27th September 2004
Thursday, September 2nd, 2010
Another flutter
Amid other attempts to revive the notion of a domestic real estate fund in Poland recently, the Skarbiec Investment Funds Company has launched its Skarbiec-Real Estate Market Closed-End Fund, which will focus on developing residential projects in this country.
Skarbiec is hoping that it will be second time lucky after attempting to launch a previous fund in 2001, only to see it founder on a lack of investor interest. Back then, the intention had been to acquire property across the various sectors of the market but now the focus is deliberately narrower.
"Now it seems it was a mistake," says Maciej Jasinski, managing director of Skarbiec TFI's institutional products department, of the aborted fund three years' ago. "A non-focused product is neither a well-understood nor a well-perceived product. In today's market it might have become profitable but the market wasn't ready for such a general real estate fund at that time. However, maybe we just didn't convey its potential well enough to investors back then." He adds that investors' heads were being turned by the potentially big earnings on the bond market, where they could "make 15, 16 or even 18 percent, so they didn't have to look around for alternatives. But now they do."
The residential sector has been chosen on this occasion because Skarbiec has recognized that the margins are among the highest in the real estate market in Poland. "According to our best estimates," says Jasinski, "as of now, they stand at between 10 percent plus and 20 percent plus internal rate of return (IRR) in Warsaw. This is something we believe hasn't yet been explored by the competition."
Skarbiec will be using the experience and knowledge of its parent concern Grupa BRE Bank when venturing into the residential market. The latter boasts a long track record in mortgage banking, (through subsidiary Rheinhyp-BRE Bank Hipoteczny) and residential development itself and this expertise will be harnessed to investments throughout Poland, though the capital city will be the fund's center of gravity. "The margins in Warsaw are the widest," says Jasinski, "because of the difference between the selling price which is the highest in the country and the construction costs which are similar to the rest of Poland."
One other factor Skarbiec believes stands the new fund in good stead is the maturity that has been reached by the pension fund market since 2001. Then, according to Jasinski, its assets combined amounted to "something in the region of zl.10 billion and now there is some zl.50 billion under management. This makes them [pension funds] natural investors for the [Skarbiec] fund."
Dorota Latkowska, investment specialist at Knight Frank Nieruchomosci, which is acting as consultant for Skarbiec's domestic competitor the BZ WBK AIB fund, acknowledges the strength of the former's new strategy but queries to what extent it "will find enough buyers for the certificates," because, she adds, "my understanding is that only a very limited number have been aimed at institutional investors, so the question remains whether they'll be able to sell them to private individuals. There's always a question mark as to how people will react, especially as interest rates have gone up over the last couple of months."
Should Skarbiec successfully offload the certificates, they'll be entering an increasingly competitive residential development market. A 22 percent VAT duty on developers' services is expected to be introduced to Poland in 2008, so from now until then there will be a frantic race to both build apartments and acquire them. "Huge demand will be generated before 2007," says Jasinski, "and we want to benefit from this as well, so that's why we're launching this fund. A residential project normally takes from three to four years maximum to complete and we believe we'll be able to complete the first investment cycle by the end of 2007."
Skarbiec's crystal ball is also being put to good use regarding currency change. Claiming that the fund could have been launched before May 1 this year if Skarbiec had seen fit, president of the management board Michael Mellinghoff insists that it waited until now "because we are clearly targeting the point in time after the euro is introduced to Poland. The fund will run to two five year periods - that is a maximum of ten years' maturity. By 2014 the euro should be Poland's currency. We're investing now in zloty and the redemption will be in euro."
With two home grown real estate funds about to start spending their money at long last, (and BZ WBK AIB is also eyeing residential possibilities), it invites the question whether others will follow. Native attitudes might have to become less impatient if that is to occur, however.
"Real estate is a product with the longest maturity in the market," says Michael Mellinghoff. "My feeling when I came here, is that compared to Germany, Austria, Luxembourg and Switzerland, the 'long term' is defined rather differently in Poland. Here a long term investment means three years maximum: in Switzerland it means ten years or even thirty. Investors in Poland will have to think further into the future: it's a question of investor education."
But for this to happen, someone will have to take the lead to begin with. "Funds will have to prove their track records and only thereafter will we open doors to other offers," adds Maciej Jasinski.
From Warsaw Business Journal
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