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Special supplement for edition 3 (228)
March 2018
Investment & finance

Remodelled for changing times

Remodelled for changing times
Tomasz Buras, the managing director and head of investment department at Savills Poland

Savills has recently been restructuring its Polish operations, with the aim of providing clients with a new, comprehensive service focused on the investment market. Why are these changes necessary, what is their scope and how will the company operate after their implementation? Tomasz Buras, Savills Poland’s managing director and head of the investment department, and Kamil Kowa, a board member and head of corporate finance and valuation, tell us all about this and the state of the property market in Poland.

Eurobuild Central & Eastern Europe: Reorganising a company is no easy task. What prompted the decision to make these changes?

Tomasz Buras, managing director, head of investment department, Savills Poland: The Polish investment market is continuing to mature, as manifested not only in the greater total transaction volume and the emergence of more new investors, but also by changes in the transaction structure and the requirements of clients in this field. The market is awash with capital and this is being invested faster and in larger tranches than before. There are more and more portfolio transactions, which require a comprehensive approach to the different asset classes as well as the methods of financing these purchases. Bond issues, stock exchange debuts and transactions between companies operating within a group are also taking place. On the one hand, this means that we have to be better when it comes to transaction advisory, and on the other we need to know more about real estate financing and provide assistance in this respect. We have been operating under the new structure since February. The changes concern the part of our company related to investment consultancy in its widest sense. We have created a new structure that mostly consists of people who were already working for us. They have received new and wider responsibilities and will be supported by new people from outside Savills. For example, together with Kamil Kowa we decided to transform the valuation and advisory department he has led for three years into the corporate finance and valuation department. Kamil will expand our range of services to corporate finance so that we can help our clients in matters related to portfolio transactions and raising capital. At the same time, we would like to develop new asset classes – apartments for rent in the private rented sector (PRS) and student housing.

Kamil Kowa, board member, head of corporate finance and valuation, Savills Poland: In the case of the latter, we have already had the opportunity to work on all the larger portfolios of private student housing. Investing in new asset classes is a global trend. In this way funds are trying to diversify the risk. Both the PRS sector and student halls are characterised by countercyclical functioning. This kind of portfolio composition is intended to mitigate possible shocks to the commercial real estate market. Across Europe, as Savills we are involved in transactions worth a total of around EUR 1 bln in the student housing sector by gross development value. Globally we are also highly visible in the residential sector and in Poland we want to use this background. We have access to sources of capital, the largest investors on the market and we have a good understanding of it. These are very valuable skills at a time when this market is just emerging in Poland. We intend to focus on new asset classes, but not only that. The continuing market institutionalisation and the increase activity of funds mean that advisors who are able to offer a comprehensive service are very much in demand.

Tomasz Buras: Savills globally has a very strong reputation as a consultant in the high and medium class housing segment. This is a unique value. We can draw on the experience gained from advising investors interested in purchasing entire residential projects for renting. We have also introduced changes to the investment department itself. Marek Paczuski has been promoted to the position of deputy director of the department. I will personally be its director. This has been dictated by the comprehensive view that I have of the functioning of both our company and the entire market. I think that together, in tandem, we will be one of the best double acts on the market in terms of attracting clients by combining an analytical approach with a sales and knowledge base in the field of space rental. The last piece of the puzzle, which involves changes in the structure of Savills, relates to the retail agency department. We have changed our strategy by analysing the retail leasing market and the diminishing amount of space under construction. The market has started to saturate and the development of internet retail will result in Poland not reaching the level of saturation that can be seen in Western European countries. Because there is simply no need for this. In the retail property leasing sector we are focused on supporting the developers and owners of shopping centres, especially in connection with our services in the management field. We have a package offer: property management and landlord representation. This integrated service means additional benefits for the owner. At the same time we are also improving our range of services for tenants. The department dealing with the lease of retail space will also cooperate more closely on investment transactions. Thus the retail agency is changing into a retail advisory and transactions department, which will be led by a new person – Monika Janczewska-Leja. Having such experienced directors in what we call the investment hub, we will provide very strong support for clients by offering them an interdisciplinary approach. We can see that the demand for such services has recently shot up.

Have the changes also affected the office department of the company?

Tomasz Buras: The office department at Savills has for years been divided into a section working with landlords and one dealing with tenant representation. This year there has been a change in the section cooperating with the owners – since March this department will be run by Daniel Czarnecki, who has been working with us for over two years and has contributed significantly to the development of our client portfolio during that time.

What do you expect to achieve from shuffling your pack so thoroughly?

Tomasz Buras: The changes we have introduced may be revolutionary for the market in terms of having a comprehensive approach to the services provided, but in terms of the structure they are more like an evolution based on the people who have worked at Savills for some time. So far we have been talking about the changes in key positions, but this doesn’t mean it’s the end of the changes. We are constantly hiring new people and planning further reinforcements, looking for unique competences that match the investment philosophy of the hub. For some time now in the corporate finance and valuation department we have even had an employee who has extensive experience of the Chinese real estate market and speaks fluent Mandarin. We have set ambitious goals for ourselves and aim to stir things up in the top three soon.

Kamil Kowa, board member, head of corporate finance and valuation, Savills Poland

Having someone with Chinese experience is probably not a coincidence. There is a lot of new capital coming from the East to Poland. How has this been affecting the investment market?

Kamil Kowa: There is a growing inflow of capital from that region of the world but, with a few exceptions, up until now it has mainly been in the form of testing the waters over here. Having a person familiar with the right cultural nuances on the team is appreciated by these investors. They are able to invest very large financial resources, but Poland is a new market for them and they must have confidence in the people they work with and who can explain to them how our market works. A large portion of the new capital is related to the New Silk Road strategy. This influences the inflow of capital not only to the real estate market but also to the infrastructure market across the wider region. Their first infrastructural projects south of Poland are in Serbia and Hungary. Chinese fundsʼ next target is Poland. If these plans start to be implemented, they will invest on a large scale.

Why is Poland attractive to them? Are traditional investors from Western Europe or the US losing ground to these new players?

Kamil Kowa: The strategic location of our country is important. We are a transport hub connecting the East, which produces large quantities of goods, with Western Europe, where crucial export markets for these goods are located. The only element that we are still missing is the new infrastructure to connect both regions.

Tomasz Buras: The maturity of our market is no less important. In some international rankings we are listed not as a developing country but as a mature market. Furthermore, investors who have been with us for more than ten years already have a large allocation of funds on our market. In terms of the scale of the economy, we are still in the third ten, but some German funds, such as Deka and Union Investment, have a considerable presence in Poland – for Deka Poland is their fifth largest market and for Union it is their fourth. So it’s much higher than Poland’s status in the global economy. They are of course still present in our country, but they might have to sell something in order to continue investing. In the meantime new players are emerging in search of returns.

Kamil Kowa: And these returns are higher than in most countries of Western Europe. We also have healthy foundations. For example, in the retail market we have been undergoing the fastest growth in consumption since 2008, which means that shopping centre tenants’ turnover is booming. According to our research, even in spite of the tax and political turmoil, turnover is growing at double-digit rates each year in shopping centres with an established position on a given market. This has been followed by socially inclusive economic growth – progress in terms of household income is now visible all over Poland. This is due to social programmes such as 500+, the continuous decline in unemployment and increasing salaries. Thanks to this, commercial real estate is developing not only in the main regional cities but also in smaller centres. As a result, traditional assets are quite safe. Many of the new investors, such as those from South Africa, are experienced industry players who base their purchases on the economic fundamentals and invest in the long term. Of course, we have new elements in the investment puzzle, such as the ban on Sunday trading and the new commercial property tax, but nobody seems too concerned about them at this time.

So political measures are a piece of this puzzle?

Kamil Kowa: This is a topic that keeps being raised by investors. Depending on the investor’s risk profile and where the capital is coming from, political intervention can be more or less important to them. What the government and the parliament are introducing is one thing, and the other is the pace they do this at and who they consult with before finally passing it. Investors from mature markets are used to discussions taking place with representatives of the relevant sector whenever such changes are made, in terms of the impact they will have on the market, what risks could arise from them and how long the implementation period should be. The biggest surprise and challenge for some investors is the fact that in Poland some changes are carried out very quickly. Governments change the law everywhere, new circumstances arise and the market has to adjust, but investors should not be surprised when this happens.

However, the figures for the investment market in 2017 are not pointing to any kind of hiccup.

Kamil Kowa: That is true, but the market would be able to perform even better if closing some transactions did not have to take so long, especially in the legal and tax analysis stages.

Tomasz Buras: Last year we lost the first quarter and some of the December transactions shifted to the first quarter of this year. This means that we can expect a record result for the first three months of 2018.

And how could the situation develop later in the year? What are the prospects?

Tomasz Buras: Very good, especially due to the large number of office buildings expected to be available for purchase in Warsaw, mainly in the city centre. This is a product for funds looking for prime real estate. Core+ buildings are also available for entities focused on assets that can be improved. There is a total of a dozen or so attractive office buildings that could soon be changing hands. Some are close to completion, with an advanced occupancy level of over 80 pct, and the rest are older buildings that have undergone re-commercialisation or refurbishment and are now returning to the market. Warsaw can offer a fairly large selection of investment products and this can be seen in the activity on the market. Representatives of funds have been coming to Poland to look at these properties since the beginning of the year. We also have movement in regional cities, both in terms of leasing and construction, so we are expecting transactions on these markets. Activity may also be strong on the shopping centre market despite several significant portfolio transactions in the last two years. Magnolia Park and Galeria Słoneczna have already been sold and the sale of one of the flagship malls in the south of Poland is underway. We are pleased to be a participant in this latest transaction. In 2016 Savills advised Rockcastle Global Real Estate on the purchase of Bonarka City Center – the largest transaction for a single asset at that time. In the same year we were involved in another record-breaking transaction, the purchase of a majority stake in Echo Prime Properties by Redefine Properties, and also in 2017 in the portfolio transaction of the Octava FIZAN fund, which included 11 properties.

Kamil Kowa: We also expect further portfolio transactions. Maybe not as big as the last few, but definitely of a value of a few hundred million euro.

Are there any clouds on the horizon that could bring an end to this sunny situation?

Kamil Kowa: We can’t see any major potential threats to the situation in Poland. If anything happens, it’s likely to be on a global scale. Economists have actually raised their 2018 forecasts for Poland. Investment finally took off in the last quarter of 2017. This means that growth is stabilising and is no longer being driven solely by consumption. However, the lack of manpower in the construction sector, which has only been kept going in recent years by Ukrainian migrant workers, could pose problems.

Tomasz Buras: We will also see what happens with projects that are about to begin. Land prices have been rising quite sharply, pushed up by residential developers. There has also been an increase in the prices of materials and labour costs, together with the shortage of labour. Such a situation has an impact on the length of time of construction work and it makes it harder and harder to predict what the final costs will be. With yields now stable, pressure on rents could re-emerge, when this has been absent up till now. And that was also another reason why Poland was very attractive. Buildings were and are bought at yields higher than in the West, and with rents that still have growth potential. This is still Poland’s big advantage. So we will be keeping a close eye on how the market conditions change in the future and advising our clients on the best way to adapt to them.


The four tops

Tomasz Buras, managing director, head of investment department

is responsible for the company’s development vision and strategy as well as relations with key clients. He supervises current projects and advises on the most important transactions. He joined Savills in 2011 as the director of the office agency and as a board member. Since 2014 he has been the managing director of Savills in Poland. At the beginning of 2018 he also took on the position of the director of the investment department.

Kamil Kowa, head of corporate finance and valuation

has over 14 years of experience of consultancy projects in Central Europe. His range of expertise includes real estate valuation, and transaction advisory for acquisitions of individual assets, real estate portfolios and non-performing loans secured by mortgages (NPL). He joined the Savills team in January 2015 as the director of the valuation and consulting department. In 2018 he became a member of Savills’ management board in Poland and extended the range of services of his department, which changed its name to corporate finance and valuation. Previously he worked on the transaction advisory team at EY (formerly Ernst & Young) for more than ten years.

Marek Paczuski, deputy head of investment department

has 14 years of experience on the commercial real estate market. In 2018 he took the position of the deputy director of the investment consultancy department. He has carried out such transactions as the sale of Nobilis Business House, the purchase of Galeria Sfera in Bielsko-Biała and of a portfolio of eleven of BPH’s properties by the Octava fund.

Monika Janczewska-Leja, head of retail advisory and transactions

has 20 years of experience on the market, which she has gained in managerial positions at such companies as GTC, Immochan and Klépierre. Since February 2018 she has been implementing a new strategy at Savills, in response to changes on the market, including the growth of the e-commerce sector.

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