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edition 3 (238)
March 2019
Investment & finance

Northwards, by Zeus!

Nathan North

Northwards, by Zeus!
Lila Pateraki, Zeus Capital Management

You’ve just made your first Polish acquisition: the Graffit office building in Warsaw. Could you tell us a little about Zeus Investment Management?

Lila Pateraki, chief investment officer, Zeus Capital Management: We are an international privately held investment management company, specialising in real estate investment. Zeus is a niche market player with operations both in the US and in the CEE and SEE regions. We are a fully integrated organisation that’s been sourcing and acquiring investments for our investors since 2007, actively managing the assets from acquisition to exit.

Looking at your portfolio, what strikes me is how dispersed your portfolio is, both geographically and across two asset classes: residential and office. You are a Cyprus-based company, but not only do you have properties in the SEE region, in Romania and Bulgaria, you also own residential assets in New York. And now you’ve added the CEE region to your locations.

Currently our investment port-folio includes commercial and residential properties. However, we are also examining opportunities across all types of real estate assets. We started out in 2007 and our geographical focus was primarily on the SEE region. Our first investments were part of a residential joint-venture development fund. We were fortunate enough to foresee that the financial crisis in the US would have a spill-over effect into Europe, so we invested only a small portion of our capital in 2007 and 2008. We eventually returned to the market in 2010, reorienting our strategy towards investment in distressed residential and the acquisition of income-producing office properties. Capitalising on our extensive network and expertise in the US market, in 2012 we expanded our coverage in selected US markets, specifically the New York metropolitan area. The assets in the US were acquired through a separate investment platform that targeted opportunistic and value-added real estate investment. In 2016, we launched our latest investment programme that also targets commercial properties in CEE markets in addition to the SEE region, thus further expanding our coverage with acquisitions in Budapest and now in Warsaw.

Is there any specific reason why you have chosen to enter the Warsaw market right now?

We decided to start looking at the Warsaw market in more detail in mid-2017, when the whole issue surrounding VAT for the acquisitions of real estate arose. At that time, there was a slow-down in the Polish investment market, which was our cue to enter it. Additionally, we also noticed some investor attention beginning to shift to Continental Europe for potential investment alternatives in case Brexit deters investment capital from the UK. We did a lot of research and visited a number of office buildings and Graffit stood out as an investment target. Hines was interested in entering talks with us, and the rest, as they say, is history…

NN: But the part of Mokotów that Graffit is located in has suffered from a bit of an image problem over the last few years.

Graffit is part of the Mokotów office district, but not in the micro-location that come to be regarded as somewhat ‘challenged’ in recent years. It’s one of the few buildings that’s within walking distance of the metro line, it has a good micro-location, and it’s been well-developed and-managed by Hines. There are three separate routes that one can use to access it and it’s easy to get to using public transport.

Did you apply the same approach when you purchased Váci Corner Offices in Budapest three years ago?

Yes, you could say that both acquisitions had similar characteristics. The main road the property is situated on, Váci út, had a lot of empty land for development at the time, and Váci Corner Offices was one of the last newly constructed properties available along this corridor. But we saw that the expansion of the office market was going to be in this direction and therefore the submarket would only become stronger, as we have actually since observed over the last three years. Furthermore, Váci Corner is located literally on top of the metro. It’s a high quality asset and well-leased. We believe that with the proper asset management and maintenance that this is a building that will attract tenants for the long term.

What do you now intend to do with Graffit? If the property is as good as you’ve made out, why would it need asset management?

Since we are long-term investors, we always focus on improving and upgrading our properties. We have an annual budget for making improvements – and we spend this even if the assets are new and very well constructed to begin with. As the tenants move in and start occupying the property, there are always things that could be improved. For example, in Váci Corner Offices we made improvements to the elevators, installing new software to make them faster and more efficient. We also increased the number of entrance gates. We also feel very strongly about maintaining properties as energy efficient and sustainable – and that’s why we have upgraded our properties’ systems and obtained LEED ‘Gold’ certification for KBC in Bulgaria and BREEAM ‘Very Good’ certification for HQ Victoriei in Bucharest. There are always things that need to be done and that can be improved – and we strongly believe that listening to our tenants needs and satisfying them to the greatest extent possible will differentiate us from the rest of the market when the time comes for a tenant to decide where its offices need to be.

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