Development financing has been largely limited to the best-quality assets such as the under-construction Plac Unii complex in Warsaw, for which investors obtained a €105-million loan earlier this year Courtesy of BBI Development

Bank real estate financing has been harder to come by in Poland in recent years, but market analysts and developers alike claim that lending institutions have continued to be active in providing credit for prime assets.

“While banks remain cautious and highly selective, they have been actively lending [this year] and we anticipate that they will continue to lend in the coming months,” said Rory Mepham, head of corporate finance, Central and Eastern Europe, at Jones Lang LaSalle.

“In particular, a number of Polish banks have relatively high liquidity ratios, when compared to some of their international counterparts, meaning that they have a greater capacity for taking on new business,” Mr Mepham added.

Erez Boniel, member of the management board and financial director of developer Globe Trade Centre (GTC), stressed that the situation in Poland is positive in comparison with other European countries, but added that even in Poland financial security is playing an increasingly important role.

Conservative lending

Jones Lang LaSalle’s Mepham said that when it comes to high-quality, income-producing assets, both domestic and international banks have been active, in Warsaw and regional cities. Levels of leverage remain conservative, with banks reluctant to lend more than 65 percent of a project’s value.

“In terms of development financing, perceived with a greater degree of risk by the banks, the majority of lending has been carried out by the Polish domestic banks. Development financing has been more limited and banks have generally chosen to fund only the best-quality assets,” he said.

Bolesław Kołodziejczyk, from the valuation and advisory department of Cushman & Wakefield, pointed out that developers can mostly count on obtaining financing from commercial banks, the most active of which now include PKO BP, Pekao and Nordea.

In the case of commercial projects, banks mostly lend for schemes whose business plans indicate the possibility of achieving a developer yield (the ratio of the revenues from the sale of a project to that project’s development cost) of more than nine percent.

Higher requirements

Property market experts and developers say that in recent years banks have instituted higher requirements for financing the construction of new buildings. They have been more selective and have demanded higher equity and pre-lease levels of real estate developers.

“Banks have been prepared to lend up to 70 percent of the projected development budget for projects but, as with income-producing assets, have a preference for lower levels of leverage,” Jones Lang LaSalle’s Mepham said.

He added that the level of pre-leasing that a bank is prepared to accept as a condition for providing development finance varies between the sectors and also depends on the location and market positioning of the asset. It ranges between 30 percent and 70 percent.

“Assets located in the core locations with either a track record or potential to be a dominant asset in its respective location, continue to be substantially easier to finance than assets in fringe or non-core locations,” Mr Mepham said.

Unpromised land

Cushman & Wakefield’s Kołodziejczyk said that it is difficult to say in which sectors financing is easier or more difficult to obtain. It all depends on the particular project’s ability to generate profit and this, in turn, depends on factors including location, project size and the developer’s experience.

However, he added that bank financing for developers’ purchases of investment land has become almost nonexistent. GTC’s Boniel agreed, saying that if such financing takes place at all, it is subject to numerous restrictions and involves high margins.

Wojciech Zbigniew Okoński, president of the management board of Robyg, one of the largest residential developers in the Polish market, said that under the current circumstances, financing the purchase of land is very difficult, and only selected developers are still able to do so.

However, he added that in June this year his company had managed to get a bank loan that refinances the acquisition of a plot in Warsaw’s Bemowo district at a level of 60 percent.

Financing alternatives

With bank financing harder to obtain than in the boom years, some developers have been trying to turn to alternatives. Cushman & Wakefield’s Kołodziejczyk pointed to corporate bonds as a popular, but relatively expensive option, good for companies with a stable financial situation.

He also mentioned mezzanine funds as another alternative, while GTC’s Boniel said that the establishment of a special-purpose vehicle with another entity, for example with one that has land to build on, has become more popular of late.

Robyg is an example of a developer that has used corporate bonds to finance its projects in the past. In the first half of this year, the company completed the issue of bonds in the amount of zł.30 million that will help finance land purchases and other activities of the firm, Mr Okoński said.

He added that Robyg would consider another bond issue if an attractive offer to buy land appeared. GTC mostly relies on bank loans and equity, but has also recently raised €100 million due to the issue of new shares, Mr Boniel said.