stroke,” says Kouřil.
Bouwfonds is continuing to work on further phases in its residential project in Jihlava

After 13 years in Czech regional cities,

Bouwfonds entered the Prague market in
2008 with the acquisition of a 3 ha site in
Barrandov, where it’s building an apartment
house filled primarily with one-bedroom
flats, intended to appeal to the budget of
cost-conscious consumers. It also bought in
Prague 13–Stodůlky, where it’s planning18
geometrically simple villas there designed
by architects from ADR studio, enabling for
maximum use of the internal space. In Prague
5-Barrandov, the developer is building

Bouwfonds’ Czech pipeline currently includes a

total of roughly 1,000 homes, representing an
investment volume nearing CZK 1bn (€39.4m). 
Supply chain solutions | 17 Lack of office completions | 61 Deals CZECH REPUBLIC 21

Deals: Logistics Office activity seemed to fall off a cliff last

month, but industrial developers had a busy
leads the way time of it

Office deals were scarce in April, leaving ProLogis Park Pilsen–Stenovice landed one of the biggest leases this month
it to the industrial sector to lead the way,
with increases in both contracts and size.
ProLogis and Valad/Aviva Investors ran
away with top honors as the most successful
landlords, signing more than 30,000 sqm in
leases. The activity lends credence to Colliers
International’s recent industrial report, in
which it predicts that vacant warehouse space
could start filling up quickly. Indeed, in the
first quarter of 2010 roughly 152,000 sqm were
taken. That’s a 77 percent increase year-on-

ProLogis leased more than 31,000 sqm of

space at ProLogis Park Pilsen-Stenovice to
Eurogate Warehousing & Distribution
17 Czech, a company specializing in supply chain
solutions for the retail and electronics industry.
CB Richard Ellis and Cushman & Wakefield
acted as leasing agents for this transaction. Prague. The extension is for five years. The Velké Pavlovice industrial zone has been
ProLogis Park Pilsen–Stenovice offers more company also increased its space there by completed. Jones Lang LaSalle assisted the
than 59,000 sqm of warehouse space in three an additional 11,900 sqm for a total of 37,200 manufacturer, which bought the 11,000 sqm
buildings, and Eurogate will share the facility sqm. DTZ assisted the owner, Aviva Investor plot the new logistics center now occupies.
with Mitsui Soko and Kika Nábytek. Central Europe Industrial Fund, and its asset
manager Valad Property Group. The pace of office leasing has slowed. Gross
FAST ČR, the white goods and electronic take-up, including re-negotiations, was just
supplier in Central Europe, has extended its Point Park Properties secured a lease on 48,940 sqm in the first quarter of 2010, a 50
lease at the Říčany Trading Estate just outside 3,000 sqm of warehouse and office space with percent drop from the final quarter of 2009.
logistics company Logflex 61 More startling was the complete lack of
ČEZ ‘s customer center at Futurama
CZ at its PointPark Prague office completions in the first three months
D1 in a deal brokered by 108 of this year. The last time that happened was
Agency. in 2006.

TROST Auto Service In April, only two lease transactions were

Technik, the car parts reported, both by the same landlord –
supplier, has moved its Immorent. There were no investment deals.
headquarters to Tulipán TPI Česká republika signed a contract to
Park in Hostivice, west of lease the last vacant unit in Building E in
Prague. The company has Avenir Business Park in Prague 13–Nové
signed a lease on a 4,300 Butovice. Jones Lang LaSalle represented
sqm unit in which the the landlord, Immorent, on leasing the
landlord, Segro, represented 346 sqm unit. Another Immorent project,
by Cushman &Wakefield. Futurama Business Park in Prague 8 attracted
Všeobecná zdravotní pojišťovna, which
Construction on the CZK agreed to lease 450 sqm on the ground floor
100m (€3.9m) Berendsen in Building B. The health insurance company
Textil Servis Plant in the plans to open a client center there.
22 HUNGARY Investment Painstaking purchases | 25 €6.5 to €8 per sqm | 46

Class B real estate is probably attracting less

Class B not immune investor interest than class A, but distress
seekers have a better chance of success
to crisis Robert McLean

It's perhaps natural to focus on class A real now shoots for rents of Tamás Sellyey, sales director at Indotek
estate, since that's where most of the money 46 between €6.5 to €8 per
tends to flow through the sector. But across the sqm. The upside for the
region, class B properties are an attractive niche crisis has been the inflow
market offering solid returns for those who of tenants from more
understand the asset class. upmarket buildings. 

That understanding, however, is made more “I can't give you a concrete

difficult by a level of transparency that would percentage, but we can
probably drive pampered class A players crazy. see movement from class
That's not to say that the market is a carefully A, because they can't
guarded secret, but rather there's no equivalent afford those levels of rent.”
of the Budapest Research Forum for buildings Such companies will be
built between 1970 and 1995. Even its self- taking a step down in
proclaimed dominant player is unsure of the quality, but they'll also
total stock of office in Budapest. Tamas Sellyey, likely be making massive
sales director at Indotek, says he believes cost savings, since their
Budapest has between 1.2 million and 1.5 old leases will have been
million sqm of class B offices and warehouses. signed when the class A
Besides his own company, however, he's only market was far stronger.
aware of one other major player of such assets. 
As Indotek is interested
The result is that while Indotek may be the in expanding its current
market leader, significant growth of the holdings by at least half,
company's portfolio (currently somewhere now would seem to
south of 600,000 sqm) would require be the perfect time to
25 painstaking purchases from individual owners. do so, especially since
It also makes predicting what will happen to Sellyey claims its debt
rents in the future difficult to calculate. “It’s burden is unsubstantial
hard to answer that, because the class B market and in no way a limiting
is not as structured as class A. That makes it factor. Unlike the class A
almost impossible to judge because you don’t market, however, he says
know all the players, you don’t know the exact there's no lack of distress
size of the market.” on the market, creating
a plethora of opportunities. “The final price movement moving down the food chain,
What’s clear is that recent shifts in the market depends only on the financial status of the meaning that even if Indotek did want or have
have been imposed on it by disturbances on seller,” he says. “If they're in big trouble, you can to sell, buyers would be tough to find. “There's
the class A market. Focusing on new office push the price down as far as you want.” interest but it's very low,” says Sellyey. “We get
schemes, the rapid rise of vacancy in the two or three inquiries per month, but only one
shiny new schemes has created a city full of Moreover, in situations where the bank is of them is worth dealing with. We have one
increasingly anxious developers. And while the looking for someone to take over the debt, transaction under due diligence and there are
best projects in town may still command solidl extremely interesting deals can be found for in discussions with others, but they're near the
double-digit rents, clear-headed owners of the simple reason that “usually the loans were beginning.”
office buildings with less than perfect locations granted before the crisis, so they have quite
have now occupied the €8 to €10 per sqm good conditions.” He says yields before the crisis were roughly
range that class B offices once enjoyed.  in the 9.5 percent range, but that in general,
If there's not much activity yet on class A they're not solidly in the double digits.
The result, says Sellyey, is that his company investments, there's arguably even less
News Briefs HUNGARY 23

FIEGE AND RETZ TAKE SPACE in Hungary. “We believe that this location is be- BRF RELEASES Q1 NUMBERS
Logistics provider Fiege filled coming a strategic hub for the regional logistics The Budapest Research Forum
8,300 sqm of its distribution activity of our customers, as it simultaneously reports that Budapest’s total of-
center at the ProLogis Park He- benefits from the vicinity of the three markets.” fice stock reached 3,024,888 sqm
gyeshalom. The facility is located near the M1 Fiege now leases more than 121,000 sqm of at the end of the first quarter of 2010. This figure
motorway junction, which leads to Bratislava, space from ProLogis. includes owner occupied buildings by the pri-
Budapest and Vienna. “ProLogis Park Hegye- Peter Amos, the executive director CEE at Fiege, vate sector (495,297 sqm) along with class A and
shalom is our first development in Hungary out- says Park Hegheshalom will become one of its B speculatively built stock (2,529,591 sqm). The
side the Budapest area,” says László Kemenes, strategic growth locations. “The park’s location BRF reports that despite the delay of some com-
vice president and market officer for ProLogis was the main deciding factor when choosing pletions, 91,927 sqm of class A office space was
this park, and it also meets our specific logis- brought to the market in the first quarter in seven
Fiege has taken space along the
Slovak and Austrian borders tics requirements.” ProLogis currently operates buildings, whose average vacancy rate is 90 per-
485,000 sqm of space in six Hungarian distribu- cent. This has driven vacancy up to 24.8 percent
tion parks. on speculative stock.
In other industrial news, the signing of Retz Demand in the first three months of the year hit
Furniture at the WestLog DC along the M1 mo- 76,689 sqm, of which 33 percent was made up of
torway has brought the logistics facility to 50 lease renewals. Net take-up was 45 percent of to-
percent full. The family-owned company was tal demand, of which 39 percent represented new
created at the end of the 1990s and has grown transactions and expansions made up a mere
into a chain of 30 stores around Hungary. 6 percent. The largest deals were Ernst & Young
Tamás Beck, head of the industrial division for (6,868 sqm), Unliever (5,500 sqm) and Cemex
Colliers International, says the market now (3,476 sqm).
could be heading for stabilization. “Although The members of the Budapest Research Forum
it is important to emphasize that following the are CB Richard Ellis, Cushman & Wakefield, DTZ,
maturity of discounted products, pricing of the GVA Robertson, Jones Lang LaSalle and King
newly built properties may be different from Sturge
last year’s favorable prices,” says Beck.
24 HUNGARY Q&A Single digit rents | 14 Push the button | 88

Adorjan Salamon, director of Eston

Salamon: Quality International, says Budapest’s history of
high vacancy shouldn’t count against it for
offices still strong investors

The situation in Hungary has stabilized, but there aren’t many trans- product and the bad
actions being talked about and new development looks risky at best. product. If you check,
In Hungary the pricing issue has been difficult, because everyone knows the on the periphery you
crisis is here. Liquidity has stopped, but no one wanted to realize the drop in get 40 percent va-
prices. At the end of the day, we had a lot of sellers, but their prices are not cancy, while on Vaci
reflecting the present market situation.  ut you have below 20
On the other hand, you’re right, doing an office or retail development in percent.
Hungary today is fairly risky. Yields have gone up, though no one knows
where they are because there haven’t been transactions. There are only es- That’s still high
timations. That’s one risk.  when you look at
But also, comparing Budapest to Warsaw, the leasing activity is at a much other CEE capitals,
lower level. The only prices that have gone down are rental fees, where for though. Prague de-
office space they’ve fallen 10 to 30 percent. It depends if it’s downtown or velopers start hy-
14 out of town, but single-digit rents aren’t a surprise anymore.  perventilating when
it gets close to 10
So, talking about €9 rents is no longer taboo? percent.
It depends on the location and the quality of the building. On Vaci ut we’re Look at the history of
still signing at more than €12, so the one-digit brand isn’t valid for all build- the Budapest office
ings and locations. It’s not a positive message for the market if it’s €8 or €9 market. We never had
euro, but if it’s not a quality building, then they have to accept these types below 12 percent in
of rent levels. the last 10 years. So
if the average is 14 to
But you can’t start developments with those sorts of rents, can you? 15 percent, if it’s 18 to
I fully agree, even if there’s an expectation on the market that rents have to 19 percent right now
go up. Probably not this year, but in the coming two to three years. It’s very then it’s only a bit
difficult to predict, though. In 2000, all of the agents, advisers and develop- higher than normal.
ers said rents had hit bottom and would start increasing. But nothing really
happened, except for inner Buda and the downtown area. Everywhere else, But why should that kind of history reassure an outside investor?
rents stayed the same, but there was strong yield compression which bal- We’ve always had bad buildings on the market and most of the vacancy was
anced them out. At the end of the day, developers were still profiting, so produced by the minority of buildings. Two-thirds of the vacancy is coming
no one was so worried that rents weren’t rising. Rising rents were not a cru- from one-third of the buildings, meaning the majority of buildings are very
cial factor, as even apart from this, profits were  coninously growing (by the healthy, have a strong track record and achieve good rents. So if an inves-
yield reduction). tor is coming here, I’d advise him to check the location and to check certain
locations, along with the concept of the building. If they’re all good, then
Is now a good time to invest in Budapest office? he will probably never have 18 percent vacancy once the building is com-
I don’t think we will reach the previous prices in the short-term or even in the pleted. If you’re only looking for value and quality products, then you can be
medium-term. At MIPIM this year I spoke with many investors, and I heard assured that your building will be successful.
the most sophisticated, negative answers ever. Everyone was open to be-
ginning discussions, but they all said “we have certain concerns with your In fact, we’re finally starting to hear people outside the country talking
country these days.” But if there’s a 75 bps yield difference compared to War- about Hungary as good value. It’s taken a long time to get to this point.
saw, then investors can make a very nice profit. There were a few months when Hungary was not on the map for institution-
I hope that by the end of the year the attitude of these investors will change al investors. But they’re looking around now and checking the market. I can’t
and they will come here as it seems they have already started “window- feel strong sort of interest yet, in terms of them saying they need to buy to-
shopping”. Preparations for a few investment deals are now underway so I morrow. But I think that once they see that the economy has stabilized, and
expect the first closing will come not later than September. the market starts recovering, the button will get pushed on deals. Once that
happens, today’s yields will only be available for a short time. There will be a
Still, 24 percent isn’t the best argument to invest, is it? 88 few deals this year, but I don’t think they’ll push the button. I’m still hoping
That’s true, but I think there’s a significant difference between the good it will happen next year.

13 May | Bank Center | Budapest | Hungary

Breakfast and the Rule of Three


08:00 – 08:45 Market Presentation by Colliers International

08:45 – 09:15 Breakfast: Sponsored by Colliers International

09:15 – 10:00 Budapest office: Lies, myths...and inconvenient truths

Is Budapest’s high vacancy rate overblown? Developers will argue that supply should be analyzed district by
district, but try telling a foreign institutional investor that +20% vacancy doesn’t matter. Developers are blaming
banks for holding up projects, but what’s the economic rational for building anything at the moment? A frank look
at Budapest’s most roller coaster sector.

10:00 – 10:45 Retail: The ultimate stress test

Today’s shopping centers were never built to withstand the current crisis. So two and a half years after the credit
crisis began, how are they holding up? What have owners found out about their assets? Are tenants escaping their
leases? Are their catchments as strong as they hoped? How effective is the property management proving to be?
Are there any lessons to be learned as developers consider their next centers?

10:45 – 11:15 Coffee Break

11:15 – 12:00 Industrial: The wrong place at the wrong time?

Industrial developers in Hungary have the toughest sector, in what’s arguably CE’s toughest market. At some point,
as unemployment bottoms out and supply shuts off entirely, existing industrial stock in Hungary will begin to look
attractive again. But are we there yet? Are we even close? What signals are we getting from Western Europe that
consumer and industrial demand is coming back?

Supporting Partner Event Partner Media Partner Organized by

To register or for more information regarding CED–Invest HU 2010 please contact:

Robert Fletcher | CEO | +48 506 074 042 |
Dalma Mózes | Sales & Marketing Manager | +36 1 373 0429 | +36 20 239 6736 |
or visit our website
Names of the tenants | 17 €138m first phase | 54 Development HUNGARY 27

The developer claims that neither

ToPark passes construction nor leasing at ToPark has been
slowed by Hungary’s deep recession
another milestone Robert McLean

In April, the developer of ToPark topped out the The first phase of ToPark is made up of office and services in a 350 meter long series of buildings
200,000 sqm first phase of this vast, mixed-use
project on the western edge of Budapest. The
project has continued to prove the skeptics
wrong. Few believed construction would ever
begin on this ambitious scheme, and fewer still
that the shell would actually be completed on
the 12 buildings, which stretch for 350 meters
between the M0 and M1 motorways. 

But there’s still a year’s worth of work to be

done before the new office space can open.
Marketing director Attilla Somos says this
should be long enough to complete the job of
leasing the space, which he claims is already
halfway done. The development team says it’s
anxious to be given permission to reveal the
17 names of the tenants who have signed up for
the first 50 percent of 93,000 sqm of GLA.  along with services and shops will be available, get underway on what’s being described as
while the individual buildings are designed in Hungary’s largest mall on land located just
Given that construction work began in 2008, the style of Dior, Armani and other icons.  meters away to the west. Somos admits that
after the financial crisis had truly blown open, along with attracting important anchor tenants
the size of ToPark is remarkable. But so too is “We want to keep people here after work, not to the mall, the developer will have to come up
the design of the buildings. Generic, efficient have a ghost town” says Somos. “We would with some kind of special attraction. The goal is
boxes are what one would naturally expect like to create the type of mood you have in not just to attract customers from the western
from a project located deep in suburbia. downtown Budapest or Prague or European portions of Budapest, but from as far afield
Instead, this project features a covered internal towns. This is the kind of area people like to as Vienna and Bratislava. Clearly, a multiplex
passage at ground level in a high street-like spend time in. They won’t stay after work to theater and food court won’t be enough to pull
environment. Numerous restaurants and cafes drink coffee in these futuristic office parks that off, but if he already knows what it’s going
made out of concrete to be, Somos isn’t giving any clues.
Employees in the new offices will be able to walk through a
covered passage to restaurants, cafés and stores and glass and steel.”
Headline rents for the In time, ToPark has an even grander vision
office space began encompassing everything from office and
at €9.90, but Somos apartment buildings to sports facilities and in
claims the developer is time a new exhibition center. The scheme will
currently asking for a have high capacity access routes from the M1
euro more. and the M0, as well as an existing commuter
train line from Déli-pályaudvar and Etele tér
Attention will be that will be extended to the site. A new station
focused on the as-yet will be built by 2015 and connected with a new
secret list of prelease P+R for suburban commuters.
clients, because the
fate of this €2.4bn Several new park areas are to be developed
scheme could hang on the huge plot, including a 1,500-meter
in the balance. After pedestrian path, and the lake that’s already
completion of the on site (currently used by fishermen) could
€138m first phase next 54 eventually be used by the Hungarian Sailing
spring, work should Association as a sailing school. 
28 POLAND CEDEP Survey Unexpectedly good conditions | 94 Construction costs have fallen | 178

CEDEP 2010 CIJ took advantage of the high concentration

of prominent real estate players at CEDEP to
Survey: Risks and sound out their opinions on current market
structural change concerns

Scott Dwyer CEDEP was a private event this year, a format which allowed participants to speak more openly

General Manager
(ING Real Estate Development
How will
developers get
back into the
game in Warsaw?
What will their
strategies be?
land option
agreements and
phasing of office
developments over
time will become
more prevalent.
As the market bottoms, you will see long-term
leases entered into in the city center. Mokotów
will have its challenges – unless [a project changes in the funding structure of banks, partners enables us to jointly go higher up the
has] a good location regarding amenities and amongst others the German banks, who risk curve beyond the portion that covered
transport; 15k is a good size. The leasing risk have traditionally provided the bulk of real bonds be associated with.
for larger projects is a big factor. As such, the estate financing in CEE. During the crisis, the
only larger projects which will appear will German covered bond market was virtually
have either a substantial prelease or be heavily the only funding instrument which stayed Peter Számely
equity funded.  intact. Deutsche Pfandbriefbank will use
this instrument as its predominant funding
Head of Team, Central and South
instrument and is committed to continuing to Eastern Europe
Dieter Knittel provide services to its customers in CEE. (HYPO Investmentbank AG)
Director Europe But even today uncovered funding for real How has the
Real Estate Finance International, estate lenders (i.e. funding outside the covered business
Deutsche Pfandbriefbank AG bond eligibility) remains expensive and limited environment
for all lenders. As a consequence, LTVs remain changed over the
What are the in general closer to covered bond funding past six months
biggest structural level and between 60 and 65 percent. Funding from a lending
changes currently above that level will continue to be very point of view?
taking place expensive for banks if it is available at all. It is In Poland,
in the banking important to understand that this constraint drastically. Some
sector, especially comes from the funding side and not from the six months ago,
as they will risk side. However, Deutsche Pfandbriefbank there had been
impact on has access to a wide network across the global hardly any financing available, except for Hypo
commercial real organization which allows sourcing of different Investmentbank, for example, although there
estate financing kinds of debt to fill funding gaps at stretch were some signs of recovery. Since October
in CEE? senior, mezzanine and preferred equity levels. 2009, German banks became active and offered
The financial crisis has led to significant The combined underwriting capacity with such 94 unexpectedly good conditions to investors

making them available to carry out transactions. Renata Mc Cabe – Kudła Have developers resumed construction
As a result, yields dropped drastically compared Country Financial Manager because they’re optimistic about the future
to the perceived valuation yields some months or simply because they have very little stock
(Grupo Lar)
ago. As a result of too much money chasing too to sell?
few investment opportunities, the safe haven of What factors 178 Firstly, construction costs have fallen by
Poland will become a nightmare. This scenario could prevent approximately 30 percent in the last year, much
will be repeated in the rest of Europe. residential prices more than prices of apartments have fallen.
In CEE, although there are some signs of more from rising Therefore, if one does not have oversupply, it
interest, lenders are still less active due to the over the next is a good moment to build. We are optimistic
macroeconomic situation of more countries, couple years? Is about the future for apartments costing
but there are still significant differences it only incurable between PLN 350,000 and PLN 420,000,
between Romania and the Czech Republic. optimists who especially two-room apartments. We don’t
think that banks, believe there is much optimism for expensive
What are the biggest risks in your opinion developers and or large apartments. There is a large supply of
that remain when considering development customers have learned their lessons? ready apartments in districts such as Wilanow
financing? I don’t believe that clients have learned many or Mokotów, and the rhythm of sales is slow.
When considering  developments probably the lessons. Most clients are taking the maximum
associated risks are completion and letting. In the banks offer. The real question is whether
a fragile environment when many firms can go banks have learned their lessons. The amount
bust, the risk is about completion and whether of defaults is very small both here and outside Robert Dobrzycki (Panattoni)
a general contractor can finish the job. You can Poland. If the banks learned lessons abroad,
hedge against this risk by getting a completion they will probably keep some procedures
bond. This will protect you against the risk limiting loans in Poland also.
that you need to replace your contractor. Cost
overruns are usually covered by the guarantee As for the level of residential prices, they
of the project sponsor. The latter was less of are determined mostly by land prices and
an issue when construction costs were going construction prices. Land prices have not
down during 2009 as a lack of construction fallen significantly yet, but construction costs
projects created severe competition among have. Contractors are now complaining that
the construction firms. However, construction they are signing contracts with hardly any
is for future tenants. The question is always: margins. Therefore, a small increase in prices
will there be any tenants at all to produced should be expected in the next two years on
enough cash flow to cover at least debt service? small apartments for which there is limited
What if potential tenants engaged in preletting supply. For big apartments, there is currently an
don’t survive until completion? There is no oversupply of finished apartments. We expect
instrument to hedge against this risk within the their prices to fall until the existing supply is
framework of non-recourse financing. sold.

How confident are you in the ability of banks

to handle their CEE/Polish RE portfolios
without resorting to foreclosures?
I think the most difficult part of the crisis is
Partner Media Partner Organized by
over. Most of the projects which survived will
probably manage to continue. If they have to
foreclose, there will be a bit stronger demand.
30 POLAND Valuation Subject to regulations | 36 An important tool | 80

When nearly no deals are happening, many

Valuations still property companies believe the importance
of valuations is, well, over-valued
falling Wojciech Kość

As the season of 2009 property valuation “In my opinion, the financial instability caused are having trouble. “The importance of the
announcements unfolds, it’s not surprsing to see by these constant adjustments in balance valuations for us is to have a fair value of our
the continuing downward trajectory in the value sheets outweigh the benefit of investor assets in our books even if we are not going to
of real estate assets. According to the property protection. In the years before the crisis when 80 sell any of them. This is also an important tool
companies that CIJ spoke to about the issue, valuations reached unrealistically high levels for us to be able to start projects at a particular
however, valuation figures don’t mean much there was very little public discussion on moment in the market’s cycle,” says Lindberg.
in themselves. It takes a context of individual the reasons behind valuation adjustments.
companies’ condition and the overall market Now, after a heavy decrease in valuations, the In Poland, however, working out just where the
situation for the valuations to come into focus. positive effects of this method are questioned property market has been in the cycle has been
For long-term asset holders, or those with no much more than before,” he says. unclear, says Niall O’Higgins, managing director
intention to sell anytime soon, valuations are of retail developer Caelum Development in
just figures in the book, though there may be an In other instances, Jeschek says, valuations are Poland. “The peculiar aspect of property in
incentive to discount them when times are tough. of little practical significance. “From a cash-flow Poland is that buyers were looking for cheap
distressed property, while Polish property and
Platinum BP
Contrasting examples are provided by Atlas the economy generally were faring significantly
Estates and GTC. There’s a formal takeover better than those expectations. Neither
bid for Atlas Estates that, following its purchaser nor vendor could see fair value and
obligations as a listed company, published no transactions really occurred. Hence, the
the overall valuation figures of its professional practice of valuation was very
properties, but its chief financial officer difficult to be precise about and indeed while
Michael Williamson declined to comment it has improved significantly this year, it is still
or elaborate on them, citing that more fraught with difficulty,” he says.
information on valuations wouldn’t be
advisable in the takeover context. “One could speculate that for Poland there was
a drop in vendor prices, which quite reasonably
Another listed company, GTC , also published incorporated the added trading risk attached
a detailed valuation of each and every asset to lower rental revenues expectations and the
in its CEE portfolio. The numbers for 2009 were perspective for a long-term investor, valuations security of cash flow. Purchasers, however, were
all down against 2008, but GTC’s board member have practically no impact. There is no reason looking to the extremes of the financial crisis
for investor relations, Mariusz Kozłowski, doesn’t that an asset with long-term lease agreements and looking for distressed properties, which
consider them as anything more than one of the and steady income should decrease in value was not the Polish situation,” he says.
petty accounting obligations. “We don’t think this just because some market parameters have
is any message to the market,” Kozłowski says. It changed,” he says. “There were and continue to be investors
would be one, he says, if the company was going looking to buy assets ‘cheap.’ However, it is
through difficulties and the lowered valuations Padraic Coll, general manager at the Irish clearer day by day that buyers’ perceptions of
constituted breaks of LTV covenants with banks. property investor and developer Keyinvest, value are increasing for Poland and beginning
“But it’s not the case with GTC,” he assures. is less willing to dismiss the value of to match those of vendors. Soon the mismatch
valuations, particularly in the context of bank’s will return to a natural balance between both
36 “Publicly held companies are subject to involvement. “All assets are currently being parties,” says O’Higgins.
regulations which make it necessary to update marked down by valuers. The main beneficiaries
such valuations regularly. The result being of it are banks, because they are using the lower According to off-record talks with Warsaw-
some volatility in the balance sheet of such valuations against clients with LTV covenants based agencies, there are “more than 10” due
companies in unstable times. The reasoning to renegotiate up the margins which were diligence procedures underway for Warsaw
of such a mark-to-market method is showing negotiated in better times for investors,” he says. properties at the moment. “It’s pretty certain
potential risks in a company’s balance sheet, that most of them will result in concluded
which can occur if a transaction, like a sale or Skanska Property Poland’s managing director deals,” says one agent on the condition of
lease, has to be concluded,” says Harald Jeschek, Nicklas Lindberg sees a still different use anonymity.
managing director of Karimpol. for valuation in the times when developers
News Briefs POLAND 31

WORKS START AT VDHG’S den Group and the City of Poznan. The building Asset Management with 13.94 percent. Polnord
ABC will comprise 14,500 sqm of net usable area and posted a profit of PLN 63.63m (€16.47m) in 2009,
After signing up Porr as the gen- 170 parking places on two underground levels. up from PLN 41.9m (€10.85m) in 2008.
eral contractor, underground There are no pre-leases on the project as of yet.
works have started on the construction site of  
Von Der Heyden Group’s Andersia Business Cen- ŁÓDŹ FINES DEVELOPER FOR
tre, a €33m joint venture between Von der Hey- POLNORD BETS ON HIKE IN HOTEL FAILURE
FLAT SALES The city of Łódź imposed a fine
Foundation works are underway at
Andersia Business Centre The development company Pol- totaling PLN 10m (€2.6m) on Ba-
nord is planning to launch up to coli Properties, a development company that has
11 residential projects in 2010. The company failed to make any substantial progress in the de-
also said that its goal for the next two to three velopment of a five-star hotel, as well as a high-
years is to sell up to 2,000 flats annually. “We rise office and apartment building on a centrally
expect to multiply [residential] turnover and located plot at the intersection of Łódź’s chief
profits in the next couple years and have made Piotrkowska street and Mickiewicza avenue. The
radical growth in residential sales our goal,” Pol- company has shown very little activity on the plot
nord CEO Wojciech Ciurzyński wrote in a letter for three years now. The company claims disa-
to company shareholders. He said the company greements with the city over the height of the
was going to grow its commercial development office buildings, originally planned at more than
arm. 80 meters, and the global financial crisis have
“I’m convinced that the diversification of the slowed progress. While the company eventually
company’s activity into residential and com- bowed to the inevitable and is now working on
mercial segments is the best strategy now,” a smaller office building, its plans for a top-notch
Ciurzyński wrote. Polnord’s biggest sharehold- hotel haven’t changed. The company says that
ers are Prokom Investments with a 33.71 percent the hotel will be operated by Hilton and will open
stake, along with another 11.64 percent via its in 2013. When it purchased the plot, Bacoli Prop-
subsidiary Osiedle Wilanowskie, and Templeton erties had said the hotel would open in April 2010.

w w w . c i j j o u r n a l . c o m

May 25, 2010

FIDIC Construction Claims – Their Mysteries Unravelled
Delays to the planned completion date are very common on construction projects. This usually results
in construction claims submitted by the Contractor to the Developer (or Vice Versa) which, in turn, could
lead to litigation, arbitration and other forms of dispute resolution. The number of claims has significantly
increased in the past couple of years due to the financial crisis.
This seminar aims to shed some light on the science behind construction claims; the following topics will be covered:
1. Classification of Claims, Critical Delays and Introduction to Delay Analysis Methodologies for Analysing Claims.
2. FIDIC Clause 8.3 (Project Programme) & Clause 8.6 (Rate of Progress) and the Complicated Contractual Relationship between These Clauses and Claims.
3. Preparing a Defence against a Construction Claim - Strategic Advice.
Presented by: N.M. Raj; Principal Consultant/Managing Partner of Prime Consulting – Construction Claims and Contracts Consultants
This session is aimed for all those who own or manage real estate property.

For further information or to register please contact: Organized by: In cooperation with:
Marta Niezgoda I mail: I tel.: +48 22 848 60 21
All PLP Poland classes are held at InterContinental Warsaw, ul. Emilii Plater 49 in Warsaw,
Time: 9:00 – 9:30am Coffee break, 9:30 – 11:00am PLP Lecture
32 POLAND Development Over 10 ha of land | 25 Forming a consortium | 47

New developments By passing a master plan, Gdynia has cleared

the way for major new investments in an
to neighbor Sea attractive location

Towers Marcin Śmietana

In March, the Gdynia town hall’s spatial governor of the Gdańsk province so far,” says waterfront location a valuable attraction. “It’s
planning office passed a master plan covering Marek Karzyński, head of the spatial planning adjacent to one of the most prestigious parts of
land owned by the state-owned deep sea office at the Gdynia town hall. Gdynia, which is Kościuszki square,” he says.
fishing company Dalmor, which is about to
be privatized. The plan paves the way for According to Karzyński, local, national and even Zbigniew Łytkowski, a member of the board
the development of four high-rise buildings, international developers have long expressed responsible for land purchases for the
ranging from 36 to 90 meters in height. Half an interest in the area. However, it’s still not development company Hossa, expressed a clear
the space would be earmarked for commercial known who will participate in the tender to buy interest in Dalmor. With five residential projects
use, while the remainder would be residential. a sizable chunk of the 19 ha plot. Karzyński says currently underway across Gdynia, Hossa would
The area covered by the new plan contains a the Polish treasury ministry is not going to sell not mind Dalmor becoming its flagship project,
long wharf strip suitable for public services, 25 the entire area. “There will be slightly over 10 ha Łytkowski says. According to Polnord’s deputy
restaurant or hotel infrastructure. “The plan of land for developers, amounting to 300,000 CEO, Andrzej Podgórski, the attractiveness of
should be effective soon, as it only takes a sqm of pure investment space,” he says. the area will boil down to a reasonable tender
30-day period [to become valid] once it is price, which in turn will influence pricing of the
published officially with no remarks from the A shortage of interested buyers doesn’t appear final product. He says that banks would finance
to be a main concern. Sławomir Gajewski, CEO the potential scheme in the Dalmor area only
of the Tricity-based developer Torus, is not 47 by forming a consortium.
Endangered species | 20 interested in the Dalmor area but considers its

Development fends off environmental restrictions

Portuguese developer Gerium Polska De- In order to appease environmental activ- um has the funds secured for the whole
velopment’s multi-million euro residen- ists, Gerium reduced the original size of project, both equity and bank financing,”
tial and park project around a water-filled the project from 187,000 sqm to 106,000 says Cholewiński.
former quarry in Kraków’s Zakrzówek area sqm. However, not everyone shares Gerium’s
could be launched within a year. Gerium’s “We expect that the city’s decision on the joy about the Zakrzówek area develop-
hopes were reinvigorated after a resolu- environmental impact report will be re- ment. According to Jolanta Kapica, lead-
tion to introduce a landscape and nature leased in the summer,” Cholewiński says. er of a local association called Zielony
protection regime in the area was rejected Once the report is accepted, he says, the (Green) Zakrzówek, Gerium’s environ-
by the Kraków city council. city could then issue conditions for devel- mental arguments are designed to divert
Piotr Cholewiński, CEO of Gerium Polska, opment, a prerequisite to a construction attention from the fact that Zakrzówek’s
says rejecting the resolution should actu- permit. The Zakrzówek project is supposed natural character will be ruined. She
ally prove beneficial for an area that envi- to begin by developing a park with sev- won’t comment on the environmental
ronmentalists say is biologically valuable.  eral recreation and leisure amenities. The impact report before it’s released in May,
Cholewiński claims that by being allowed park part of the project will cost PLN 70m but Kapica hopes that a master plan for
to move forward on the scheme, the area’s (almost €18m), for which the company al- the area, which she claims is now ready
natural assets will be better protected. legedly has bank financing. A residential to go before the Kraków city council for
“Passing the resolution would have meant scheme of an upper-medium standard a vote, will render Gerium’s current plans
the destruction of Zakrzówek, as it would with an average flat size of 80 sqm and ex- useless.
be fenced off, not taken care of, and the pected number of inhabitants of 3,500 will Cholewiński says the new master plan will
20 endangered species there would have dis- follow after the park and will be phased, benefit the company if it helps fine-tune
appeared within two seasons,” he claims. depending on the market situation. “Geri- what can and can’t be built in Zakrzówek.
News Briefs POLAND 33

PANATTONI SHOWS LARGEST ship project of turning a former coal mine into late March, the Polish treasury ministry said it
BTS PROJECT TO DATE a leisure and a non-profit education and culture is pushing to float Dipservice on the Warsaw
Panattoni Europe reported an center. The center will be housed in the former Stock Exchange.
agreement on its biggest build- coal mine’s historic shaft, called “Krystyna.”
to-suit contract to date. The client is Tesco, for Armada Development says it will pay PLN 1m
which the developer will build 57,000 sqm of (€260,000) this year to renovate the shaft. The BERLIN HYP/LANDESBANK
warehouse space on a 12.8 ha plot at the junc- center’s name, “A Mine of Knowledge,” will re- BERLIN REFINANCES
tion of the A1 and A4 highways in Gliwice. “The fer to the shaft’s industrial past and will exhibit HARMONY OFFICE CENTER
choice of the developer depended on factors the region’s heritage as well as unspecified “sci- Berlin Hyp/Landesbank Berlin AG
like strategic location in Gliwice, adapting the entific development.” The idea of the center is announced it is refinancing more than €34.7m
design of the warehouse to our expectations a compromise by the developer in terms of the for the construction of the 18,000 sqm Millenni-
and short-term horizon of delivering the invest- project’s overall commercial function, as the um Park, located on Warsaw’s Żaryna street, be-
ment,” says Tesco’s director of distribution, Wo- shaft was originally planned to host a hotel. The tween the city center and Heitman/Immoeast
jciech Zabiłowicz. The warehouse in Gliwice will company says it hasn’t found an operator for it Empark Mokotów Business Park. Millennium
constitute a distribution center for the chain, re- yet, blaming delays on the area’s transport infra- Park, formerly known as Harmony Office Center,
sponsible for delivering supplies to Tesco shops structure and Bytom town hall falling behind on is fully rented out to Bank Millennium. Accord-
in southern Poland. According to Panattoni, local planning.
Refinancing of Millennium Park has
the project will also offer an environmentally been achieved
friendly performance, predominantly in terms
of power-saving solutions. The project will go DIPSERVICE PLANS 100,000
online in October 2010. SQM OF OFFICES FROM 2012
The state-owned real estate
company Dipservice said it plans
ARMADA DITCHES HOTEL to significantly increase its office develop-
PLANS ment activity in Warsaw. The new strategy of
The Bytom-based Armada Devel- the company will focus on the development
opment announced it was about of “big modern office projects and selling
to push forward on another stage of its flag- smaller properties,” Dispervice CEO Rafał Krze-
mien told the Puls Biznesu daily newspaper.
Bytom has been slow to develop
itself, says Armada Krzemień also said Dipservice was going to
invest between PLN 800m to PLN 900m (€205
to €230m) into three office buildings, totaling ing to the bank, the project features good trans-
100,000 sqm. In 2012, Dipservice is planning port links as well as underground parking. The
to begin construction on a 56,000 sqm office location has attracted some criticism, however,
building at Świętokrzyska/Twarda streets, op- for its proximity to a nearby residential complex
posite the Rondo 1 office tower, as well as a and fears that it could increase traffic in the area.
40,000 to 70,000 sqm office and retail project Jan Bettink, chairman of Berlin Hyp’s manage-
on Wilanowska street, near Galeria Mokotów. ment board, said “the Polish real estate market
The company wants to start work this year on remains exceedingly interesting, also in the year
a 5,200 sqm office project on Foksal street. In 2010.”

Ponad 10 800 mkw powierzchni biurowej klasy A do wynajęcia.

Space available from 3rd quarter of 2011.

For leasing call: +48 78 400 55 44, e-mail: or check:
Aby wynająć zadzwoń: + 48 78 400 55 44, e-mail: lub wejdź:
34 POLAND Residential A grain of salt | 6 13,718 flats finished | 29

It may be too soon to say the crisis is over,

Residential but Q1 residential numbers demonstrate
significantly higher confidence
revival? Wojciech Kość

For years, anything Keen Property Partners has put 38 apartments in Holland Park Apartments on sale
positive residential
developers said about
their sales levels has
habitually been taken
6 with a grain of salt.
But new numbers
from Poland’s Central
Statistical Office (GUS)
indicate there could now
be some grounds for

According to GUS,
the number of new
permits is down 31
percent year-on-year,
but construction of new
projects is up from 2009.
During the first quarter
of 2010, developers
broke ground on projects
comprising 11,500 flats,
an increase of 53 percent over the same period flats in the first quarter, just eight fewer than it children. It will offer 282 apartments, 37 to 94
in 2009. March saw the most action, with work had projected. JW Construction sold 286 flats sqm in size. Prices of apartments range from
on projects totaling 6,258 flats kicking off. in the first quarter, 10 percent more than in the PLN 6,070 (€1,560) to PLN 9,238 (€2,380) per
That’s twice as many as in March 2009, when last quarter of 2009. And Dom Development sqm.
residential construction and sales were at their sold 343 flats during the first three months of
lowest.  2010, more than in the last quarter of 2009, SGI Baltis announced the start of a new
and more than in the entire first half of last residential project, located on Bartycka street
29 GUS reports there were 13,718 flats finished in year. The company is also pushing foward with in Warsaw’s Mokotów district. Construction of
the first quarter, a drop of 24 percent against construction on its first project in more than a the PLN 60m (€15.51m) project will begin in
the first quarter of 2009. year and also its biggest to date – Saska Kępa June and delivery is set for the end of 2011. The
– with another phase of 145 flats announced in project will consist of two five-story buildings,
According to residential analyst REAS, the GUS late March. totaling 134 flats, ranging from 38 to 115 sqm
data suggests two things. First, there seems in size. There will also be 201 underground
to be somewhat more optimism with the Robyg said it started two new stages of Nowa parking spaces.
residential developers in Poland that makes it Rezydencja Królowej Marysieński project
easier to begin new projects. Secondly, a lower in Warsaw’s Wilanów district, totaling 218 At the top end of the market, Keen Property
number of new permits might only mean that apartments. Ronson began work on the third Partners, the owner and property manager of
developers have plenty of projects with valid phase of its Imaginarium project in Warsaw’s Holland Park Apartments, has announced the
permits that were secured before the start of Bielany district, with prices starting at PLN 9,500 sale of 38 apartment in the complex’s Oscar
the year.  (€2,446) per sqm. In addition, Echo Investment building. Sales on apartments in the Brunello
has resumed sales on a new residential estate building begin at the end of 2009. Two-thirds
The revival of the market has also translated called Kasztanowa Aleja on Wojskowa street in of the Brunello apartments have now been sold
recently into improving sales figures for Poznań. The Kasztanowa Aleja development or are in the process of being sold. KPP offers
companies like Dom Development, JW will consist of two independent buildings buyers a two-year lease guarantee at Holland
Construction, Gant and Polnord. Gant sold 168 with yards, green areas and a playground for Park.
News Briefs POLAND 35

TWO MONTHS ON, HORIZON be developed on a 1.15 ha plot on Traktorowa space in Poland. It’s a 200-percent increase in
PLAZA PURCHASE OFFICIAL street, about a 20-minute drive from the Łódź comparison to the same quarter last year. The
Union Investment formally ac- city center. The fund bought the plot for PLN result enabled ProLogis to maintain its leading
quired the Horizon Plaza office 17.08m (€4.39m) from the local property com- position in the warehouse space market in Po-
building in Warsaw from IVG Immobilien AG in pany Sunco in July 2009. According to Ag- land in terms of supply (35 percent of the market
nieszka Jachowicz, managing director of the share) as well as the number and volume of the
Horizon Plaza
bank’s property funds, the building will target agreements signed (47 percent of all the lease
a particular niche on the Łódź office market. agreements). Of the total, more than 58,000
“The project’s advantages are its non-central sqm was for new leases. New clients include DC,
location and the quality-to-price ratio. In Łódź, DS. Smith, DTA and TM Toys. According to Pro-
office buildings are either new and located in Logis, customers were most interested in loca-
the center, or they’re very cheap C-class build- tions in southwestern Poland and in the Warsaw
ings. We want to compete with a quality build- area. The ProLogis portfolio consists of approxi-
ing for companies that either want to leave their mately 2.1 million sqm in 25 distribution parks in
C-class premises or ones looking for a quality Poland and 3.7 million sqm in 40 parks around
office space that’s not in the center and isn’t Central and Eastern Europe.
as expensive as the current modern offer,” she
says. There are currently 143,000 sqm of existing
office space in Łódź, which has a vacancy rate SKANSKA AIMS FOR LEED
at 24.7 percent. Rents are among the lowest in CERTIFIED OFFICE PROJECT
Poland, averaging €12 to €12.5 per sqm, accord- IN WROCŁAW
ing to recent figures released by Colliers Inter- Skanska Property Poland started
national. Colliers says the city’s subbornly high construction of a LEED (Leadership in Energy and
vacancy rate will have an impact on rents in the Environmental Design) certified office project,
Green Towers in Wrocław will go for
LEED certification
a transaction worth around €103m. The deal is  
the second Polish investment for Union Invest- SECOND RESI AUCTION IN
ment’s UniImmo: Global open-ended real estate WARSAW A FLOP
fund. Union Investment previously purchased a There was a deafening PR silence
shopping center in Katowice for €95m in Oc- following the second residential
tober 2008. “This transaction is an excellent property auction, which took place in Warsaw
fit with our investment strategy for UniImmo: in late March. The auction was organized by Col-
Global to generate higher returns in core-plus liers and two auction houses, Rick Levin & Asso-
countries,” says Karl-Joseph Hermanns-Engel, ciates and DESA Unicum. In all, 23 flats were on
a member of the management team of Union the auction block at the Warsaw Sheraton Hotel
Investment Real Estate GmbH. “Poland has en- that night, but only five were sold. The result
joyed impressive growth over the past 10 years could be interpreted as a demonstration that
and its economic structure increasingly resem- buyers and sellers still haven’t agreed on pric-
bles that of the original 15 EU member states.” ing yet. But developers suggest that Poles may
Completed in 2009, Horizon Plaza offers 38,000 simply not be used to the auction format. The Green Towers. It will be located in Wrocław on
sqm of space, including 32,700 sqm for office developer Dantex got a few flats out the door Strzegomska street, one of the fast-developing
and 3,200 sqm for retail plus additional storage by offering relatively low starting prices be- office locations in the third largest city in Po-
space. Located in a prime location in Mokotów, tween PLN 5,200 to PLN 5,700 (€1,346 to €1,475) land, a major destination for companies’ back of-
the city’s second largest office sub-market, the per sqm. But Malik Construction (starting pric- fice processes. Green Towers will consist of two
building is 90 percent let. es from €2,070 to €2,226) and Orco (€1,941 to 10-story buildings totaling 25,000 sqm of office
€2,097) failed to attract any attention. Another space to lease. The first building, of 12,000 sqm, is
auction was set for Kraków at the end of April.   now getting underway and should be completed
BZ WBK FUND GETS PERMIT by end of 2012. The developer says it will try to
FOR A CHEAP ŁÓDŹ OFFICE get Green Towers LEED-certified. According to
PARK PROLOGIS SUMS UP Q1 Skanska, location choice and design were already
BZ WBK bank’s property fund Warehouse developer ProLogis done in line with LEED requirements. LEED is a US
has received a construction permit for the first reports that in the first quarter system of building certification based on criteria
building of an office park project called Park of 2010, the company signed like energy use, water management and public
Biznesu Teofilów. The 10,000 sqm building will 173,000 sqm in lease agreements for warehouse transport friendly locations.
36 POLAND Retail Robust and stable | 15 Barely 15,000 sqm | 71

CBRE: Polish Size matters, according to CB Richard Ellis,

but when it comes to retail, so does political
retail pulling stability and economic growth

ahead Robert McLean

If Poland is pulling ahead in any one sector “In 2009, the Polish retail SHOPPING CENTRE STOCK IN MAJOR CITIES (‘000 SQM)
more than another, it’s likely to be retail. Peter market continued to expand
Gold, head of CB Richard Ellis’ Cross Border dynamically, but it was the last
EMEA Retail, says the country’s economic and in a series of record-breaking
political stability is now reaping rewards when years in terms of the shopping
it comes to global retailer demand. “Proven, center stock completion. New
successful markets is where retailers want to shopping center additions
be,” he says. “That starts at the country level, but reached nearly 830,000 sqm
that means France and Germany, Italy and the of GLA, after the completion
UK are the priority for retailers. You stay in the of approximately 700,000 and
best, proven places. Pioneering new shopping 630,000 sqm in 2007 and 2008
centers? Not so convinced,” is how he describes respectively.”
the world view of retailers.
The report points out that of
And he says Poland also fits the bill. “Poland is seen the country’s total shopping
15 as an economy that’s far more robust and stable space area, 60 percent is
across CEE. Its size matters but so does stability located in the country’s eight
and disposable income.” A recent CBRE report key cities and regions. With
entitled Poland Retail Destinations points out that this covering 7.8 million
Poland’s shopping center stock has climbed to (registered) inhabitants, this
7.7m sqm in 325 schemes. Eight percent of this, translates into 600 sqm of
writes CBRE, is “specialized shopping formats (13 retail space per 1,000 people
retail parks and six factory outlets). With a little in Poland’s main urban
more than 200 sqm of GLA per 1,000 residents and centers. “Drying pipeline,
weak high streets, the modern retail network in expected to add up to Source: CBRE
Poland remains underdeveloped. approximately 750,000 sqm
of GLA in 2010 and 2011 in Does that mean Warsaw is finished as a
(sqm per 1,000 inhabitants) total, indicates that the Polish destination for developers? Hardly. “Warsaw’s
retail market has reached the retail market is far from saturated,” writes
developmental threshold CBRE. “Market niches persist in terms of
when qualitative change is to the geography, type of formats, and store
replace quantitative growth. concepts. For example, there is a considerable
Market diversification will opportunity for convenience centres
reinforce and retail formats will (supermarket anchored developments with
diversify further with both small small retail and service gallery) in several
convenience/neighborhood dynamically developing residential districts,
centers being constructed including Bialoleka, Wilanow and Wawer,
alongside with regional where retail provision remains scarce. On the
parks such as Helical’s Europa other end of the market spectrum there is a
Centralna in Gliwice.” Warsaw room for some larger formats with regional
is clearly the country’s primary catchment in the southeast and northwest of
retail hub, with 1.3 million the city.”
sqm of retail GLA, a figure that
translates into 760 sqm of retail And it’s not the only region that will see growth.
for every 1,000 Varsovians. Still, CBRE predicts that Upper Silesia currently has
2009 saw just two completions 170,000 sqm of retail under construction and
of barely 15,000 sqm, and 2010 71 high street saturation there is also improving,
Source: CBRE
isn’t looking any better. albeit more slowly.
Photo: Robert Ceranowicz
Demand rising | 4 New tenants at Wars, Sawa, and Junior | 79 Deals POLAND 39

Capgemini, Raben
It’s not just logistics developers that are pulling
and FM Logistic top in the big deals
deals listing
It’s been rather busy on the Polish property warehouse and office space at PointPark Capgemini Quattro BP
market recently. News on lease deals has Poznań.
poured in, providing substance to developers’
4 usual claims about the demand rising for all Panattoni began construction on the next
sorts of space. This time, it seems, they mean it. phase of Panattoni Park Ożarów, after finalizing
new leases there. New tenants include logistics
The lease deal of the month easily goes to company Loxxess-Transteam (7,270 sqm plus
consulting, IT advisory and outsourcing 380 sqm of offices), represented by CB Richard
company Capgemini Polska, which expanded Ellis, and an unnamed company involved in the
their BPO center by 10,000 sqm in Kraków’s telecom market took 9,210 sqm of warehouse
Quattro Business Park, a project from local space and 700 sqm of offices. The new tenants Centrum Development and Investments and
developer Buma Group. Capgemini will move to are set to move in during the third quarter of ING Real Estate Investment Management
the new premises in the third quarter of 2010. 2010. fund named ING PFCEE.

In the industrial sector, electronics producer Panattoni also signed a lease agreement Three new brands – Selene, Drogerie Stars
and distributor Apollo Electronics leased for 12,000 sqm in Panattoni Park Mysłowice. and Media Expert – leased a total of 1,290 sqm
3,000 sqm of warehouse and office space in The new customer, PartnerTech, will open of space in the Zielone Tarasy shopping center,
Millennium Logistic Park Pruszków I, a project a production unit for enclosures and system a project from Budizol in Elbląg. Selene offers
from MLP Group. King Sturge represented the integration. Jones Lang LaSalle represented bedroom furniture and accessories, Drogerie
developer in the transaction. PartnerTech in the deal. is a cosmetics chain, while Media Expert sells
household electronic goods. Jones Lang LaSalle
Azymut, a book wholesaler, leased an In the retail/leisure sector, Multikino said is the mall’s leasing agent.
additional 8,700 sqm of warehouse space it decided to lease space in Korona Kielce,
at Segro’s Tulipan Park Stryków. Azymut now a 36,000 sqm GLA retail development from The delicatessen retailer BOMI signed a lease
occupies 18,300 sqm of space in the facility. Dariusz Miłek’s Church Land Development set agreement on 1,250 sqm in Wzorcownia, another
to go online in 2011. project from Budizol in Włocławek.
ProLogis announced the extension of three
lease agreements totalling more than 52,000 Cushman & Wakefield, the agency working In the office sector, Fusion Invest Polska,
sqm at ProLogis Park Chorzów. Extensions were to lease AIG/Lincoln’s Galeria Słoneczna in a fund investing in new technologies and
from providers of logistics services: Raben, Radom, announced that 53 percent of the renewable energy, leased 440 sqm of space in
(28,800 sqm), FM Logistic (19,500 sqm), and project is currently leased. Among the new the Rondo 1 office tower in Warsaw. The tenant
Ponetex (4,000 sqm). Another extension came tenants are Camaieu, Sizeer, Ochnik, Bijou was represented by Ober-Haus.
in ProLogis Park Poznań II, where IBP Conex, Brigitte and KFC.
a manufacturer of connectors for gas, sanitary Mermaid Properties signed a lease agreement
and heating systems, leased 14,000 sqm. Marks & Spencer opened its first shop in Płock with the Polish ministry of foreign affairs on
at the newly opened retail project Galeria 4,300 sqm in Warsaw’s Młodziejowski Palace.
An unnamed importer and distributor of Mazovia, from Lewandpol. Marks & Spencer The ministry intends to house the OSCE’s Office
spare parts and accessories for cars signed will occupy 1,700 sqm over two levels in the for Democratic Institutions and Human Rights
a new lease agreement for 15,750 sqm in mall, which is financed by Pekao SA, managed there. The organization promotes human
ProLogis Park Chorzów. Colliers International by King Sturge and leased by Cushman & rights and democracy in OSCE member states.
acted for the developer in lease negotiations. Wakefield and Mallson. Kancelaria Brochocki brokered the deal.
Toy distributor TM Toys leased 3,650 sqm at
ProLogis Park Szczecin. 79 New tenants are moving into Wars, Sawa, and King Sturge, the exclusive agent for the Zaułek
Junior, the trio of downtown department stores Piękna office building in Warsaw, announced two
PointPark Properties completed its in Warsaw: Marks & Spencer (4,000 sqm), new tenants are moving in. Investment banking
second lease transaction this year. Norbert Reserved (2,360 sqm) and TK Maxx (4,081 services company Fidea Corporate Finance
Dentressangle, a provider of logistics and sqm). Wars, Sawa and Junior are owned by signed on for 530 sqm, while law firm Grynhoff
transport services, leased 13,000 sqm of Prime Warsaw Properties, a joint venture of Woźny Maliński took 830 sqm.
40 ROMANIA Development Very strong backers | 46 Increase our customer base | 88

While other sectors have struggled during

Good news from the past couple of years, the underdeveloped
health care sector has boomed
the health front Amelia Turp-Balazs

When the state fails, private companies step in. sqm. Ryan claims this figure could double over will not compete against full-scale hospitals,
Sanador, Medicover, Centrul Medical Unirea, the next three years.  such as our facilities in Wilanow, Warsaw.”
MedLife, Romar and many other private Medicover’s revenues exceeded €200m in
Romanian health care companies have all made “In addition, we own some 20,000 sqm and 2009, and Ryan expects them to top €250m in
large investments in recent years to meet public expect to add another 30,000 sqm of our own 2010.
demand for good quality health care. The good space over the coming three years. In Ukraine
news for the real estate sector is that this trend we are forced to build our own premises as it Medicover isn’t the only game in town,
looks set to continue.  is difficult to rent property at sensible prices,” however. Local businessman Ionut Negoita,
Ryan explains. a developer and owner of hotels and
Sanador for example recently leased a 15,000 residential complexes, recently announced
sqm building from Castrum Corporation, a Medicover’s CFO says that expansion during he would create a new medical facility out of
deal brokered by DTZ Echinox. The building the crisis isn’t proving to be particularly a project originally conceived as a mall and
will be converted by September into a general
hospital with 120 beds, following an investment Sanador’s investments in the health care sector mean it’s becoming a significant player on the
property market
of €40m. “This transaction is important not
only because of its size, being the largest of its
kind in the recent past, but also by the positive
message it sends to the market,” said Mihnea


Building a full-scale hospital

means that you have multi-
million euro operational deficits
for between 2.5 at best and more
normally five years.

Serbanescu, DTZ Echinox’s general manager.

Sanador in Romania currently owns three clinics
and two labs of its own, as well as a number of
private rooms inside state-owned hospitals.

Medicover, one of the biggest players on the

CEE private health care market, plans to invest
€20m into new developments this year. “Last
year we invested some €18m into health service
property (bricks and mortar, and land) and
overall we invested over €30m,” says Joe Ryan,
Medicover’s CFO.  46 difficult. “We have very strong backers who see two office buildings into a medical facility.
this business in a 20-year time horizon. With He told local news agency Mediafax that
“This year we will invest some €20m in bricks, an IFRS consolidated net equity of over €100m construction work on a 25,000 sqm hospital,
mortar and land, and in the two years after and solid profitability, we have the resources a clinic along with space for dental and
that we expect to invest between €20m and 50 available to fulfil our plans. Building a full-scale plastic surgery offices could begin by the
€30m per year in land and buildings,” he added. hospital means that you have multi-million summer. 
Medicover’s projects are in the former East euro operational deficits for between 2.5 at
Germany, Romania, Poland and Ukraine, with best and more normally five years. Smaller (When contacted by CIJ, his marketing
its regional renting footprint currently at 35,000 scale one-day surgery or specialized facilities executive Adelina Pirvu stated that “Confort
Development ROMANIA 41

Medicover is one of CEE’s biggest players on CMU’s commercial manager. He performed surprisingly well
the private health care market
adds that CMU is negotiating during the crisis, even compared
with various local operators for to other health care operators,
the takeover of medical centers and that its business grew by
in Romania’s largest cities. CMU 72 percent last year, to €17.3m.
invested around €20m in the last The nationwide private health
couple of years into developing care market grew by 15 percent.
and modernizing its clinic Besides the opening of its new
network. Bucharest hospital, CMU’s plans
for 2010 include the extension of
“In the last couple of years we’ve the Pasteur Clinic in Cluj Napoca
opened five new locations: and of a laboratory in Ploiesti.
Constanta, Ploiesti, Cluj, Sema “We can’t estimate the turnover
Parc and Bacau, plus a stem cell for 2010, but growth in Q1 was
bank in 2009 and the first private 37 percent,” Popescu said.
maternity ward in the country,
at the end of 2008,” Alexandru Finally, operator Gral Medica
Popescu said. CMU’s expansion plans to invest €3.5m this year in
will proceed at a faster pace, finalizing new medical centers
now that the investment fund in Romania. In addition, the
Advent International acquired an company will try to get the
80-percent stake in February of support of an international
this year.  partner in order to secure the
financing for a hospital building,
CMU’s representative pointed estimated at €25m.
out that the group has

Group [Negoita’s company] cannot development and expansion

offer any specific details related is set at €15m.
to this project,” as it is still “at the
planning stage.”) Thanks to an increasing
focus on corporate clients,
Last month, another group, MedLife’s turnover grew by
MedLife, opened a new medical 20 percent in 2009 compared
center in northern Bucharest, in the to the year before. It reported
Baneasa area, and it plans to open an EBITDA of €5.6m for 2009,
two more this year, in the capital and expects this to grow to
and in Cluj Napoca. The company €7m in 2010. In November,
invested €1m in its new facility and Societe Generale bought a
will expand it with an additional 36.25-percent stake in the
€1m investment to include a new company.
surgery theater by the end of this
88 year. “This new unit will increase The coming period will
our customer base by 20 percent, also be one of intense
meeting the demand we’ve had development for Centrul
from clients, both corporate and Medical Unirea (CMU),
individuals, located in the north another major private
of Bucharest,” said Mihail Marcu, healthcare player in Romania.
MedLife’s main shareholder, at the “This year we plan to
recent medical center opening open a surgery hospital in
in Baneasa. He added that the Bucharest with 100 beds. It’s a
company will open a hospital in greenfield investment, which
Bucharest at the beginning of 2011 will us cost around €12m,”
and that this year’s budget for says Alexandru Popescu,
42 ROMANIA Office That number skyrockets | 31 Save 10 percent | 57

Europolis hopes to bring end users back to the

Orhideea to bet on office market by offering a highly efficient new
efficiency Robert McLean

Europolis has gone public with Orhideea, a Europolis is betting that when demand for office space returns, end users will be looking more
carefully at the total costs of the real estate they occupy
43,000 sqm office project in Bucharest it’s been
quietly working on for nearly two years. The fate
of virtually all new projects these days lies in
their ability to attract preleases, so developers
are listening closely to what tenants want. The
message Europolis has heard: efficiency.

Cost-cutting is now rampant everywhere, but

Europolis director Helmut Neubauer says
Europolis suggests tenants would be wise to
look under the hood of their budgets. “Driven
by the crisis, companies are finding out from
their balance sheets where their costs are
coming from, and they’re assessing very closely
where the money is going, and they’re learning
that after personnel costs, real estate is their
second biggest cost factor.”
He’ll be relying on these sorts of when it comes to staying in the black and in
Orhideea has been designed with efficiency in mind,
which should make it cheaper to operate realizations leading tenants to attracting and keeping existing staff motivated.
start looking around for options, “There’s a tendency for companies to try to
and has had Orhideea designed to pack too many people into a space,” he says.
be competitive on rent for high- Europolis has invested in a high-performance
quality space (headlining around facade along with window shading, as well as
€16.50 per sqm for preleases) but a high-capacity HVAC system that’s far more
highly attractive when it comes powerful than most other new buildings in
to service charges (€4.40 per sqm town. One statistic Neubauer says is often
per month). A common practice, ignored is the add-on factor, which will amount
says Neubauer, is that developers to just 9.6 percent at Orhideea. “You could
will produce contracts with service 57 save 10 percent just on the add-on factor and
charges estimated at €3.50, but at another 20 percent on service charges,” he says. 
the end of the year reckoning, that 31
number skyrockets. He admits, for So while it’s easy to focus on the main rent
example, that at his own company number, Neubauer says the only rational way
headquarters in America House, the to decide if you’re really saving money is to add
operational charge is €7.50. up the rent, service charges, add-on factor and
divide that by the number of people you intend
“If you can just pay €4.40 to put in the space. 
operational charges on top of a
€17.50 rent rather than €7.50 service Located a minute from the metro at the
charges, it makes a huge difference,” edge of the center by the Dombovita river,
he says. Orhideea’s service charge Orhideea consists of two 20-story towers that
are to be checked and certified by will be joined by a central, transparent bridge.
Romania’s Facility Management Construction could begin by September,
Association. though this will require Europolis to have a
bit of luck with preleasing. Talks are currently
Efficiency of space and employee underway with contractors ahead of a final
comfort are also crucial issues, both decision on who will build it.
2 June
InterContinental | 4 Nicolae Balcescu Blvd | Bucharest, 010051 | ROMANIA

Leadership in Turbulent Times

09:00 – 09:45 Market Presentation

09:45 – 10:15 Breakfast sponsored by Jones Lang LaSalle

10:15 – 11:00 Office market: dead or alive?

Bucharest’s office market is between a rock and a hard place. There’s surprisingly little top quality space near the center, but an
abundance of poor quality stock in bad locations. Will an oversupply of empty buildings kill the leasing market for new prime
offices? And will it scare off investors from Bucharest for the foreseeable future? How low will vacancy have to fall before preleases
become feasible, and before exit possibilities for developers emerge? This panel will also discuss how seriously the crisis has hurt
Romania’s position as an investment target for institutional investors.

11:00 – 11:45 Industrial sector: Stuck in the slow lane

With a huge consumer market and a skilled, work-hungry labor force, Romania’s got the basics for a strong logistics sector. But
with the collapse in foreign investments, little project financing and the lack a real motorway network, no one’s in a rush to build
industrial schemes across Romania. Are there any signs of growth? Do developers have any chance of selling their schemes, even
if they managed to fill them?

11:45 – 12:15 Coffee break

12:15 – 13:00 On the edge: Retail developers playing a high stakes game
No one doubts that Romania’s consumer market is vastly undersupplied, but that doesn’t mean it can support an unlimited
amount of new shopping centers all at once. Serious developers are working on serious projects, but so are some highly
leveraged players who came in at the last minute, looking for a quick profit. What sort of rent reductions are being used to keep
tenants in their shops? How much are bad projects ruining the market for quality ones? Are they presenting opportunities for
distress hunters?

13:00 – 14:00 Lunch

Partners Media Partner Organized by

To register or for more information regarding CEDER 2010 please contact:

Robert Fletcher | CEO | +48 506 074 042 |
Adela Balan | Sales & Events Manager | +40 743 794 364 |
or visit our website
44 ROMANIA PLP Being unrealistic on costs | 13

Costs under control Developers can’t succeed without keeping

at the latest PLP costs under control, but taking things too far
can get them into market trouble 
How best to keep control of building costs and as finishing materials and technical equipment, Keeping an eye on costs shouldn’t
mean cutting corners
issues concerning cost estimation were the like boilers and electronic equipment, which
topics of the latest PLP seminar in Bucharest, are imported into Romania, have not reduced
held in April as part of a series organized by significantly in cost.”
Roberts Publishing Media Group together with
the RICS. Bradley said that other problems arise when
developers undertake construction with the
Martin Bradley, who has been working as sole objective of procuring everything as
senior commercial manager for the Romanian cheaply as possible. “This causes a problem for
team of AECOM since 2007, provided valuable end-users in that when the project is finished
information to an audience of developers, it has lost its attraction and appeal, and it may apartment projects. They build the project
surveyors, architects, brokers and contractors. lose out to other projects. Currently, end-users to a high standard which may not match the
He offered real-life examples of building cost have considerable choice in the market place,” aspirations of the end-user. Hence it is very
13 problems, such as clients being unrealistic Bradley reminded the audience. important that the developer understands his
on costs, and trying to take advantage of the target audience,” Bradley said.
current economic crisis. “Some developers A third problem that Bradley identified
believe that costs are lower than they actually was the unrealistic split of major projects His advice to investors was to develop realistic
are,” Bradley said. “There may have been into high, medium and lower class finishes. estimates, to understand the target audience
some reduction in the cost of labor and base “Some developers do not take into account and to maintain the balance between price and
materials such as concrete, but elements such ‘affordability’ when constructing large quality.

w w w . c i j j o u r n a l . c o m

May 20, 2010

Valuation for secured lending
The importance of Valuation Standards and how they are interpreted by
Lenders and Borrowers.

Presented by: Christopher Shonn & Charlie Henry (both from NAI Property Partners)
This session is aimed at developers and those involved in property transactions.

For further information or to register please contact: Organized by:

Adela Balan I mail: I tel.: +40 743 794 364
Location: InterContinental, Bucharest, Time: 9 – 10 coffee break, 10 – 12 seminar
Independent hotels | 51 Hotels ROMANIA 45

Adela Cristea (Hilton Worldwide) reported on

Hilton eyes Romania’s hotel sector, along with Hilton’s
ambitious plans on it
Romanian growth Amelia Turp-Balazs

“At a time when residential, office and industrial Nicolae Minea. The Doubletree by Hilton in particularly in cities which have more than
developments are experiencing commercial Oradea is owned by SIF Banat-Crisana. This new 100,000 inhabitants, like Brasov, Timisoara, Cluj
challenges, the hotel development business 147-room hotel will require a €15m investment. Napoca, Craiova and Iasi.
is continuing to perform relatively well,” Adela
Cristea, Hilton Worldwide’s development director “Hilton Worldwide has a range of brands, Hilton Worldwide’s plans for Romania are
for Europe and Africa said at a recent PLP seminar suitable for many different types of locations and part of its wider development strategy, with
in Bucharest. Despite the severe economic markets,” Cristea pointed out during the seminar development growth expected in Europe and
downturn, Hilton Worldwide is actively working to which was organized by Roberts Publishing Asia. The company currently has more than 180
increase its presence on the Romanian market. Media Group at the InterContinental hotel. hotels operating in Europe and has added 60
Cristea said The Hampton by Hilton brand, of new hotels in the last three years. Currently in
In 2009, it opened a Hilton hotel in the Saxon which there are more than 1,700 worldwide, Europe there are more than 70 Hilton Worldwide
town of Sibiu in southern Transylvania (the second would work in some of Romania’s smaller cities. hotels in the development stage, one of the
Hilton in Romania), and announced a Doubletree The company also offers mid-market brands like strongest pipelines in the company’s history. One
by Hilton for Oradea, which is expected to open Hilton Garden Inn and the full service Doubletree of the big opportunities it sees in Europe is the
by the end of 2010. Additionally, Hilton Worldwide by Hilton and Hilton Hotels brand. Conrad and fact that just 25 percent of all hotels are branded.
recently announced it plans to open Hampton by Waldorf Astoria are its luxury brands.
Hilton Brasov in 2011. 51 “Independent hotels in Europe offer us the
Cristea added that she is currently negotiating opportunity to expand our brand portfolio,
Sibiu Hilton was a conversion project, requiring with local partners to open new hotels in particularly through hotel conversions and
a €30m investment by local businessman various other locations across Romania, franchise agreements” Cristea said.
46 SLOVAKIA CEDES Survey Minimize their losses | 61 Deal with problematic assets | 87

There’s unlikely to be a rush of distress

CEDES 2010 Survey hitting the market. At least, not for public

Based upon your own observations, and market will start to slowly turn around this CEDES participants took part in a
post-conference survey for CIJ
what was discuss at CEDES 2010, will year as many tenants who are and were able
Slovakia’s real estate market turn around to expand were employing a waiting strategy.
in 2010 or in 2011? Later? Will there be any But as the potential bottom is reached, the best
institutional transactions this year?  opportunities will become an object of their
interest. However, I do not think the market will
Andrew Thompson (Cushman & Wakefield): ever go back to its pre-crisis figures, and the
The real estate market will make strides in effect of the downturn in relation to national
2010 – shoppers will spend more, industrial unemployment and decline in disposable
production has rocketed already which income will affect the retail market over the
should encourage development, exports will mid-term basis. 
increase, encouraging job growth. In addition
the supply and demand of, particularly office, I presume that within 12 to 24 months we may
but also other markets, is likely to come under see some transactions as current institutional
pressure although banks need to get on- owners will see their figures dropping. As is
side.  Developers will need to be more creative the case with other investment commodities,
to get the deals that are there to work and when such events occur, there has to be at least
their advisers will be more active in this regard. a handful of investors who will suffer from the
Frankly, this will help the industry and the classical investment sentiment and will want
market to mature. 61 to minimize their losses by selling at present
conditions, as their assumptions for the future
Yes, there will be further growth in 2011 when are negative.
I think people will “feel” things moving – after
elections etc. Elections are actually quite Do you expect any significant change in the
important, and it would be nice if we had some availability of distressed assets, or will banks
more pro-business leadership.   be able to continue solving their problems in
Olga Humlová (Salans): Things are starting to Wilson: In my view, the banks will continue
happen, but it is very slow still. If there are are Thompson: Some requests for equity 87 to deal with problematic assets behind closed
any institutional transactions, they will be rather (including searches for JV partners) and banks doors to avoid public knowledge of the level
towards the end of the year.  may get tougher or call in some loans, although of distress and to avoid being the bank who
it sounds from CEDES as though the legislation repossess. I believe that the banks do see light
Bryan Wilson (Wilson & Partners): I believe protects the borrower. I am sure there are at the end of the tunnel. They may even be
there may be one or two transactions this year plenty of discussions happening and this is, in more prepared to re-negotiate financing terms
if sellers are sensible about pricing given that many ways, healthy. with borrowers rather than force them to hand
there have been a few buildings on the market the keys back.
for a while with quite a bit of interest. However, However, I expect most of the real activity will
I do believe that the market is still struggling be on poorer products. I think that debt service Kalma: Distress will be dealt with mostly in
and that 2011 is the year we may see some coverage is the key issue and development is private.
return to normality simply going to be quieter than the last five
years so vacant space on existing product Fridrich: I believe Slovak banks were
Marek Kalma (Penta Investments): It’s hard to will continue to lease up, and rents may well considered conservative even before the crisis,
predict, however the end of 2011 seems to be increase to shore up and meet this DSCR and therefore I don’t believe there will be too
the time when [the market will start] moving banking covenant.  many distressed assets placed on the market
again. There’s a much deeper differentiation (both from private and corporate clients).
between “good” and “bad” projects though. Humlová: It looks like rather the latter However, to completely reject this would seem
(privately), unless the debtors start to hand over foolish to me. After all Slovakia has a market
Marian Fridrich (Tatrabank): I believe the the keys on their own. economy with all its instruments.
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48 SLOVAKIA CEDES 2010 There are huge uncertainties | 22 Tenants are pushing | 107

CEDES 2010: The panic of 2009 may be over now, but

No easy answers to property professionals in Slovakia are
cautious at best about the future
the crisis
After being held for five years in the same place, According to the retail panel, store owners are waiting to see how Eurovea does before signing on
to new schemes in the Slovak capital
the property conference CEDES 2010 moved
to a new venue. The new Sheraton hotel, along
with the rest of the recently opened Eurovea
development, was keenly anticipated, as one of
the largest and most ambitious projects of its
kind in the country.

And judging from the tone of the discussions

at CEDES, it could take quite some time before
anything similar is attempted. A cast of speakers
gathered for four panel discussions that sought
answers to the basic questions of what stage
we are at in the crisis, how best to survive it and
how long it’s likely to last.

According to the first panel, moderated by

Hugo Green of PwC, Slovakia has already seen
the worst of the crisis, but it’s unclear still how
much longer the pain will continue.

“We reached the bottom in the second quarter could now be moving into their lowest points. value is and all the big renegotiations are just
of last year, and the economy began to grow On the other hand, she predicted that domestic about to begin.”
from that time,” said Mária Valachyová, a senior consumption would remain stable, despite the
22 analyst Slovenská sporiteľňa. “Of course there potential for rising unemployment, as wages The retail panel, entitled “Positive retail
are huge uncertainties about what will follow, could rise slightly. strategies for negative times” was led by Robert
and much will depend upon foreign demand. Daniš, a partner at the Wilson & Partners legal
Slovakia has been proven to be very dependent Radoslav Jakab (Slovenská sporiteľňa) firm. He quizzed panelists about the level of
upon what’s going on in the EU. We’re not an optimism they were able to muster when
island here.” pushing their projects and activities. Asked
about retailer appetite for expansion within
Valachyová warned that while the industrial Bratislava, Marek Kalma (Penta Investments)
sector appeared to be moving toward growth said his company’s project was fortunate to be
already, the property and construction sectors getting underway now. “They’re cautious,” said
Kalma. “They’re waiting to see how Eurovea
Robert Daniš (Wilson & Partners) does, but from the beginning of the year, we’re
seeing a big impulse from retailers that want to
sign up for space. It’s based on predictions for
2012 to 2014, when we’ll be open, because they
see a bright future.”

Andrej Glézl, a manager at KPMG Slovakia, said Marco Cinelli, managing director of the fashion
that the denial phase of the recession was over retailer Calzedonia, said at this point, he wasn’t
and that the hard work was about to start. “We concentrating on any particular type of scheme
are now beginning to dig down, roll up our or location, saying that ultimately his company
sleeves and begin the restructuring work that will need downtown, high street and typical
needs to be done in such a crisis,” he said. “The mall locations. “What we are looking for is more
real settlement of things, finding where the the quality of the project in terms of tenant mix,
Mike de Mug (Ballymore Properties) many developers of commercial real estate the end of 2008, opportunistic investors have
were building with a view to sell their project been making the rounds of Central and Eastern
as quickly as possible. This was feasible while Europe on the hunt for distress. Precious little
the market was booming but has now become has been found, but there are still those who
a statistical rarity. The result is that both believe its time is coming.
developers and some investors are being forced
to hold on to their buildings for a longer period The members of the CEDES 2010 panel,
than they originally envisaged and that this however, were unable to reach a definitive
necessitates a long-term management strategy answer as to if or when. Humlová tried
to be created. to provoke the two bankers on the panel
(Radoslav Jakab of Slovenská sporiteľňa and
All three speakers, Jozef Halasz (King Sturge), Gréta Slaninková from UniCredit Bank Slovakia),
Pavel Klimeš, (Euro Mall Centre Management) but they were defiant in insisting that Slovak
banks had never given in to the temptations
number of shops and affordable location,” he Olga Humlová (Salans) of offering easy credit. “The banks in Slovakia
said. financed on conservative principles, so
annuities were for 20 to 25 years, and usually
Mike de Mug, group retail director at Ballymore full debt service was paid after a small grace
Properties, admitted that while he’d prefer to be
able to say that it was still a landlord’s market, Gréta Slaninková (UniCredit Bank
the situation has shifted somewhat, putting Slovakia)
tenants more in the driver’s seat. This didn’t
mean Ballymore was so desperate that it would
accept any terms at all, and there are some
interesting omissions to the Eurovea tenant
list. But there’s little doubt that filling shopping
malls is a far more difficult job than it once was.

Laurie Farmer of Spiller Farmer warned that and Roman Tožička (Cofely), confirmed that
there is an increasing number of retailers who 107 tenants are pushing for lower rents while
want to open new stores, but they lack the owners are yelling for service charges to be
finance to complete their fitouts. “They need to reduced. Greater efficiencies are possible,
tell us whether they actually have the money they said, but cost cutting can only go so far.
to do the projects,” he said. “They want to Toward the end of the panel, a discussion over period, and there were no interest-only loans
expand and they have board approval for it, but sustainability broke out, with debate centering provided,” said Jakab.
sometimes you can find they signed leasing, over whether the push toward green buildings
and they’re not in the building because of was achievable or simply naive idealism. Slaninková said that the investors currently
finances.” facing problems were generally the clients of
The final panel, moderated by Olga Humlová, German and Austrian banks who made loans
Andrew Thompson, managing director of a partner at the legal firm Salans, produced almost exclusively on the basis of calculated
Cushman & Wakefield, moderated an important the least conclusive result, mirroring in its way LTVs. That’s a potential problem, she said,
discussion on property and asset management. the current predicament of its subject: distress. because banks in Slovakia today don’t tend to
His discussion centered around the fact that Since the crisis erupted in full force toward have the appetite to refinance such clients. 

General Partner Partner Associate Partners Media Partner Organized by

50 REGIONAL Banking Credit crisis powder keg | 17 It’s not liquidity | 46

Can regulatory Part II of our Banking Focus considers how

uncertainty over new financial regulations
clarity unlock isn’t making lending any easier

finance? Robert McLean

It’s long been fashionable for banks and get a third opinion, just to avoid overlooking The main stumbling block, he says, is
financial institutions to blame poor financial something. In my opinion, this is one main working out an effective model that won’t
results on overly strict regulations. What’s odd 46 reason why there is a kind of credit crunch. It’s kill off business or easily avoided. “These
is how the crisis has stood that time-honored not liquidity, that’s been solved for the most part. measures need to be taken on a global level,
tradition on its head. Banks have been revealing It’s now nervousness that we may make a wrong otherwise you’d open up fantastic gaps for
stunning profits despite the fact that credit decision, we maybe have overlooked something. arbitrage opportunities. Sophisticated global
has been super-tight, and virtually the entire financial groups can easily relocate their
Western world has been casting about for a “I can understand my risk managers, but on branches and subsidiaries or even their head
new, stricter model of regulation.  the other hand, we have to realize that we also offices to places which would be better than
need some sort of cash flow to survive in the others.”
Arguably, the biggest issues on the plate of future.” Not just to show a profit, he says, but
regulators today aren’t so much concerning the to meet whatever the new requirements of the For all the regulatory mumbo-jumbo out
financing by banks of real estate projects, as regulators will be for more equity, or payments there, what’s at stake is really rather basic: how
they seem to be how to finance that financing. into special funds. profitable should banks be? It’s quite simple,
Shoddy, corrupt rules and controls over the really. As with other companies, the more risks
mortgage bonds that funded US sub-prime Petr Kříž, a partner at PwC in Prague, says there’s they are able to take, the more profitable they
mortgages (themselves woefully mismanaged) no doubting the momentum toward tougher can be. 
17 lit the fuse on the credit crisis powder keg.  regulations. “I would say it’s clear that we should

This is frustrating for European real estate

professionals, who complain that the mildly
excessive exuberance on the continent has
been unfairly punished in what they see as a
US-instigated crisis. However, the price to be
paid for forgetting that such crises can and do
occur is clearly going to be tighter regulations
on lending and finance, and the impact will
mean less money to throw about for everybody.

Or will it? Taken from today’s perspective, it

could be argued that the uneasiness banks
have toward lending stems precisely from the
fact that no one can predict what regulators will
be demanding of banks in the future.  © 3dbrained |

From a journalistic point of view, it’s painfully

obvious how touchy a subject this is, as
numerous banks contacted for this article after
days of deliberation finally responded with
words like “we do not choose to comment on
this issue at this point in time.” And bankers who
agreed to speak were unable to do so freely, at
least on record. expect quite heavy financial regulation reform, It’s fine for an angry public to say that banking
because there is common interest coming from should be a bit more boring, less flashy and
“There’s so much less activity on the real estate the regulators and the politicians to ensure that simply less profitable. But at a time when banks
market, because it takes ages until you can a future crisis, which will inevitably come, won’t need to be not only storing away more cash
make a decision,” says one German real estate have such a deep and devastating effect on the for a rainy day, but also raising new equity, it
banker. “You do a second due diligence, you global economy.” presents a dilemma. 
Banking REGIONAL 51

Our German real estate banker imagines a With a mass of refinancing With new regulations still not in place, banks don’t know how
much they can afford to lend
presentation to a group of potential investors still to be handled across
for a new issue of shares in his bank.  Europe (€970bn according
to CB Richard Ellis, as we
“What will the reaction from them be if you say: reported last month), the
‘I can’t give you a clear picture right now if you’ll priority for real estate
get 5, 10 or 15 or 20 percent return on equity banks must be to figure
because our politicians aren’t sure how we have out how to resolve that
to change and our cash flow is unpredictable issue. Hitting up existing,
now, because we’re triple checking everything or new shareholders for
so everything takes much longer.’ I mean, would fresh equity would be
you invest?” ideal. It will be difficult
to do so, however, until
“When a client comes and says he wants money banks have a better
for a project, but he’s not sure if he owns the understanding of the
land and if he can get planning, we say ‘thank sort of returns they can
you, come back when you’re ready.’” reasonably offer.

Absolutely no connection | 9 The final principles of regulation | 23

Regulatory reform Only Česká spořitelna managed to answer a

set of questions from CIJ about the impact of
a touchy subject financial reguation reform

Is uncertainty over the level of reserves of the regulatory condition will have an impact competitive environment you believe to be
banks will need to keep making them less on lending. Commercial real estate will not be emerging. 
likely to lend in general and as well to the an exception. But we cannot currently foresee The presence of banks on CEE real estate market
property markets? 23 the final principles of regulation. will depend on the speed of the economic
The current stagnation of lending activities is recovery. Because the of majority of banks are
mainly driven by low market activity. The real Do you expect some of the other banks not monotonic, which means that they are not
estate market in particular has been affected by currently active in commercial real estate to involved only in commercial real estate business,
the crisis and therefore there are only a very few leave the market in CEE? Please describe the we do not expect any huge changes.
9 projects which are realized. There is absolutely
no connection to the level of reserves. A sample of no comment responses
Are you at all concerned that the perceived
need to tighten banking regulations ”After consulting with my colleagues to express our hesitation to comment
worldwide could go too far and seriously in the department about the analyses, on the below listed questions.”
disrupt current commercial real estate we would like not to comment on “While [the bank] is in an extraordinarily
this issue so far as there are still too good position and kept its good public
lending practices?
many factors that are unclear...” rating also during the crisis and could
New regulations are currently the subject of
“We regret, after consultation with our report excellent annuals for 2009, we ask
discussion among regulators and commercial
press and communication departments, for your understanding not to answer.”
banks. No one can currently predict the result
and final regulation. Obviously any tightening
52 REGIONAL Retail parks Critical mass | 17 The tenant mix is different | 54

Retail parks are Tomas Rask, MD at Inter Ikea Center Poland

envisions a new type of hybrid retail park
evolving that’s similar to today’s shopping malls

Has the consumer market in Poland suffered in any way that could give
retail developers headaches?
Private consumption in Poland is in good shape, unlike in many other Eu-
ropean countries, so that answers your question in straight terms. Looking
more closely, of course, there are some retail categories that could be faring
worse than others. Some retailers are suffering not just because of turnover
but also because of the financing environment in which they’re struggling
to get financing for expansion.

Which retail sectors have suffered more than others?

Fashion is down more than one would expect. In other branches, there are
issues with retailers that sell goods that consumers don’t need here and
now, like furniture. There’s an exception to that rule, however, as electronics
retailers are doing very well.

Are retail parks less vulnerable when a crisis happens than malls?
The range of tenants you find in retail parks makes them a more sustainable
concept. With malls, you need to come up with critical mass. It’s different
17 from city to city, but if you’re below that critical mass you’re not going to
survive. If you build a mall that’s too small, it’s not going to work. As for retail
parks, you can have one with only an Ikea store in the beginning and add
other tenants later on. You’re less dependent on that critical mass in terms
of size and number of tenants. Operational costs and rental levels are lower
in retail parks than in malls, because the land is cheaper, and you don’t have
a lot of common areas to maintain. Rents are also lower because tenants
usually occupy much bigger units than in the malls.

How many functioning retail schemes do you have in Poland now? have a gap on the market for a couple years with no new projects, except
Eight, including our Port Łódź shopping mall that opened most recently in for ours. 
March. It’s averaged about 15,000 to 20,000 visitors daily since.
Has the concept of retail parks that you’ve done so far aged in any way?
And how many projects do you have underway? Is it going to change?
We’re now working to get the construction permit for the €75m Bulwary Yes, our strategy for the future is actually not to do retail parks the way we’ve
Poznańskie in Poznań. It’s an open-air shopping village, inspired by similar been doing them. Naturally, new projects will be developed in connection
projects in the US. We want to open it in September of 2011, after starting to Ikea stores but with big regional shopping centers accompanying them.
the construction this spring. It’s 60 percent pre-leased already. We also Their size will be similar to Port Łódź. There may be different configurations
secured land in three locations: Lublin, Częstochowa, and Świlcza, near with a hypermarket, for example, which we don’t have in Łódź. But the direc-
Rzeszów. We’re also looking to buy land in many other locations, in or close tion we will be going in will be towards the mall format.
to cities of 150,000 people or more. If you look at retail parks in Poland, furniture retailers dominate, whereas
54 when you look at such projects in the UK, the tenant mix is different, with
What’s the minimum size of land that you would consider for a retail more fashion retailers successfully leasing big units. So we’re working to
park project? change our tenant mixes in Poland in the direction of those in the UK. We’re
The minimum is 30 to 35 ha. aiming to have projects that will become more like malls than retail parks.
The strategy is also to dominate the new markets that we’re going to go
Who finances your projects? into. We won’t build small. In Częstochowa, for example, we will have to
We do so ourselves. We’re not dependent on other investors. It’s a strength build bigger than GTC. The exit strategy will remain unchanged. We don’t
that shows in difficult times like these, when unlike many other developers, sell our projects, as we think that tenants like long-term stability in terms of
we can plan and carry out projects. Once the economy turns, we’re going to projects’ ownership.
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Bought as much land | 22 Break clauses | 70 Retail parks REGIONAL 55

On the face of it, lower cost retail parks

and strip malls should be doing a good
Retail parks also business during the crisis. In fact, it's tough
feeling the hurt everywhere

Robert McLean

The rush to retail parks and other alternatives to The boom times for retail parks peaked in 2007, along with the rest of the real estate industry
the shopping mall format in Central and Eastern
Europe ended almost as abruptly as the rest of
the development market once the crisis set in.
In fact, the reality is that the competition from
malls and a change of strategy by retailers is
forcing a major rethink from the developers of
retail parks, strip malls, and everything else that
isn’t a mall.

Marek Kalma, sales director at the Slovak

developer Penta Investments, is actually
working on both at the same time for that
company’s enormous effort, Bory. Located on
the western edge of Bratislava on the motorway
toward Brno, the original concept involved a
huge shopping mall with a sizable retail park
tacked on. 

Kalma insists this wasn’t simply a matter of

buying as much land as possible and then
figuring out what to do with it. Back in 2006,
when it commended planning the scheme, the
company contacted numerous retail outlets to
determine what sort of demand it could expect.
“We thought it was a good location, so we currently creating a discount center profile for Viktor Csedrik, a retail services negotiator
decided to see how much interest there would his company’s projects. at Cushman & Wakefield in Budapest, says
be for the retail part of the concept, and then increased retailer demands for fit-out costs to
22 we bought as much land as we thought we In fact, this illustrates a trend across the region, be covered by developers, and for the inclusion
needed according to that.” in which retail parks and even strip malls are 70 in leases of break clauses after two or three
feeling the pressure from under-pressure mall years has contributed to a strangling of new
He admits that the crisis has caused a developers. “You have retailers who usually you supply. On top of this, he adds, rents have
substantial shift in plans, which Penta has find in retail parks because they have lower decreased up to 40 percent for parks in smaller
reacted to by reducing the size of the mall operational costs, lower fit-out costs and so on, towns.
by 20,000 sqm. “Demand is slower with the but now they have access to reasonable space
retailers in the retail park and its slower with in shopping centers for nearly the same price,” Kristek says in Slovakia and the Czech Republic,
the retailers in the malls,” he says. However, a says Beatrice Mouton, CEE director of retail for the boom in retail parks ended in 2007, with
contract with one of the anchors, Metro, was Jones Lang LaSalle. a drop in 2008 sliding further still in 2009. The
signed earlier this year, and talks on finalizing biggest shift in the supply pipeline for the
a deal with Bauhaus also appear to be on Jiří Kristek, a retail parks specialist for Cushman future is likely to be that small towns of 20,000
track. & Wakefield, says there’s more going on than where parks were once being planned aren’t
just a matter of pricing. “Some retailers from likely to see those projects completed.
If anything, the crisis has hit Romania even retail parks weren’t welcome in shopping
harder. The developer Red, for example, centers before because they were more “The retailers are focusing on bigger towns
is repositioning several of its projects. For discount oriented, but that’s changed. A now. In the past, a year or two ago, the focus of
example, rather than building an upmarket few years ago there was no interest to put retail parks was on smaller towns but now these
shopping center in Braila, says international discounters in malls. Today, they are a good towns aren’t of interest for major retailers.”
director Andrew Hardy, the developer is attraction for customers.”
56 REGIONAL Events


Volcanic ash failed to stop Cityscape Abu Dhabi from going forward in April, but it gave organizers a chance to quash fears about the event’s future, given the gloomy
predictions for the region’s property markets. More than 250 exhibitors gathered from 36 countries for this event, which provided a showcase of the city’s ambitious plans.

Sheikh Mohammed


Irish developer Ballymore officially opened Eu-
rovea to the public on April 24, after six years of
planning and construction. With the new hotel and
mall already completed, the final public areas were
finally handed over to the city. The €450m invest-
ment is Slovakia’s largest mixed-use development.
Ballymore founder and CEO Sean Mulryan said the
Sean Mulryan and Mayor of project pulls together everything the company has
Bratislava Andrej Ďurkovský
learned about large-scale development.


EXTENSION The Prague 2 mall held a fashion show designed to get shoppers through the door. Finalists from
Fashion Arena Outlet Center on the edge the Czech Miss beauty pageant were on hand to promote the latest fashions along with a popular
of Prague is expanding despite the crisis. moderator named Vlasta Korec.
TK Development and LMS Outlets laid
the cornerstone for the extension in April
for the work which will be completed by
the end of the year. This phase will add
7,200 sqm to the center, enough room
for 37 new stores at a cost of €6.2m. The
general contractor is GEMO Olomouc.

Cornerstone ceremony in Štěrboholy

Appointments REGIONAL 57

Colliers International Poland has appointed Aleksander Karkut as joint head of its valuation department. He will
co-manage the department with Ewa Czarnecka, partner at Colliers International Poland. Karkut has more than 15 years
of industry experience. He began his career at PricewaterhouseCoopers Real Estate and moved on to Knight Frank and
Savills, where he oversaw valuations at both agencies. Most recently, he was the associate director and head of the
valuation advisory services department for Cushman & Wakefield’s Moscow office.

CB Richard Ellis has announced several key promotions in Poland. Maciej Wójcikiewicz is
the new senior director of the valuation department. He joined CBRE in 2001 and specializes
in valuations of industrial, office, retail and residential properties. Joanna Mroczek will be the
director of the company’s research and consultancy department. She has been with CBRE for
nearly four years, heading a team that analyzes all aspects of the Polish real estate markets.
Radosław Wawrzyniak is now director of global corporate services. He joined CBRE in 2006
and has almost 15 years of experience in various aspects of the Polish commercial real estate

Stefan Camphausen has succeeded Christoph Kohlhaussen as chief financial officer and vice president of the
Executive Board for Hochtief Polska. He has taken over responsibility for all commercial functions. Stefan Camphausen
joined the Hochtief Group in 2006. Before joining Hochtief, Camphausen held various commercial positions at different
companies outside the construction industry.


May 13 | Budapest | September 8 | Prague | November 17–19 | Cannes |

May 20 | Bucharest | September 21 | Prague | November 24 | Prague |


May 25 | Warsaw | September 22–23 | Prague | November 30 | Prague |


May 27 | Prague | October 4–6 | Munich | December 2 | Budapest |


June 2 | Bucharest | October 4–7 | Dubai | December 7 | Bratislava |


June 7–9 | Jeddah | October 19 | Prague | December 9 | Warsaw |


June 22 | Prague | November 4 | Warsaw |
58 MAY 2000 Ten Years Ago

Warehousing construction
picks up
Last year may have been a good year for the had the original al
developers of warehouses and the construction exclusive on what
companies that build them, but the indications was Prague’s first
are that the sector is set to grow even more this and last spec ware-
year. The combination of increased foreign house deal) admits
investment and the expansion of international in retrospect that
retail chains is resulting in ever greater needs the location wasn’t
for storage space. Moreover, the trend is as advantageous
expanding beyond the Prague market into for companies as
Moravia as secondary logistics facilities begin the D1 highway.
to become must-have items. Some companies
Curiously, while there appears to be strong require the ability
demand for warehouse space, the idea of build- to deliver goods Even warehouses near the Prague airport were a tough sell ten years ago
ing such projects speculatively seems to have within 24 hours to
been well and truly buried. In large part, this is any location in the country no matter what the increasingly looking for logistics solutions.
probably due to the lack of success enjoyed by weather, and Stránský said that studies have More and more, he said, companies are asking
ProInvest in leasing space in its Airport shown that this is possible only from the D1 logistics companies to handle their transport
Logistics Park. side of Prague. and storage needs. This has been good news for
Hadley Dean of King Sturge says the park has Such figures play into the hands of one of companies like FM Logistics which looks set to
gotten a bad rap for items which are manage- Colliers’ biggest clients, AIG/Lincoln, which expand its existing warehouse in Tuchoměřice
able, in particular the traffic argument. “As long has been building warehousing space success- quite significantly, further proof of the consoli-
as you get a security guard who can keep trucks fully along the D1 in Jesenice, two exits out- dation taking place in the industry.
from parking where they shouldn’t, it can be side Prague. While the western side of the GBB’s warehouse center in the town of Rudná
managed,” he said and insists that the buildings highway is mostly filled up, the American is perhaps the most obvious success story in the
offer first-rate, modern warehousing. But he developer is now reported to be moving sector. Begun in 1996, the project has grown to
concedes that the market is tough at the moment across the road to begin a major development 60,000 sqm of leased commercial space. This
and that his team is now offering more com- there. year, the developer has received planning per-
petitive rates than before as well as a DM 5 per Stránský said that one of the more interesting mission for zones three and four and in late May
sqm for the remaining months of 2000. trends he’s noticed is that rather than looking received construction permits for the infrastruc-
Karel Stránský of Colliers International (which simply for warehouse space, companies are ture work.

There’s been an almost unseemly rush for num that we first heard about the impend- cance was the exit of Mr Rosebud, who left
the door in the past weeks by people decid- ing airline ash-out, as he was worried he InMy Opinion after its merger with the bank.
ing to take up other positions. The question wouldn’t make it back for a couple days. Once He deserves credit, you’d think, for stick-
of pushing on, or getting pushed, is pretty he did get to his email, he was announcing ing with it through what we hope were the
much irrelevant these days as we hurtle to he’d switched to a company with one fewer toughest times. Perhaps we’re most curious
what can only be hoped is that final bottom. initials. That lunch in Warsaw was interesting about where Mr Turban will end up after
Certainly with bomb scares in the Big Apple, for the off-record savaging agencies took at apparently resigning from Myopia. 
a gargantuan slick in the Gulf of Mexico and the hands of some investors present for their
lava spewing mountains up north, things valuations. Not that anyone was complaining
really do look Armageddon-like. It was over a couple years ago on the way up, of course. 
lunch in Warsaw with Mr MegaGoodPerAn- Another push/shove situation of real signifi-

We’’d llike to thank all the sponsors of DBH for their support
ing these turbulent times, as it’s created a monthly meeting
nt tthat is sorely needed in today’s marketplace. We’d like to encourage others to
DBH events
tep forward to help maintain the tradition. In the event there is no sponsor, there
p fo Hungary
will be a paying bar.
October 15

Tamas Sellyey (Indotek)

November 5
Indotek, which sponsored 2009
the April DBH in Budapest, is
planning to expand its portfolio March 4
of class B real estate by around
50 percent. But with the non-
prime market so unstructured, Diána Kiss, Andrea Beliczky, Helena Huszta, András Kovács (Orco) and Szabolcs
this could take quite a while to Gabriella Aradi (Indotek Group) at DBH in Koroknay (Colliers International) April 1
achieve. Budapest 2010

May 6

June 3

Supporting HU
Partner for 2010
Roberts Publishing CEO Robert
Fletcher at the most recent DBH
evening in Warsaw. With its
conferences CEDEP and CEDES
Stephen Saraarcco (Bank Center) Radomir Milosevic, Andrew Jackson behind it, RPMG will be finishing out
and Sebastien Hidreau (King Sturge) (First Title), Mike Edwards (Cushman & its spring conference season with
September 10
Wakefield) at the Budapest DBH in April CED-Invest in Budapest (May 13) and
CEDER in Bucharest (June 2).
October 22

February 17

April 22
Kacper Remiśko (DTZ), Agnieszka
Wierzchowska (CBRE), Kamil
Małgorzata Wiśniewska (King Sturge),
Kwiatkowski (DTZ), Aleksandra Patrick O’Gorman (CBRE), Philip Evison Olga Kowalska (Knight Frank),
May 27 Event available
Biesiadecka (Colliers) (Evison & Co), Padraic Coll (Keyinvest) Andrzej Hleb-Koszański (King Sturge) 2010 for sponsorship

June 24

November 26

Silviana Badea – Country February 18

Roxana Bodo (Building Support
manager RO (VALAD)
Services) and Cristina Pop (Valad) at Catalin Hanu (CTP Invest), Adela Balan 2010
Valad has begun constructing a (RPMG), Ciprian Paltineanu (Unicredit) at
the DBH in Bucharest
9,000 sqm building at its the Bucharest DBH
logistics development called March 25
A1 Park. Work on the building 2010
will take about a year.
April 15

May 20

Natalie Cooper (Aviva Investors), June Event available

Ben Bannatyne (ProLogis) and Tom Maja Biesiekierska (Valad) Victor Constantinescu (Biris Goran) and 2010 for sponsorship
Gibney (Epstein) Blake Horsley (Colliers International)
60 REGIONAL Education High Return on Equity | 84 A standard cap rate range | 181

The fundamentals For those not involved in real estate

transactions on a daily basis, here’s a crash
of real estate course in the basics

transactions Marc Folch, Richard Ivey School of Business

Real estate can be an excellent way to diversify The valuation of real estate is one part art, one part science
and supplement the returns of a large financial
portfolio. However, as with any other asset class,
successful investment requires expertise in the
nuances of that asset’s unique traits.

This article covers the basics of real estate from

a portfolio manager’s perspective. It examines
how money is made in real estate, how real
estate is valued, the differences among various
types of real estate, and finally, how to do basic
financial modelling such as Net Present Value
(NPV) and Internal Rate of Return (IRR). With
the proper knowledge and strategy, real estate
can be one of the most stable, controllable and
inflation-hedged investment vehicles available.
Long term, it has historically outperformed


There are generally more elements involved in
real estate’s profitability equation than simply
“buy low sell high,” although with certain types
of real estate (such as vacant land), the equation the free cash flows since the amortization is Property Value $100,000
does remain that simple. In most other cases, not easily available for use in managing the Mortgage (25-year amortization) 80,000
there are several sources of profitability that property or for investing elsewhere. Equity 20,000
make a significant contribution to the bottom ANNUAL PROFIT
line: These three elements of profitability often Cash flow 1,000
1. Property value appreciation (e.g. buying Mortgage Amortization 2,000
combine to create reasonable but potentially
property for $100,000, selling it for $150,000) Appreciation 3,000
unimpressive returns on the overall asset value;
TOTAL $6,000
2. Cash flow (rental income minus operating however, real estate is rarely bought for 100 per
costs, debt servicing costs and taxes) Return On Assets (ROA) 6.00%
cent cash. It is the ability to use leverage that
Return On Equity (ROE) 30.00%
a. For most rental properties, property makes real estate so attractive and profitable.
value is largely determined by cash flow, As can be seen, despite a modest Return
as discussed later, so the two are closely on Assets (i.e. the $6,000 profit divided by
A Numerical Example the $100,000 asset value), the investment
related. However, other market conditions, Let us take a look at an example where a
such as the trendiness of an area, can provides an excellent Return on Equity (i.e. the
property is purchased for $100,000 with an $6,000 profit divided by the $20,000 equity
significantly affect values as well
$80,000, 25-year mortgage. The cash flow, investment). ROA is equivalent to the return on
3. Paying down debt (debt depreciation) a 100 per cent equity purchase.
which is total revenue minus operating
b. When investors are looking at cash flow, expenses and debt expense, puts $1,000 into
it is sometimes easy to forget that each year the owner’s pocket before income tax each 84 While it is possible to obtain high Return
the mortgage gets paid down, resulting in an
year. (For more details on revenue and expenses on Equity with high degrees of leverage, it
increased equity position. It is important to
ensure that this amortization is included in which contribute to cash flow, see the IRR and is believed by industry experts that typical
the profit forecasting model NPV section below.) In addition to the cash, leverage uses ranges between 50 per cent and
$2,000 of the mortgage is paid off this year, and 70 per cent to reduce the debt burden and the
In assessing an investment, it is important to the property appreciates by $3,000. risk of negative cash flow in the event of rising
differentiate between the amortization and interest rates or unexpected vacancy. Debt
Education REGIONAL 61

magnifies the effect of negative returns as well Comparables gross income of $15,000 a year and operating
as positive ones and can be quite dangerous if This method involves a comparison of other expenses totalling $5,300 (breakdown of
overused. For example, using the same example similar properties that have sold recently in expenses shown below). If the market cap rate
as above, if the appreciation were -$4,000, the the area. The appraiser will attempt to find the for this type of property is six per cent, dividing
ROA would be -2 per cent but the ROE would be best possible matches in terms of location, the Net Operating Income by six per cent gives
-10 per cent. property type, age, condition and amenities. a valuation of $161,666.67.
Once several comparable properties have CAP Rate Calculation
Maximizing Real Estate Returns been identified, their prices will be adjusted Gross Income /year $15,000
One of the best ways to generate above- up or down to account for the differences. For Taxes −1,500
average returns on real estate is to optimize example, air conditioning in a three-bedroom Maintenance −800
the property’s use. The same property can be home might add $3,000 to the price while a Utilities −300
worth very different amounts after minimal covered garage (carport) might add $20,000. Insurance −1,200
renovations to alter its use. For example, a Property Manager −1,500
regular warehouse may bring in $5,000 a Cap Rates Net Operating Income $9,700
month in rent, but if it is subdivided into 100 Cap rate is short for “capitalization rate,” which Cap Rate (NOI / Price) 6.0%
personal storage areas that rent for $200 per is the discount rate used to determine the
Purchase Price $161,666.67
month, its gross revenue would be $20,000 per present value of future earnings. In real estate,
month. Even after renovation, management it applies only to income-generating property An alternate use for cap rates is to compare the
and security costs, this can be a very profitable and uses the Net Operating Income (NOI) attractiveness of two similar properties that are
conversion. of that property to determine a price. This is already on the market at a given price. In this
similar to using a target hurdle rate to calculate case, the same general equation is applied, but
There are several other conversions that have NPV, but cap rates are generally determined NOI and value is used to solve backwards for a
been popular in recent years. Old, rundown by the market, whereas hurdle rates are property-specific cap rate. This technique can
factories can be renovated into lofts. Single- selected by the portfolio manager based be particularly useful when faced with numbers
family residences can be changed into student upon his or her target returns. The cap rate that are not easily divisible. For example, let us
residences near universities and colleges (with valuation process starts with gross revenues, compare a $1,129,000 property with an NOI of
revenue based on the number of bedrooms). from which are deducted all operational costs, $67,800 per year to a $2,895,000 property with
Vacant or unbuildable urban land can be including property taxes, maintenance, utilities, an NOI of $189,000.
changed into parking lots. Farmland can be insurance, the property manager’s salary and Property 1 Property 2
converted into golf courses. In the last case, it any other costs incurred to keep the property Asking Price $1,129,000 $2,895,000
allows the owner to hold onto large tracts of running and in good shape. It is important to Net Operating Income $67,800 $189,000
land with relatively low taxes while covering note that the costs of debt servicing, income tax CALCULATED CAP RATE 6.01% 6.53%
the holding costs until the land appreciates. The and depreciation are not included. The amount Using cap rates, it is easy to see that property
golf course would generally be split into smaller left over is the NOI. The NOI is divided by the 2 is more attractive (from a purely NOI
parcels and sold off to developers as an exit cap rate to arrive at a value of the property. perspective at least). In a complete analysis,
strategy. however, it is important to take into account the
High cap rates are good for the buyer because differences in risk levels or growth rate that may
it means that they get more cash flow for each account for the different cap rate.
REAL ESTATE VALUATION dollar they invest. Conversely, low cap rates are
Real estate valuation is part art, part science. good for the seller because, when selling, they Discounted Cash Flows
Unlike publicly traded stocks, where there is a get more money for each dollar of cash flow The discounted cash flow (DCF) valuation
constant interchange of identical units, each their property generates. Generally, a region method involves forecasting the yearly cash
unit of real estate is unique and transactions are 181 and property type will have a standard cap rate flows of the project for a finite number of
far less frequent. So value can be very difficult range that is considered acceptable. This can years and then including a terminal value. The
to gauge in advance with certainty. As a result, vary significantly, but at the time of this writing, terminal value is an estimate of the value of the
property valuations are often given as a range it is most often between five per cent and 11 asset at a specific point in the future (e.g. 5 or
rather than as a precise number. There are four per cent in North America. When it is a buyer’s 10 years from now) and is generally intended
primary methods used to value real estate: market, cap rates tend to be pushed higher to reflect the price one would receive from the
comparables, cap rate, discounted cash flows by anxious sellers lowering their prices (lower sale of the property at that time. For example, if
and replacement value. These methods are selling price for the same cash flow equals a company is building a hotel, planning to make
generally what is used as the basis for making higher cap rates). The opposite happens when it operational and then selling it off, there will
purchase offers and (adjusted for appreciation) it is a seller’s market. be several negative cash flow years at the start
to estimate terminal value when creating of the project, followed by positive years, and
financial models. As an example, let us assume a property has a then a large positive year from the sale.
62 REGIONAL Education

Transaction methodology has to quantify the

Once the cash flows have been forecasted, they REAL ESTATE INTERNAL expectations both sides have for the deal
are discounted to the current time period at RATE OF RETURN AND NET
an annual target rate of return (hurdle rate), PRESENT VALUE
determined to be appropriate (by the portfolio
manager), thereby reflecting the risk of the For investors, it is not simply
investment. This discounting process accounts important to value real estate at
for the time value of money and estimates the a given point in time, but also to
value in today’s dollars of all the future cash model the forecasted return on
flows resulting from the investment. This is the invested capital (which can be
somewhat different from a straightforward cap significantly affected by changing
rate calculation because it allows the portfolio cash flow payout dates). Because
manager to see the effect of various levels of real estate tends to be a long-term
debt, profit splits between partners and target investment with multiple years
returns on the valuation. Cap rate valuations of cash flow, but will not be held
typically use the cap rates found on similar forever, modellers often forecast
properties in the area and are calculated based cash flows for a specified period
on pre-debt cash flows. The DCF method and then assume a terminal value
instead includes all the elements that affect as described above. The cash flows
cash flows and is therefore a far more flexible in this context could be net of all
and widely applicable approach for modeling non-debt expenses, or they could
purposes. include debt, depending on what
scenario is desired by the portfolio
Further details on discounting can be found manager. Costs would include but
in the net present value (NPV) section and would not be limited to:
the internal rate of return (IRR) section since • Operating expenses (utilities,
both are versions of the discounted cash flow maintenance, insurance, property
approach. NPV tells us, in current dollars, how taxes, managers, etc.)
much the investment would return in excess • Construction costs (plans, land
(or shortfall) of the defined hurdle rate. The purchases, building costs, etc.) want one model with debt and another one
IRR gives us the implied return on the capital • Marketing costs (in the case of condo sales, for with no debt (or various different debt levels,
investment assuming an NPV of zero. example) depending on the deal’s specifics).
• Depreciation
Replacement Cost • Taxes on gains (though management may ask To calculate the NPV, the cash flows would be
In circumstances where cap rate and for pre-tax cash flows in some cases) discounted by the investor’s target minimum
comparables valuation is not possible or • Partner fees (in the case of a joint venture) return (hurdle rate). If the value is positive,
applicable, appraisers will estimate the cost the investment exceeds the investor’s return
of rebuilding the property from scratch. This Revenues would include but would not be requirements.
amount can be significantly more than the limited to:
market value of the property, particularly • Revenue from operations (rents, deposits, For example, consider the following cash
when dealing with old or poorly maintained vending, parking, ad space, etc.) flows: Year 0: -$100, Year 1: -$50, Year 2: +$300;
buildings. This method is always used in doing • The sale of units also assume a hurdle rate of 10 per cent. The
insurance appraisals since it more accurately resulting net present value would be:
reflects the costs to the company in the event The terminal value would generally be
of a claim. forecasted based upon the most appropriate NPV = −$100 + −$50/(1.10) + $300/(1.10)2 = $102.48
method from this article’s Real Estate Valuation
Fundamentally the process of establishing a section. The method chosen would generally be Since it is above zero, the project’s return
replacement cost is based upon subcontractor dictated by what is generally accepted for that exceeds the hurdle rate and would be
quotes and research into recent construction type of property in that area. considered acceptable.
costs of similar properties in the area. However
in any relatively large population center, Often, senior management would be interested For IRR, the same basic calculation would be
estimators generally have a chart of average in cash flows and returns after the taxes and all used, but instead of supplying the hurdle
costs per square foot, which simplifies the other fees that have been paid, but they will rate, the calculation would assume an NPV of
process. likely also want to see the effect of leverage zero and would work backwards to derive the
separated out. In other words, they would internal rate of return (i.e. solve using the IRR
Education REGIONAL 63

function in a spreadsheet program), which This example models a hypothetical project can now be modelled. If we had tried to
would achieve that zero NPV. In this case, the which involves the building of condominium calculate the equity partner’s IRR before
rate would be 50 per cent. units. The optimistic scenario assumes that this point, it would not have been accurate
the project is completed and sold a year because it would have been impossible to
For certain real estate transactions, there are earlier than projected, whereas the pessimistic accurately model the promote payment for
several unusual elements to NPV and IRR scenario assumes the original build timeframe, the managing partner.
calculations. When an equity firm partners but with higher costs than anticipated.
with a developer or operator on a project, this Below is the chart which indicated how the In this example, the equity partner contributes
partner is compensated at a variety of different managing partner’s compensation would half of the equity and in the final year of
rates, depending upon the overall performance change as the overall project’s IRR increases the project is paid back for the original
of the project. This is an important element of (this is the promote). investment, plus the share of the profits. So in
the deal called “the promote,” and it is intended Partner Compensation Breakpoints the expected scenario (see Table 2), the year
to align the interests of the equity investor and 3 terminal payment is $5,000,000 (the initial
Total Project IRR Partner Receives
the operating investor. investment) plus $4,500,000 (the share of the
<25% 35%
25–40% 50% profits). With these payments modelled, it is
Generally, on deals of this type, the equity >40% 60% a simple matter to calculate the managing
investor will contribute the majority of the partner’s IRR using any spreadsheet software’s
funds but will have minimal involvement The first step is to calculate the pre-split return IRR function.
in the day-to-day operation of the project. (IRR) for the overall project, in other words,
The equity investor relies on the
operating partner to make the project TABLE 1
as successful as possible and wants to
provide proper incentives to this end. TOTAL PROFIT
The operating partner will generally
contribute some equity but not as Expected 30% 50% $9,000,000 $4,500,000 3
much as the equity partner. One Optimistic 42% 60% $9,000,000 $3,600,000 2
advantage of this method is that the
promote terms can be structured in Pessimistic 13% 35% $4,500,000 $2,925,000 3
virtually any way conceivable in order
to properly align and satisfy both TABLE 2
parties’ interests.
In most deals that use promotes, profits Expected −$5,000,000 $0 $0 $9,500,000 24%
will be paid out only at the end of
Optimistic −$5,000,000 $0 $8,600,000 31%
the project since total profitability is
indeterminate before that point. Pessimistic −$5,750,000 $0 $0 $8,675,000 15%

Example of calculation: the net return of the project before its profits Notice that in the optimistic scenario, even
Here is a sample project with three possible are allocated between the partners. The next though the equity partner receives less profit
outcome scenarios. step is to calculate the proper percentage to in dollar terms than in the expected scenario
be allocated to the managing partner based (more goes to the managing partner), their
YEAR 0 1 2 3 upon the IRR calculated above and the partner IRR is still higher. This is an example of a
Expected Scenario
compensation breakpoints. This is where the well-structured promote agreement because
Gross Revenues 13 13 13
Construction Costs −10 −10 −10 “promote” is taken into account. it aligns the interests of both partners.
Net Revenues −10 3 3 13 Equity partners generally judge their own
The next step (see Table 1) is to calculate the performance based upon IRR or a similar metric
Optimistic Scenario
equity partner’s share of the profits and the and therefore structure their deals to reward
Gross Revenues 13 26
year(s) in which it will be distributed. The partners who can increase the performance of
Construction Costs −10 −10 −10
Net Revenues −10 3 16 distribution of profits will depend on the this key indicator above all else.
project’s end and the terms of the partners’
Pessimistic Scenario agreement. © (2010) Harvard Business Review.  
Gross Revenues 13 13 13
Distributed by New York Times Syndicate
Construction Costs −11.5 −11.5 −11.5
Once the profit payouts have been
Net Revenues −11.5 1.5 1.5 13
calculated, the IRR for the equity partner