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KSP's Future Investments Plans - an interview with Management Board of Kulczyk Silverstein Properties

Aug 24 2011

Edgar Rosenmayr i Piotr M. Krawczyński

Kulczyk Silverstein Properties wants to spend EUR 500m on the commercial real estate market in the CEE region. In the future, the company may become an investment vehicle of American capital. Edgar Rosenmayr, Managing Director, and Piotr M. Krawczyński, Managing Director, reveal their plans and strategy.

What makes the Polish commercial real estate market still so attractive for investors?
Edgar Rosenmayr:
Poland is a stable and fast developing economy, in terms of revenue generated from properties, we are the largest market in the region. In Poland revenues from office rents and commercial spaces are growing and the growth prospects for both Poland and the entire region Central and Eastern Europe are increasingly optimistic. According to the latest CEED report (Central and Eastern Europe Development) CEE-10 will remain the region of the highest economic growth in the EU which will be almost double that for UE-15 and euro zone.

Which sector has the largest potential?
ER: In the first phase of our investment strategy KSP focuses on office buildings. In the office segment, the supply of new development projects during the crisis significantly decreased and currently provides an attractive time to invest. We are observing a surplus of demand over supply, and therefore we are dealing with an increase in rents.
Piotr M. Krawczyński: KSP sees in the market many attractive office related investments. These are both standing properties and those to be developed.

The information coming from global markets may indicate that the second bottom of the crisis is approaching us. Can this shake the very foundations of the Polish economy and affect the investment attractiveness of our country?
We believe this is only a short-term panic and will quickly return to normality. The foundation of the Polish economy is stable but the market is sometimes governed by emotions, not rationale. From our perspective it can be an opportunity for a lucrative venture.

Kulczyk Silverstein Properties starts to hunt and chase market opportunities?
PMK: This is not the foundation of our strategy, but yes - we are looking for opportunities and if these occur, we will certainly use them.

What  types of criteria is mandatory in a property for Kulczyk Silverstein Properties to invest?
Most of all, these should be unique properties characterized by an excellent location and technical parameters. A catalyst which distinguishes them could be tenant-mix, but also design, quality of the building finishing and energy efficiency. We are interested in having our buildings in our portfolio meet the highest environmental standards and being certified by BREAM or LEED. Our priority is to be sure to achieve a high degree of return of invested capital while providing superior service to our tenants.

The most important issue about properties is location – what does it mean for KSP?
First of all central locations in Warsaw. Then, main Polish agglomerations as well as the capitals of Czech Republic, Slovakia and Hungary.
PMK: Looking forward, our investment strategy may point to Eastern Europe.

Office buildings were first. In the future KSP announces an interest in shopping centers. How far is that future?
ER: Indeed, our strategy is to invest primarily in office buildings – which are unique buildings in various ways – whether because the location, architecture or usability. We consider shopping centers as a complement to our portfolio. Mainly, as a part of a larger complex with mixed functions in which a trade should play an important role.
PMK: It all depends on where we are able to identify this type of attractive project. We have analyzed select retail projects but so far none has met our expectations.

Polish properties have firmly resisted the influence of the crisis which resulted in a quick return of investors to our country. Is growth of this activity reflected in the price pressure and exacerbates competition for the most attractive projects?
Indeed, German and Austrian funds possessing enormous resources to be invested rebuilt their financial situation and are still very active in Poland.
PMK: While negotiating the acquisition of Stratos Office Center, we could perceive that the growth of activities of funds had an influence on property values.

Investment plans foresee 500 m Euro. How are you going to distribute those resources?
The vast majority constitute office buildings. An important part of the portfolio may be a commercial investment, but not in the traditional sense. We will probably focus on the construction of new properties combining office and commercial functions.
ER: Due to the fact that centers of cities will be in our interest we foresee that rather properties of a smaller area, but of a top-shelf product, directed to clients expecting appropriately high standards.

When can we expect the following transactions?
We are in the advanced stages of multiple transactions. By the end of this year our goal is to complete at least two more transactions.

What will be their size/scale?
Stratos represents a lower value of the investment we are interested in. Our eyes turn to far larger projects.

What about development projects?
We are currently working on select projects but our focus moving forward is to acquire a portfolio of land to be developed.

How many development projects do you want to realize in the following five years?
Their exact number is a function of size and destination.
ER: In the case of development projects outside Polish borders we think of a cooperation with partners who know well the realities of these markets. As far as Poland in concerned we will act alone.

You look for properties with a potential for expansion or reconstruction. Is this the basis of KSP investment strategy?
Yes, we are looking for a business that will give perspectives for further development. Our American partner has a unique "know how" in the field of developing value in properties.

American investors burnt their fingers on a domestic market and they look for different opportunities to invest capital. Will KSP become an investment vehicle of such entities in our region?
With the knowledge, credibility and experience of both partners it is easier for KSP to attract investors to planned investments than our competitors.
ER: American investors are very disappointed with a current situation in the USA and are looking for new, stabile markets allowing for good investment of capital. We hope that the connection of our offer with a stability of Polish economy will be a convincing argument. Nevertheless, a basic factor allowing for attracting American investors will be our effectiveness, namely return on the invested capital.  

The way to raise capital may also be the Warsaw Stock Exchange?
: Debut is one of the scenarios considered by us. But first we need to build a portfolio of investments, and this will happen in about five years. As shown by recent events, it is difficult to predict how financial markets will behave in the near and especially in long term. Debut is not a goal in itself. If we will decide to reach for stock investors funds, in the first place we will take into account the Warsaw Stock Exchange.

Sources: http://www.propertynews.pl/opinie/500-mln-euro-na-nieruchomosci-komercyjne-wywiad-z-zarzadem-kulczyk-silverstein-properties,4426.html

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