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HANDCUFFED

Why clear regulations

could help unlock
financing
2 MAY 2010 Editorial

REGULATORY LIMBO
After the rather harrowing past two years, it would be nice to believe that the world was slowly but surely
getting back to normal. But in truth, this would be getting ahead of ourselves. We’re now looking at a prop-
erty sector in CEE that’s showing signs of life again, but to use a television metaphor, not even Dr. House has
a diagnosis yet. So he can’t know how quick the patient’s recovery will be.

Let’s not discount the good news: Lending is happening again, both on investments and on developments.
But it’s still sporadic, and it’s at nowhere near the levels seen three to five years ago. Getting back to 2007
levels isn’t necessarily the goal, of course, as everyone admits that the world was over-leveraged even back
then. But as a very practical matter, all of the loans made back in the boom times will eventually have to be ei-
ther payed off or refinanced. Once the loan is made, it’s in the system, it’s out there. It doesn’t just disappear.

So on some macro-level, is the minimalist lending currently going on just a way of banks savings up for when
push starts coming to shove? For all the problems it’s causing, a bit of austerity is probably in order. After all,
the only way to cure the global economy of over-leveraging is to, well, not provide as much leverage.

If fears about future refinancing is making banks slow to lend out new funds, not knowing what levels of
equity they’ll need to cover loans in the future isn’t helping either. There’s great uncertainty among bank-
ers today not only over how much leverage they’ll ultimately be able to provide but also what contribution
demands government will have for new bail out funds. Taxpayers are unlikely to want to foot the bill, and it’s
no wonder. From the United States to Europe, they’ve already witnessed a massive transfer of wealth from
the public to the now-stingy financial sector.

It’s a vicious circle. In order to protect long-term global liquidity, international regulations have to be strength-
ened. But banks and their shareholders see such regulations as threats to their profitability and are fighting
the process. Meanwhile, not knowing how the tussle will turn out is in part leading to tougher credit condi-
tions. It’s a complex issue we don’t pretend to grasp entirely. But one of the most sensible ideas and one that
would go a long way to preventing Lehman Brothers-type disasters, would be requiring major institutions to
create “living wills.” These would spell out precisely which steps would be taken if an institution were to get
into trouble. Ultimately, it wasn’t the fact that Lehman Brothers collapsed that was so damaging: it was the
chaos and the uncertainty that surrounded it.

Robert McLean
Editor In Chief
 CIJ Journal MAY 2010 3

2 REGIONAL
Editorial, 2 | Real Talk, 4 | Indicators, 5 | Company News, 6 | Euronews, 8 | Banking report, Part
II: Can regulatory clarity unlock finance?, 50 | Regulatory reform a touchy subject, 51 | Q&A: Tomas
Rask, Inter Ikea Poland, 52 | Retail parks also feeling the hurt, 55 | Events, 56 | Appointments, 57 |
RPMG Calendar, 57 | Ten Years Ago in CIJ, 58 | Pictorial DBH, 59 | The fundamentals of real estate
transactions, 60

10 CZECH REPUBLIC
Komerční banka tender down to two, 10 | Dock scheme sets sail, 11 | Little appetite for land, 12 |
Rare industrial land sale planned for Brno, 14 | Sekyra introduces Rohan Island plans, 16 | Reflecta
buys out Finep scheme, 18 | Bouwfonds gives Prague a try, 20 | Deals: Logistics leads the way, 21

22 HUNGARY
Class B not immune to crisis, 22 | Salamon: Quality offices still strong, 24 | ToPark passes another
milestone, 27

28 POLAND
CEDEP 2010 Survey: Risks and structural change, 28 | Valuations still falling, 30 | New developments to
neighbor Sea Towers, 32 | Residential revival?, 34 | CBRE: Polish retail pulling ahead, 36 | Capgemini,
Raben and FM Logistic top deals listing, 39

40 ROMANIA
Good news from the health front, 40 | Orhideea to bet on efficiency, 42 | Costs under control at the
latest PLP seminar, 44 | Hilton eyes Romanian growth, 45

46 SLOVAKIA
CEDES 2010 Survey, 46 | CEDES 2010: No easy answers to the crisis, 48

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 4 REGIONAL Real Talk
RESIDENTIAL PRICES IN PRAGUE TO PASS ANOTHER TEST
Five months after the first Czech residential auction suggested a buyer/
seller disconnect on prices, another auction will be organized by the auc-
tioneering firm Gavlas. Scheduled in Prague for May 27, the event has at-
tracted substantial interest from developers. But unlike the first round, auc-
tion company owner Ivo Gavlas, says the main goal for the sellers appears to
be selling, rather than simply testing the market. Ten developers are on the
list to auction 30 units in 13 projects. Gavlas says smaller flats of up to 80 sqm
form the majority of the offering this time, as they’ve proven most attractive
to buyers. On the other end of the spectrum will be high-end family homes
exceeding 200 sqm for just south of €400,000.
The number of properties on offer has been reduced and the initial prices
12 have been set at 60 percent of the catalogue price instead of 40. “We have
increased the initial prices because then the reserve prices are much more
likely to be achieved and the deal will happen,” explains Gavlas. Those
winners whose prices are accepted by the vendors will be informed im-
mediately, a move that hopfeully will avoid some of the confusion seen at
the last auction.
10 suspension that Złota 44 is in. Separately, Libeskind himself sent a letter to
PORTFOLIO DOWNSIZING?
What do Europolis and DEGI have in common? For one thing, when you ask
their top people if rumors that they’d like to sell off parts of their portfolios
are true, they won’t say a thing. In fact, they won’t even talk off-record about
what people on the street have been saying for weeks.
We’re left, for example, with with an official statement from Aberdeen As-
set Managers: “We do not comment on market rumours. We are focused on
creating additional liquidity that will permit the Degi funds that are closed
to re-open and meet redemption requests in an organised way while not
disadvantaging those investors wishing to remain invested.”
HIGHLIGHTS
...We have increased the initial prices
RESIDENTIAL PRICES IN PRAGUE TO PASS ANOTHER TEST | 12
...Libeskind himself sent a letter to Warsaw mayor
ORCO ZŁOTA 44 HOPES RENEWED WITH A COURT DATE SET | 10
...250 meter skyscrapers
LAND STUDY FOR WARSAW DRAWS NEAR, WITH CHANGES | 7
It’s a tricky situation, to be sure, especially in Romania, but we’re guessing
that if there were an offer to come in on a JV basis for something like The
Park in Prague it would be doable. Europolis, too, doesn’t care to react to
market rumors, although in that case, there doesn’t seem to be much of a
secret about which of its shareholders has had a change of heart.  
ORCO ZŁOTA 44 HOPES RENEWED WITH A COURT DATE SET
The fate of Orco’s famed Złota 44 residential skyscraper in Warsaw, de-
signed by Daniel Libeskind, changes almost every month. The latest de-
velopment is that there’s finally a date set – for June 24 – for a session
of the Supreme Administrative Court that will rule on Orco’s motion to
restore the construction permit for the project, which was withdrawn last
year.
Recent pressure to review the case faster than the usual 12-month aver-
age may have had the desired impact. The mayor of Śródmieście, Warsaw’s
central district, called for a “quick decision” from NSA, to end the state of
Warsaw mayor Hanna Gronkiewicz-Waltz asking for city hall support in the
case. Warsaw city hall reacted cautiously, however, about acting on behalf of
the project, afraid of sparking accusations that the government is favoring a
private company.
LAND STUDY FOR WARSAW DRAWS NEAR, WITH CHANGES
Assuming Złota 44 is completed someday, it will overlook another endless
planning saga in Warsaw: Plac Defilad. The master plan for the area has
been in the making for years, resulting in a lasting makeshift appearance
of what should be a prestigious quarter of the Polish capital. In April, the
Warsaw city hall made public the most recent changes to the all-important
land study for Warsaw. (No master plan can be effective without being
7 in line with the land study.) The latest changes included the approval of
a 250-meter skyscraper to be developed along Emilii Plater and Chmielna
streets.
The Świętokrzyski Park, allegedly eyed as a potential area for property de-
velopment, will be expanded. Elsewhere in Warsaw, the land study will al-
low for more skyscrapers on Świętokrzyska, Jana Pawła II, Grzybowska and
Twarda streets, where some high-rise projects were either built or are un-
derway. Changes to the study will be voted on by the Warsaw city council
in the fall. 
 Indicators REGIONAL 5

RATES 2009 / 2010 MAIN ECONOMIC INDICATORS 2009 / 2010

CONSUMER PRICE INDICES, INDEX 2000=100 CZECH REPUBLIC
MONTH 6 7 8 9 10 11 12 1 2 MONTH 8 9 10 11 12 1 2
Canada 107.6 107.2 107.2 107.2 107.1 107.7 107.3 107.6 108.1 Unemployment rate 8.5% 8.6% 8.5% 8.6% 9.2% 9.8% 9.9%
Czech Republic 113.9 113.5 113.3 112.9 112.7 112.9 113.1 114.5 114.5 No. of unempl. (in th.) 493.8 500.8 498.7 508.9 539.1 574.2 583.1
Slovak Republic 114.9 114.2 114.0 114.0 114.2 114.4 114.3 114.7 114.7 CPI monthly change –0.2% –0.4% –0.2% 0.2% 0.2% 1.2% 0.0%
Switzerland 104.2 103.5 103.6 103.6 104.3 104.5 104.2 104.1 104.3 CPI yearly change 0.2% 0.0% –0.2% 0.5% 1.0% 0.7% 0.4%
United Kingdom 111.0 110.9 111.4 111.5 111.7 112.0 112.6 112.4 112.9 22. 4. 2010 | Source: ČSÚ, MPSV
Norway 109.9 109.2 109.0 109.9 109.7 110.0 110.3 110.5 111.9
Hungary 124.3 126.1 125.6 125.5 125.5 125.8 125.7 127.6 128.0
Poland 112.9 113.0 112.6 112.6 112.7 113.0 113.0 113.8 114.0 SLOVAK REPUBLIC
Japan 100.4 100.1 100.4 100.4 100.0 99.8 99.6 99.4 99.3
United States 110.4 110.3 110.5 110.6 110.7 110.8 110.6 111.0 111.0 MONTH 8 9 10 11 12 1 2
22. 4. 2010 | Source: OECD Unemployment rate 12.1% 12.5% 12.4% 12.4% 12.7% 12.9% 13.0%
No. of unempl. (in th.) 319.4 329.8 369.0 373.4 379.5 391.5 396.2
CPI monthly change –0.2% 0.0% 0.1% 0.3% –0.1% 0.2% 0.0%
CPI yearly change 5.0% 0.6% 0.4% 0.4% 1.0% 0.4% 0.4%
22. 4. 2010 | Source: ŠÚSR
CURRENCY EXCHANGE RATES, NATIONAL UNITS PER USD
MONTH 6 7 8 9 10 11 12 1 2 POLAND
Canada 1.13 1.09 1.09 1.08 1.05 1.06 1.06 1.04 1.06
Czech Republic 18.89 18.29 17.95 17.38 17.45 17.32 17.90 18.27 18.96 MONTH 8 9 10 11 12 1 2
Hungary 199.77 188.85 188.85 186.29 181.05 18.48 187.36 188.42 198.03 Unemployment rate 10.8% 10.9% 11.1% 11.4% 11.9% 12.7% 13.0%
Japan 96.63 94.89 94.89 91.34 90.30 89.14 89.92 91.12 90.11 No. of unempl. (in th.) 1,718.3 1,731.6 1,745.2 1,778.3 1,867.2 2,016.6 2,077.1
Norway 6.39 6.07 6.10 5.90 5.64 5.64 5.77 5.74 5.91 CPI monthly change –0.4% 0.0% 0.2% 0.3% 0.0% 0.4% 0.4%
Poland 3.21 2.89 2.89 2.85 2.84 2.79 2.84 2.85 2.93 CPI yearly change 4.3% 4.0% 3.8% 3.8% 3.8% 3.9% 3.4%
Russian Federation 1.11 1.08 31.63 30.81 29.48 28.98 29.94 29.94 30.19 22. 4. 2010 | Source: GUS
Switzerland 1.08 1.07 1.07 1.04 1.02 1.01 1.03 1.03 1.07
United Kingdom 0.61 0.61 0.60 0.61 0.62 0.63 0.62 0.62 0.64
HUNGARY
22. 4. 2010 | Source: OECD
MONTH 8 9 10 11 12 1 2
Unemployment rate 6.6% 10.3% 10.4% 10.5% 10.5% 10.8% 11.4%
No. of unempl. (in th.) 601.7 436.0 440.0 445.0 442.0 456.0 479.0
CPI monthly change –0.2% –0.1% 0.0% 0.3% 0.0% 1.4% 0.3%
LONG-TERM INTEREST RATES, PERCENT PER ANNUM CPI yearly change 5.0% 4.9% 4.7% 5.2% 5.6% 6.4% 5.7%
22. 4. 2010 | Source: HCSO
MONTH 6 7 8 9 10 11 12 1 2
Czech Republic 5.5 5.4 5.1 5.0 4.5 4.2 4.0 4.3 4.3
Slovak Republic 5.1 5.0 4.9 4.7 4.3 4.2 4.1 4.1 4.8 ROMANIA
Japan 1.4 1.4 1.3 1.3 1.4 1.3 1.3 1.3 1.3
Norway 4.2 4.1 4.2 4.2 4.1 4.0 4.0 4.1 3.9 MONTH 8 9 10 11 12 1 2
Poland 6.3 6.2 6.1 6.2 6.2 6.1 6.2 6.1 6.1 Unemployment rate 6.6% 6.9% 7.1% 7.5% 8.0% 8.2% 8.3%
Russian Federation 9.7 10.0 10.1 10.2 9.6 9.1 8.9 8.5 8.1 No. of unempl. (in th.) 601.7 625.1 653.9 683.1 733.6 751.1 762.4
Switzerland 2.5 2.2 2.1 2.2 2.2 2.0 2.0 2.0 1.9 CPI monthly change –0.2% 0.4% 0.4% 0.6% 0.3% 1.6% 0.2%
United Kingdom 3.7 3.8 3.7 3.7 3.6 3.8 3.9 4.0 4.1 CPI yearly change 5.0% 4.9% 4.3% 4.6% 4.7% 5.2% 4.5%
Germany 3.5 3.3 3.3 3.3 3.2 3.2 3.1 3.3 3.2 22. 4. 2010 | Source: WS, MMSSF

22. 4. 2010 | Source: OECD

RATES AGAINST EURO

SHORT-TERM INTEREST RATES, PERCENT PER ANNUM
Australian Dollar AUD 1.44
MONTH 6 7 8 9 10 11 12 1 2 Canadian Dollar CAD 1.33
Euro area 1.2 1.0 0.9 0.8 0.7 0.7 0.7 0.7 0.7 Czech Koruna CZK 25.29
Canada 0.6 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Danish Krone DKK 7.44
Czech Republic 2.2 2.1 1.9 1.9 1.9 1.8 1.6 1.6 1.5 Hungarian Forint HUF 264.13
Hungary 10.6 10 9.0 4.2 7.3 7.6 7.5 6.9 6.6 Japanese Yen JPY 124.65
Japan 0.6 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.4 Norwegian Krone NOK 7.89
Norway 1.9 1.9 1.9 1.9 2.1 2.1 2.1 2.3 2.3 Polish Złoty PLN 3.87
Poland 4.4 4.2 4.2 4.2 4.2 4.2 4.3 4.2 4.2 Pound Sterling GBP 0.87
Russian Federation 12.2 10.4 9.3 9.3 10.9 8.1 8.7 7.2 7.3 Swedish Krona SEK 9.59
Switzerland 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Swiss Franc CHF 1.43
United Kingdom 1.0 1.0 0.8 0.6 0.6 0.6 0.6 0.6 0.6 US Dollar USD 1.34
22. 4. 2010 | Source: OECD 22. 4. 2010 | Source: ECB
 6 REGIONAL Company News
PLAZA CENTERS
Plaza Centers confirmed plans to develop
€260m worth of retail projects in Poland over
the next couple of years. The company says that
it had four projects currently underway in
Poland – 45,000 sqm in Toruń, 44,000 sqm in
Łódź, 35,000 sqm in Kielce, and a 20,000 sqm
scheme in Suwałki. All four are set to finish by
2012. Once done, the company will have
invested more than PLN 2bn (€520m) in Poland.
The Toruń and Łódź projects alone account for
about 70 percent of the total short-term
investment value of Plaza Centers’ activities in
Poland. The developer has carried out 28
projects across Europe, 22 of which are currently
underway. Plaza Centers posted a loss of
€64.77m in 2009, a slight improvement over its
€67.68m loss in 2008.
STRABAG
Polish State Railways (PKP) has revealed the
names of seven construction companies vying
to reconstruct the Warsaw East train station,
one of the capital’s three key train stations.
Strabag handed in the cheapest offer, PLN
31.8m (€8.23m), while Warbud offered the most
expensive at PLN 47.37m (€12.26m). The other
companies being considered for the job are
Eiffage Budownictwo Mitex, Mostostal
Warszawa, PRI Pol-Aqua, Budimex, and Winnicki.
The Warsaw East station is to be ready before
the Euro 2012 football tournament. PKP has
budgeted PLN 45m (€11.65m) for the
reconstruction of the heavily neglected
building. The money will come from PKP capital
as well as the state budget.
GOLDMAN SACHS INTERNATIONAL
Goldman Sachs International  has applied to
open a branch in Warsaw, positioning itself to
take part in the Polish government’s plans to
privatize state-owned companies in the energy,
telephone, insurance and chemicals sectors.
Goldman Sachs is hardly a newcomer to such
activities, having been involved, for example,
with the privatization of the national insurer
PZU. Following Goldman Sachs’ decision, there
are only two major investment banks that don’t
have offices in Warsaw yet, Barclays Capital
and Morgan Stanley. Morgan Stanley, however,
said it is preparing to launch in Warsaw as well.
ECHO INVESTMENT
Echo Investment is hoping to buy PKS Kielce,
a transport company based in Kielce, Echo’s
home town. If it wins the privatization tender,
Echo would take over the transport company’s
attractive 4 ha plot, located on Czarnowska
street. According to Echo, it’s well-suited for the
development of “services or leisure functions.”
Echo maintains that it would keep the profit-
making parts of PKS Kielce active. Echo is cur-
rently carrying out a similar project by pushing
forward with Amber mall, which is situated on
land that used to belong to a local bus transport
company.
C&W AND KING STURGE
Cushman & Wakefield was appointed proper-
ty manager for Ghelamco’s most recent com-
pletion, the 16,200 sqm GLA Crown Square. The
agency now manages around 500,000 sqm of
property in Warsaw. King Sturge was appoint-
ed by Heitman Private Equity as exclusive
agent for the Warsaw Trade Tower and Europlex
in Warsaw. The 44,300 sqm WTT is leased to ten-
ants like KPMG, AXA Polska, PKN Orlen, Reckitt
Benckiser, MSD Polska and NASK. Europlex is a
25,000 sqm office project on Puławska street in
Warsaw, leased to tenants like PZ Cussons, Lib-
erty Direct, Elavon and HBO. King Sturge was
also appointed the leasing agent for WAN Logis-
tic Park in Pruszków.
MAYLAND
Mayland has finalized redesign plans for the
Wzgórze mall in Gdynia, a project contracted to
Mayland by the mall’s owner Fonciere Euris in
2009. The remodeled Wzgórze will feature
63,000 sqm of retail space on two levels, with
room for 250 shops. The project is scheduled to
deliver in 2013. In a separate project, Mayland
said it obtained a construction permit for the
20,000 sqm expansion of its Jantar mall in
Słupsk. Set to finish in 2011, will feature a six-
screen movie theater complex, the first of its
kind for Słupsk. Earlier this year, Mayland sold a
mall in Dąbrowa Górnicza and another in Opole
to the Australian fund MGPA. MGPA has an op-
tion for a third mall but isn’t officially confirming
that the option is for Jantar. While still MGPA’s
head of investment for CEE, Daniel Harris told
CIJ that the option would become clear “within
weeks.”
SKLEPY KOMFORT
The sixth Komfort store in the Czech Republic
opened in Ostrava at the end of April. Sklepy
Komfort, a Polish retailer specializing in floor cov-
erings, landed in the Czech Republic last year and
quickly expanded with three more additional
shops set to open by the end of 2010. With a sur-
face area of around 600 sqm, Ostrava’s Komfort
store offers a wide selection of laminated panels,
wooden floors, carpeting, PVC tiles, and carpets.
“Since our investment, Sklepy Komfort has been
growing its network dynamically in Poland and
other CEE countries, including the Czech Repub-
lic and Slovakia, with a total of 37 openings
planned for 2010,” said Agnieszka Kowalska, a
partner at Enterprise Investors, Sklepy Kom-
fort’s private equity owner since 2007.
METRO GROUP ASSET MANAGEMENT
Metro Group Asset Management took over
the management of Magnolia Park, the biggest
shopping, leisure and entertainment center in
Lower Silesia with a total floor space of 74,400
sqm. Metro Group is assuming all activities as-
sociated with the strategic management and
administration of the shopping mall in Wro-
claw. Opened in 2007, Magnolia Park features
250 retail outlets, including restaurants, cafés
and service points, 2,800 free parking spaces
and an amphitheater seating 500 people. The
property management division of the Metro
Group is now responsible for 10 shopping cen-
tres in Poland. Altogether, the company runs
70 retail centers in Germany, Turkey and Po-
land.

CPI GROUP
The Czech investor and developer CPI Group
acquired 14,000 sqm of retail space in the Czech
Republic that was once part of the
Betonstav  portfolio. The space is leased to
retail chains Interspar, OBI and Penny Market.
The portfolio cost CPI CZK 600m (€23m). CPI
owns a total of 15 retail properties throughout
the Czech Republic that it leases to Albert
Hypermarket, Tesco, Interspar and OBI and five
CPI Retail Parks, connected to the hypermarkets
and offering electronics, fashion, drugstores,
sport fashion, pet centers and furniture.
POLISH STATE RAILWAYS
Polish State Railways (PKP) said in late April
that it received two bid offers from construc-
tion companies to carry out the much-hyped
Company News
renovation and clean-up of Warsaw’s main
train station, Warszawa Centralna. Even if PKP
said earlier that it’s earmarked PLN 22m
(€4.89m) for the purpose, the cheaper of the
bids, from PORR, was for PLN 47m (€12.02m).
The other bid came from Karmar and totaled
PLN 51m (€13.04m). Apparently unfazed by the
100 percent jump in the estimated price tag,
PKP now says it is considering paying whatever
is necessary to carry out the renovation or an-
nouncing a new tender.
BPV BRAUN PARTNERS
Despite having what it describes as an extreme-
ly successful year in 2009, the legal firm bpv
Braun Partners has carried out major
organizational and ownership changes it
expects will increase its effectiveness on the
market. The goal of the new arrangement is
based on long-term partnership both between
the owners and between employees. At the
REGIONAL 7
same time, the company has announced a new
partner at the firm, Jiří Bárta. Bárta comes to the
firm from Lovells, where he worked for ten years,
most recently as the head of the company's real
estate practice.
CTP
The Dutch industrial developer CTP completed
11 new projects in 2009, bringing its total
lettable area to 1.65m sqm. Last year, the
developer also reported a 19.9-percent
increase in gross rental income, which reached
€87,686,000. CTP has major ambitions for this
year, too. The company plans to add an
additional 15 buildings to its portfolio, which
would bring its rental income to €95m. More
than half of its future projects will be taken by
existing clients, looking to expand. Major
clients include CEVA, CCI, Wistron and
Honeywell.
 8 REGIONAL EuroNews
C&W: SHOPPING CENTER DEVELOPMENT ON DECLINE
Shopping center developments across Europe have been on
the decline since 2009 and aren’t likely to pick up steam until
2012, according to new data released by Cushman & Wakefield.
In its European Shopping Centre Development report, the real estate ad-
visor notes that 2009 saw the sharpest decrease in new space in almost 15
years, with around 7.4 million sqm of new shopping center space completed, a
19-percent fall from 2008 figures. This year should see around 6.1 million sqm
completed, while shopping center development is expected to hit its lowest
level in seven years in 2011 with around 5 million sqm due to be completed.
That’s a 46-percent drop from the 9.3 million sqm finished in 2008.
However, if the European economy bounces back quicker than expected,
Cushman & Wakefield says a large number of shelved projects could be re-
vived relatively quickly, boosting the development pipeline.
Russia dominates Europe, with 2.5 million sqm of space in development and
scheduled to open by the end of 2011. Meanwhile, Romania has had one of
the most significant falls, as a large number schemes have been put on hold.
Development there is expected to slow to 130,000 sqm in 2011, compared
with its peak of around 750,000 sqm in 2008.
“Emerging markets such as Russia, Turkey and Poland will most likely lead the
way in terms of a recovery in shopping center development activity, with fa-
vorable demographics and healthy demand from (international) retailers for
the best space in prime locations,” said Alexander Colpaert, a retail researcher
at Cushman & Wakefield.
EUROPEAN SHOPPING CENTRE PIPELINE
Source: Cushman & Wakefield
ACCOR: REVENUE GAIN IN FIRST QUARTER
Accor, the French hotel and services group, saw a 3.1-per-
cent increase in sales in the first quarter of 2010, in which
revenues came in at €1.67bn, up from €1.62bn last year. In
its hotel business, revenue rose 1.6 percent compared to last year, with
the company’s upscale brands – Novotel, Mercure and Pullman – leading
the recovery effort. The group’s economy outfits, however, are still lag-
ging behind. Weighing heavily on Accor’s performance is its US budget
chain, Motel 6, with a 14 percent revenue decline reported for the first
quarter. The group said the US economy hotel business is improving at a
slower rate than in Europe. Accor estimates its economy hotels will need
another six months to catch up to its upscale brands.
Germany in particular has seen considerable gains. Revenues for Accor’s
upper and mid-level facilities in Germany rose by 3.8 percent, occupancy
was boosted by 2.6 percent, and RevPAR, excluding VAT, climbed by 7.7
percent. For its economy-class hotels in Germany, Accor announced a
4.8-percent increase in revenues, 0.7 percent higher occupancy and a
6.7-percent growth in RevPAR. One of the world’s leading hotel groups,
Accor is just months away from splitting into two separately listed com-
panies. The company said last month that listing its service business,
which sells luncheon and childcare vouchers, could come as early as July,
pending shareholder approval.
The French hotel group saw ever-so-slight growth
in the first quarter of 2010
A TOUGH YEAR FOR UNLISTED FUNDS
Capital raised for unlisted European property funds fell by
60 percent in 2009, according to INREV, the industry body
that oversees this market. Unlisted property funds reported
a 7.8-percent return in 2009, compared with the 19.8 percent they hit the
year before. Results from the INREV Capital Raising Survey 2009 show fund
managers raised just €5.9bn last year. In 2008, the pot hit €14.8bn.
Market observers expect fund managers will raise €10.9bn this year. In 2009,
funds called in €6.2bn. In 2008, €7.5bn was called in. That’s a 17.5-percent
drop, however it also marks the first time more capital has been called in
than raised in a single year, indicating activity in underlying markets as capi-
tal was earmarked for new investments or called in to support underper-
forming funds.
Core funds raised 87 percent of the capital in 2009, which supports the trend
that investors are seeking funds with lower risk/return strategies. Core funds
also called in the most capital in 2009 at 91 percent of the total, according
to the INREV Index.
Pension funds were the dominant investor group, representing 54 percent
of the capital raised last year, while life insurance companies were the sec-
ond highest with 15 percent.
 EuroNews REGIONAL 9

GOODMAN PUSHING
ANDOVER SCHEME
Construction has started on a
43,500 sqm regional distribution
center at Andover Commercial Park, among one
of the largest preleased transactions seen in
the UK in the last 12 months. The Co-operative
Group, the UK’s fifth largest food retailer, has
signed a 20-year lease on the property. Good-
man, a global provider of industrial and busi-
ness space, is steering the development, backed
by Legal & General Property, which is handling
the project funding and acquisition.
“We are experiencing renewed customer and
investor demand in the UK and across our mar-
kets around the world,” said Greg Goodman,
the CEO of Goodman Group. “This transaction
demonstrates our ability to successfully deliver
on our pre-let and pre-funded development
strategy, with high quality investment partners
such as LGP.”
The new regional distribution center will be
going up in the northwestern corner of the An-
dover Commercial Park, a former airfield site in
southern England, which has direct transit links
to London and the South West. Goodman was
represented by Savills and Carter Jonas, M3 act-
ed for LGP and Thomas Round acted for The Co-
operative Group. Goodman will soon start mar-
keting the site, with fully serviced plots available
by the end of the year.
The 40 ha Andover Commercial Park has the po-
tential to accommodate an additional 110,000
sqm mixed-use development that could be
used for distribution, office, hotel and retail.

WESTIMMO INCREASES INCOME

Westdeutsche ImmobilienBank AG
(WestImmo) pushed through the
global economic crisis to report a
record high in revenues for 2009. The bank saw
its operating profit hit €147.7m from €141.8m the
previous year. New business also rose to €6.2bn.
“The growth in our operating income reflects
our greater acquisition power,” said Peter
Knopp, WestImmo board chairman. “Our work-
ing business model and our conservative risk
policy enable us to concentrate fully on our
customer business, which is a great advantage
on the markets at this particular time.”
The bank asserted itself on the bond market.
The total WestImmo issue volume for 2009
reached €4.3bn, up from €2bn in 2008. West-
Immo is forecasting a strong performance for
2010 as well. It is already reporting that its new
business is higher than last year.
 10 CZECH REPUBLIC
Komerční banka
tender down to
two
Komerční banka, which is looking for 15,000
sqm of space in a secondary location on the
metro’s B line has reduced the list of candidates
to just two names: Letňany Office Islands
offered by Hochtief Development and West City
by the Czech developer Finep. Monika Klucová,
spokesperson for Komerční banka, says that the
bank will make its choice during the first half of
2010. By that time it will also decide whether to
lease or buy the property.
Klucová says that the bank’s prime motivation
12 is to optimize costs. “We have been leasing
a number of buildings in Prague, and the
way we use and operate the space is often
not economical. In a move to centralize and
rationalize our operations we started looking
for appropriate space that would better suit
our requirements and offer a convenient
environment to our employees.” She says the
bank will keep its buildings on Na Příkopě
street and at Wenceslas Square in the center
of Prague, while instructing the Knight Frank
23 agency to offload three other properties in
Prague 7, 8 and 10. As required by the bank,
both developers should complete their projects
by 2013, when the bank would move in.  with valid planning from the developer Trigema
Near the Letňany metro station on the eastern
Winning the tender would enable Hochtief to start construction in Letňany
Office Optimize costs | 12 Offload three other properties | 23
Two properties are still in the running for one
of the biggest requirements in the Prague
office market
Nina Fibigerová
FINEP – West City is one of the candidates
edge of Prague, Hochtief plans to build 68,000 Construction should start in the third quarter
sqm of office space in six buildings, to be of this year, but the final decision of Komerční
named after six islands: Ithaca, Svalbard, Luzon, banka is crucial. Hochtief Development
Andros, Niau and Dalma. The developer could spokeswoman Sylvie Samková admits that
complete the entire project, which it bought further potential lease contracts are in
negotiations, but nothing has been signed yet.
by 2014, though this probably assumes having
sufficient preleases.  Nearly an hour away on the western end of
the metro’s B line in Stodůlky, Finep is flexing
its muscles to continue construction on West
City – a new neighborhood it’s developing
with new office, retail and residential buildings.
From a total of 44,000 sqm built in three office
buildings, 75 percent has been leased, including
a large chunk that went to Siemens. Unicredit
financed the construction.
How quickly it starts on the next phase of
West City, however, depends on whether it
wins the Komerční banka tender, according
to Tomáš Pardubický. “We have three
bids from banks for financing, but these
assume Komerční banka as the tenant,” says
Pardubický. “Without it, I expect the banks
would require standard preleases of between
30 to 40 percent.”
 On the shortlist | 20 Suits their needs | 29 Development CZECH REPUBLIC 11

Work has finally gotten underway on Dock, a

Dock scheme mixed-use scheme that will be one of the few
in Prague to offer riverside living
sets sail Nina Fibigerová

Developer and investor Crestyl started
demolition work on its Dock project in Prague
8–Libeň. The clearance, ground work and
cleaning of the surrounding water areas are
scheduled to continue until summer, followed
by the start of construction of the first phase
of the project, which will offer 120,000 sqm of
commercial space and 346 apartments over
four phases. The total cost of the development
should go up to CZK 7.5bn (€293.9m), with
clearance to bite away CZK 20m. Omar Koleilat,
CEO of Crestyl, says he’s in negotiations with
a few potential tenants for office space in
the first and second phases at Dock. “The
level of pre-sales in the residential part of the
project indicates we should be able to start
construction shortly,” says Koleilat. Currently,
the developer has reservations on 21 percent
of the 52 flats in the first phase, and pre-leases
20 for 13 percent of office space. “We are on the
shortlist of one tenant, that would take Crestyl has begun demolition work on its
project Dock in Prague 8
42 percent of the total office space, which
means we would have all we need to tap
into financing from Unicredit,” says Koleilat. 
The first phase is scheduled for
completion in 14 or 18 months. “Some of
the tenants already expressed interest in
the second phase of Dock, as the space
29 suits their needs better,” he adds. “The
mood in the market is improving. Even
the banks are more active. Six months ago
there was no confidence, no one was sure
if and when the market would recover. If it along the Vltava river, Dock will include a hotel,
is a question of demand, psychology or price. a restaurant and a café. A marina scheduled
These days they only speculate how much to open to the public in June this year. The
risk they are willing to take: 20–30–40 or 50 developer is moving carefully: three buildings
percent.” with 20 flats each will be built in the first phase
together with a 9,700 sqm office component in
Located near the Palmovka metro station the Dock 01 building.

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 12 CZECH REPUBLIC
Little appetite for
land
Most of the projects talked about at the
moment are residential schemes, as developers
strive to reduce the fat from their portfolios.
Red Group, for example, is trying to sell the
residential portion of its Waltrovka project in
Prague 5–Radlice. Sekyra Group is expected
to close a deal soon on the sale of a small
Prague 6 residential project called Radimova, to
Immorent. The same developer could offload a
650-flat scheme in Malešice.
Sekyra’s development director Leoš Anderle
admits his company is trying to sell two
others: one in Hřebenka (Prague 5) and one
called Manovka II (Prague 6–Ruzyně). He
claims, however, that Sekyra Group is under
16 no pressure to sell, and rather than reducing
prices, the company will complete the projects
itself. “We’re also getting a lot of offers [from
vendors], but all of the projects sell at relatively
Bouwfonds isn’t planning to reduce its portfolio
Investment No pressure to sell | 16 Prices could drop | 58
There’s no lack of development land on the
market, but as in the market for completed
buildings, buyers aren’t willing to buy at the
prices they’re being offered
Nina Fibigerová
high prices,” Ekonomické stavby has begun offering plots to its clients to build homes on
says Anderle.
He’s not the
only one in no
rush to buy.
“I am getting
about 10 offers
every week.
There are quite
a lot of projects
available in
various stages,
from pure land
to projects
with valid
construction
permits,” says
Petr Kouřil,
managing
director of residential developer years ago. “They typically bought the land in
Bouwfonds ČR. “But I think the right 2006. Meanwhile, the price has risen by some
time is yet to come. The sellers’ 30 percent, but now as they withdraw from
prices are still unrealistic, having the market or need cash, when they try to
dropped slightly only in the regions, sell it, they find they are back at 2006 prices.
while in Prague they remain almost And this is sellable,” explains Gavlas. “I have
stable.” yet to meet anyone who paid the extravagant
prices of 2007, 2008, who’s been forced to
David Mencl, CEO of the accept a real loss of say one-third of the initial
development company Ekonomické investment.”
stavby, warns this seeming stability
might not last forever. “Many Jan Hospodář, who specializes on commercial
owners of locations have been land sales at CB Richard Ellis claims prices
under pressure from banks to sell. have remained stable. “Retail, for example,
But buyers are scarce, as the banks has not been affected to the point where the
refuse to finance the purchase of price would drop considerably. Developers are
land, and there is a lack of equity in betting there are plenty of potential partners
general,” says Mencl, “This is what’s to negotiate with in the market, but demand is
starting to push down prices of limited. The result is stagnation.” 
large locations, and the trend will
continue this year. Prices could drop 58 He says nearly half of the food retail chains
by tens of percents.” currently on the market are looking for land.
One example is Globus, which recently bought
Ivo Gavlas of the Gavlas auction the former Agmeco plot in Prague 4–Chodov
company says sellers of land are from Sekyra Group and another plot from the
already willing to accept a non- developer RPG located in Havířov in north
profit situation, where they only Bohemia.
get back what they invested a few
 14 CZECH REPUBLIC Development
Rare industrial land
sale planned for
Brno
About a third of Brno’s expansive Černovická
terasa industrial zone will soon be up for sale.
The city is getting ready to launch three tenders
on 55 ha of the area’s 180 ha. The land will
initially be leased out and later, 39 ha will be
sold, according to city officials.    where demand for industrial sheds exceeds
The administration hopes to attract interest
from industrial developers, who would be able
to build and operate warehouses there and
10 invest in the necessary infrastructure. The lease
and purchase contracts are scheduled to be
signed in September. The zone appeared to
be headed towards success, until the financial
crisis broke out, leading some of the potential
29 Other strong industrial players are also said
Enter joint ventures | 36
Red Group selling plots at Waltrovka
Red Group has put land up for sale at Wal-
trovka, one of Prague’s biggest brownfields.
Its CEO, Barry Cullen, says the company is in
negotiations with potential strategic part-
ners, which it found through market con-
tacts. The sale of the plots on the edge of
the 24 ha industrial area in Prague 5, Radlice
should enable Red Group to start construc-
tion on the commercial part of a project that
will also offer apartments.
The developer claims that work on the
30,000 sqm, nine-floor office block, worth
CZK 2bn (€79.3m), will get underway as
soon as the construction office gives it the
thumbs up. At the same time, Cullen’s team
is working intensely on documentation for
the planning permit of the main square and
finalizing a design for the adjoining resi-
dential apartment section. The hillside area
of the site should accommodate low-rise
townhouses.
Necessary infrastructure | 10
With industrial demand outstripping supply
around Brno, the city’s sale of 55 ha could end
up providing some rent relief
Nina Fibigerová
tenants to step back. The city announced
that four companies have recently expressed
interest in leasing and buying the land.
Brno is the only city in the Czech Republic
supply, as there has been little land available
for a couple of years. Jan van Geet, CEO of the
industrial developer VGP, who has been looking
for the opportunity to enter the Brno industrial
market, says he will consider the Černovická
terasa offer. “We would be interested in a
much greater area, and the city has not yet
announced the conditions, but anyway it is an
interesting opportunity for us,” he says.
to be interested. The 55 ha is an exceptional
Cullen suggests that the developer is pre-
pared to start construction on spec. “To roll
out an aggressive development strategy
in the post-crisis financial world, we would
like to start the construction of the first
phase of the commercial development. We
can jump start this and hopefully beat the
competition with product available in the
market in 2012 if we sell peripheral parts
of the site, which can be developed inde-
pendently,” he explains. “Given that the
total development budget for the entire
Waltrovka site is in excess of €400m (CZK
10bn), it has always been a part of our long-
36 term strategy, to either enter joint ventures
with strategic partners, or to sell-on serv-
iced plots and concentrate on the commer-
cial aspect of the project, where Red Group
has expertise and a proven track record.”
The development has been split into sev-
eral phases, some of which still require
Strong industrial players | 29
opportunity for Brno, a city where only
relatively small plots from private individuals
tend to be on the market, says Ferdinand Hlobil,
head of Cushman & Wakefield’s industrial team
in Central Europe. “There are more and more
plots coming on the market, but these are 1 to
2 ha of land.“
The lack of suitable land has made Brno the most
expensive location for big box users, with rents
exceeding Prague levels by 10 to 15 percent.
“The tenants usually pay about €4 per sqm in
Brno, while in Prague the rent is in the range of
€3.5,” says Hlobil. “And we cannot expect this
will change in a short term as vacancy in Brno
is the lowest among the established industrial
locations. Nothing is being built at the moment,
all projects are on hold.
changes to the city’s master plan. Even
though Waltrovka was scheduled for
changes as part of a series of projects, and
was recently approved by city councilors,
deputy mayor Martin Langmajer has taken
it out insisting the traffic solution was not
sufficient.
So far, Red Group has transferred the pro-
duction of aircraft engines from the Wal-
trovka complex to Hlavenec a village just
outside Prague. This opened the way for an
environmental clean-up, while maximizing
the current rent roll overall of the Walter-
ovka Portfolio, to cover interest payments
indefinitely, explains Cullen. “The strength
of the GE Aviation covenant at Letňany, to-
gether with the strong rent flow from the
redeveloped 13,000 sqm TRW facility at
Hlavenec and the Prague Casting Services
rental at Radlice means that our debt is
covered going forward.”

COUNTRY OF LIES PLANNED
FOR HATĚ
Work on Country of Lies, a new
entertainment park to be built on
the Czech-Austrian border at Hatě is scheduled
to begin later this year, following a number of
delays. The park will be a CZK 300m expansion
of Hatě’s existing shopping and entertainment
area, Excalibur City. The 37 ha area is scheduled
for completion in 10 years. If the developer can
be believed, Country of Lies will be the first of its
kind in the Czech Republic.
CPI LOOKING FOR TENANTS
IN ÚSTÍ
The outer shell of CPI City Cent-
er project in Ústí nad Labem in
northern Bohemia has been completed and the
whole project is scheduled to come online by
next spring. The mix-use scheme will include an
office building, a four-star Clarion hotel, retail
and service space and underground parking.
CPI City Center
The center will offer 5,700 sqm of office space
over three floors with units ranging from 190 to
2,130 sqm. It is being developed by CPI Group.
“We’re negotiating with local and international
News Briefs
companies, who would appreciate space in a
modern and energy-efficient building,” says
Pavel Jirásek, CPI’s leasing manager. Nothing
has been signed yet, and the company isn’t
specifying anything about the leasing proc-
ess. CPI spokesperson Michaela Winklerová ex-
plained there is fierce competition for tenants in
Ústí. CPI started selling the space at the begin-
ning of the year.
BANKRUPTCIES SPARKING
LAND SALES
The properties of struggling, non-
property companies are starting
to hit the market.
Bohemia Crystalex Trading is trying to offload a
building on Štěpánská street in Prague 1 along
with a garage and storage area in Liberec. The
properties had served as collateral for Citibank.
The outstanding debt behind the glassworks
company is CZK 5.25bn (€205.6m).
In the Moravian capital, the auction company
Naxos has been entrusted with finding a buyer
for the plot, where a mixed-use scheme called
Centrum Brno on Mendlovo square has been
planned. The owner of the land is Gaspra. The
bid deadline for the 2.5 ha of land is May 10. The
project proposed for the site would offer 27,500
sqm of retail, 28,000 sqm for services and enter-
tainment and 9,500 sqm of office space. Howev-
er, the planning could be changed to 50 percent
residential.
Also in Brno, Jan Hospodář of Land Acquisitions
and Disposal in CBRE is now working with TEVA
pharmaceutical company in Brno to offload a 19
ha, in part to pharmaceutical companies that
would use the existing buildings and equip-
ment and divide the rest into 16 plots to be sold
to investors.
A month ago, Naxos auctioned off the complex
CZECH REPUBLIC 15
of the tools producer Narex in Prague 10 for CZK
21m (€822,596), and at the end of April, it sold a
zoned, 27,000 sqm development plot in Borská
pole in Pilsen for UniCredit, which seized the land
from AIG/Lincoln after unsuccessful negotiations
to reschedule the loan with the developer.
COLLIERS: INDUSTRIAL
VACANCY FALLING
Earlier in the year, CIJ reported
that developers had been notic-
ing an increase in Western manufacturers mov-
ing into the Czech Republic. It’s a trend that
could actually be gathering pace. Colliers CZ re-
ports that while vacancy is still in the high teens
MARKET DEVELOPMENT
Source: Colliers
(17.8 percent) take-up rose in the first quarter of
2010 to 152,000 sqm. That’s the sort of numbers
not seen since the third quarter of 2008, having
fallen to a mere 50,00 sqm in Q2 2009.
If current demand levels hold up, Colliers MD
Karel Stránský predicts that vacancy could come
in at under 10 percent by the end of the year.
He goes so far as to warn that some regions, in
particular western Bohemia area around Pilsen,
could run out of large-scale available stock. The
question remains, however, what sort of lease
conditions it would take for developers to actu-
ally start producing new sheds. That’ll be the ul-
timate litmus test on this alleged recovery.
 16 CZECH REPUBLIC News Could take until 2028 | 27 Self-financing | 44

Progress on urban planning in Prague 8 is

Sekyra introduces paving the way for a major new mixed-use
project to be built on Rohan Island
Rohan Island plans Nina Fibigerová

Sekyra Group hopes to start work on an
expansive mixed-used project in Prague
8 within the next two years. The company
plans to develop more than 250,000 sqm of
commerical and residential space on 20 ha of
land between Pobřežní street and the renewed
river arm around Rohan Island in Karlín.
The whole project, budgeted at CZK 15bn The plans for Rohan Island represent one of the
largest development schemes in Prague
(€586.9m), will be divided into phases, with
each  delivering around 200 apartments
and between 12,000 and 16,000 sqm of
office. Construction is scheduled to begin
in 2011 or 2012, but the entire scheme
27 could take until 2028 to complete.

The 20 ha area will be divided into three
main segments. The first section to be built
would be a central square. Leoš Anderle, the
development director at Sekyra Group says it
would offer offices, retail, services, restaurants
and cafés, near the Invalidovna metro station.
Residential space would then go up on both
sides of the square, with high-end units going
up first on the Karlín end, closer to the city,
followed by mid-range units placed closer to
Libeň bridge. Office buildings are to border
Pobřežní street and will separate the busy traffic
artery from the residential section.
The exact volume of the investment is of
course dependent on the level of demand
for new real estate, but the developer is
confident in its predictions. “We believe
the market can absorb the planned space,”
says Luděk Sekyra, chairman of the board
at Sekyra Group. “Demand for flats has been The first phase is estimated to cost CZK 1.5bn
reviving lately. The prices have bottomed out, (€58.7m) and will be financed by a mix of
and we expect a moderate increase in both sale equity and debt. Sekyra expects that by 2014
prices and rents.” The company will start selling the company will cash in profits from the first
the project in 2011, during the construction 44 phase, and the project will be self-financing by
permitting process. the third phase.

CZECH REPUBLIC
w w w . c i j j o u r n a l . c o m

May 27, 2010

Feeling the Pinch: Legal tips for protecting real estate
owners and landlords in dealing with pressures from banks,
tenants and other creditors.
The financial crisis has introduced a new set of problems for owners of real estate. Distress, repossession,
rent reduction, loan acceleration, insolvency and handing the keys back – expressions not really heard by
owners and landlords in the Czech Republic until 2009/2010. How are owners and landlords coping with
the pressures that many are now facing and what can be done to mitigate the risks. Practical issues and
examples with practical solutions.
Presented by: Bryan Wilson, Partner; Wilson & Partners and Karel Doktor, Partner; Wilson & Partners
This session is aimed for all those who own or manage real estate property.

For further information please contact: Organized by:

Dušan Krnjaja I email: krnjaja@cijjournal.com I tel.: +420 222 220 800
All PLP Czech Republic classes are held at the Hotel Jalta, Václavské náměstí 45 in Prague, on the indicated dates starting from 5pm.
 You won‘t find a solution
by saying there is no problem!

R E A L E S TAT E BANKING & FINANCE

C O R P O R AT E / M & A A N T I T R U S T / R E G U L ATO RY & C O M P E T I T I O N

Please contact: ... a better law firm

Bryan Wilson
Tel. +420 724 919 280
SOLVING PROBLEMS email: bryan.wilson@wilsonscee.com

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email: karel.doktor@wilsonscee.com

www.wilsonscee.com
 18 CZECH REPUBLIC Development
Reflecta buys out
Finep scheme
Reflecta Development has acquired part of the
Na Hvězdárně site in Prague 5, where it plans
to build 100 villas and sell for roughly CZK 25m
(€993,509) a piece.
Reflecta bought 120,000 sqm of land from
the developer Finep, which had planned to
construct apartment houses and 20 villas there.
Jakub Sklenka, a Reflecta board member, says
Wishful thinking | 21
Doubts surround South
Town tower Nina Fibigerová
A private investor associated with the
Melit company recently stepped forward
with plans to build a 120-m high-rise
in the middle of the Jižní Město (South
Town) housing estate at Háje metro sta-
tion in Prague 11. The project, dubbed
Porto Háje, would offer 57,000 sqm of of-
fice and 26,000 sqm of retail space. The in-
vestor insists it has already signed future
purchase contracts for the 25,000 sqm of
land.
The project, still in the planning phases,
has elicited mixed reactions from mar-
ket observers. “It can’t be divided into
phases, which is a serious handicap. You
will not be able to secure sufficient pre-
leasing to get a bank loan,” says Eduard
Forejt, associate director at Jones Lang
LaSalle. “The lender would require pre-
leasing at least 30,000 sqm, which is
21 wishful thinking these days.”
Jan Horčička, a project manager at Edi-
fice, which is working with the investor,
says his client is looking “to build the
whole project in one go”, adding that it’s
It will be unified | 21
Reflecta has purchased a residential
development plot from Finep that it’s re-
working as a villa-only scheme
Nina Fibigerová
the deal was not a distress sale. “The price was
realistic. It met our expectations by the time the
deal was done.” Reflecta’s strategy was to erase
the plans for apartments and concentrate solely
on stand alone family homes.
Architect Boris Redčenkov and his studio,
Atelier A69, are working on different housing
designs for the location: three to five bedrooms
and one two-generation villa, a range that
will cover 95 percent of the client’s demand,
according to Sklenka.  per sqm, while an additional CZK 7,300 per sqm
worked closely with CB Richard Ellis on
the feasibility study. In what could be an-
other case of wishful thinking, he claims
pre-lease requirements will change be-
fore the project passes the permitting
process, which could take three to five
years.  in the second phase will be sold, too,” says
Mikuláš Molnárfi, a senior surveyor at
CBRE, says it will be extremely challeng-
ing to lease such a large building. “There
are two demands in the market from two
banks that would suffice as prelease, or
I can imagine headquarters of a govern-
ment office to take part of the building.
The problem is that transport access is
not ideal, and the anchor tenant wouldn’t
have its own identity,” says Molnárfi. “It
would have to share lifts with other ten-
ants in the building.” He argues that the
landlord would have to charge less rent
than the going rate in Chodov, where it
is €14 per sqm on average. Molnárfi says
€10 per sqm may attract a tenant to Háje.
It’s estimated the project could cost up to
CZK 4bn.
Two houses per month | 41
“There will be variations in the design, but in
21 general it will be unified by some elements
either in the materials or shape,” says Sklenka.
“Also when creating the villa, we worked from
the inside out. We designed all the interior
rooms to be optimal for future use and then
wrapped it into a nice box.”
The villas will offer 180 to 340 sqm of space and
plots will vary from 500 to 1,500 sqm. Homes
are priced between CZK 60,000 and CZK 70,000
will be paid for the land.
The first phase of the project will cost the
developer CZK 400m (€15.9m). As soon as a
planning permit is secured, Reflecta will start
negotiations with the lenders. Sklenka doesn’t
think finding a lender will be a problem,
however, given the CZK 300m of equity that’s
been invested into the land, while 20 out of 25
villas planned for the first phase have already
been sold.
41 “We’re selling two houses per month just
off plan, and I believe that before we start
construction early next year, half of the houses
Sklenka. “We’ll start by building 20 houses all
at once and continue with further villas so that
we always have two products in each category
on offer.”
A commercial building on the central square
of the new neighborhood will offer space for
a restaurant, café, and a small grocery store.
Four medical offices will share the rest of the
space, while 150 sqm will be reserved for local
authorities. The building will be financed and
operated by Reflecta.
“We will even invest into the fitout of the
restaurant, and we are in negotiations with
three potential partners, who will operate
it without paying rent during the first year,”
Sklenka says. “We realize that no one would
take the risk of starting a restaurant in a brand
new location in current climate.”
 20 CZECH REPUBLIC Residential Transfer ownership | 23 No unsold units | 40

After years in the regions, the developer

Bouwfonds gives Bouwfonds ČR waited until the crisis hit to
tackle Prague’s residential sector
Prague a try Nina Fibigerová

The Dutch developer Bouwfonds ČR has started The villas in the first phase of the Cikánka project have been all sold
construction on the second phase of Cikánka –
a project in Prague 13–Stodůlky, scheduled to
offer 18 villas after completion in 2011. Eight of
the villas built in the first phase have been sold,
followed by reservations on four homes in the
new portion of the project.

The developer has also directed the contractor

CEK stav to move forward with the first building
of its Biografy Barrandov scheme in Prague
5. Called Adina, this apartment building is 63
percent pre-sold and should be followed by
another, larger building (called Hugo) in 2011.
Bouwfonds is also working on projects in Brno
and Jihlava.

Petr Kouřil, managing director of Bouwfonds

ČR, says the company is one of only a few
residential developers who started construction
on two projects last year, but he claims its sales
strategy gives clients enough confidence to get
on board even in times of recession.
Rather than waiting until completion, the Dutch
23 developer will transfer ownership of the new
units to clients once the shell is completed on
an apartment building, or with family homes,
upon completion of the basement slab. This
Bouwfonds is continuing to work on further phases in its residential project in Jihlava
allows clients to use the property as collateral
for a mortgage, and reduces their risk of losing
the units to creditors, if the developer was to
suddenly go bust.
Kouřil claims this has boosted sales, as has what
he describes as reasonable pricing of about CZK
45,000 (€1,771) per sqm for homes in Prague
and CZK 30,000 per sqm in the surrounding
regions. The Cikánka villas are priced at CZK
12m.
“Our average pre-sale level was 50 percent,
even in the boom times 2006–7, and this
conservative approach has paid off, as we have
40 no unsold units in our completed projects, and
we have not been caught by surprise by the
changed requirements of the lenders after the
crisis stroke,” says Kouřil.

After 13 years in Czech regional cities,

Bouwfonds entered the Prague market in
2008 with the acquisition of a 3 ha site in
Barrandov, where it’s building an apartment
house filled primarily with one-bedroom
flats, intended to appeal to the budget of
cost-conscious consumers. It also bought in
Prague 13–Stodůlky, where it’s planning18
geometrically simple villas there designed
by architects from ADR studio, enabling for
maximum use of the internal space. In Prague
5-Barrandov, the developer is building

Bouwfonds’ Czech pipeline currently includes a

total of roughly 1,000 homes, representing an
investment volume nearing CZK 1bn (€39.4m). 
 Supply chain solutions | 17
Deals: Logistics
leads the way
Office deals were scarce in April, leaving
it to the industrial sector to lead the way,
with increases in both contracts and size.
ProLogis and Valad/Aviva Investors ran
away with top honors as the most successful
landlords, signing more than 30,000 sqm in
leases. The activity lends credence to Colliers
International’s recent industrial report, in
which it predicts that vacant warehouse space
could start filling up quickly. Indeed, in the
first quarter of 2010 roughly 152,000 sqm were
taken. That’s a 77 percent increase year-on-
year.
ProLogis leased more than 31,000 sqm of
space at ProLogis Park Pilsen-Stenovice to
Eurogate Warehousing & Distribution
17 Czech, a company specializing in supply chain
solutions for the retail and electronics industry.
CB Richard Ellis and Cushman & Wakefield
acted as leasing agents for this transaction.
ProLogis Park Pilsen–Stenovice offers more
than 59,000 sqm of warehouse space in three
buildings, and Eurogate will share the facility
with Mitsui Soko and Kika Nábytek.
FAST ČR, the white goods and electronic
supplier in Central Europe, has extended its
lease at the Říčany Trading Estate just outside
ČEZ ‘s customer center at Futurama
Lack of office completions | 61
Office activity seemed to fall off a cliff last
month, but industrial developers had a busy
time of it
ProLogis Park Pilsen–Stenovice landed one of the biggest leases this month
Prague. The extension is for five years. The
company also increased its space there by
an additional 11,900 sqm for a total of 37,200
sqm. DTZ assisted the owner, Aviva Investor
Central Europe Industrial Fund, and its asset
manager Valad Property Group.
Point Park Properties secured a lease on
3,000 sqm of warehouse and office space with
logistics company Logflex
CZ at its PointPark Prague
D1 in a deal brokered by 108
Agency.
TROST Auto Service
Technik, the car parts
supplier, has moved its
headquarters to Tulipán
Park in Hostivice, west of
Prague. The company has
signed a lease on a 4,300
sqm unit in which the
landlord, Segro, represented
by Cushman &Wakefield.
Construction on the CZK
100m (€3.9m) Berendsen
Textil Servis Plant in the
Deals CZECH REPUBLIC 21
Velké Pavlovice industrial zone has been
completed. Jones Lang LaSalle assisted the
manufacturer, which bought the 11,000 sqm
plot the new logistics center now occupies.
The pace of office leasing has slowed. Gross
take-up, including re-negotiations, was just
48,940 sqm in the first quarter of 2010, a 50
percent drop from the final quarter of 2009.
61 More startling was the complete lack of
office completions in the first three months
of this year. The last time that happened was
in 2006.
In April, only two lease transactions were
reported, both by the same landlord –
Immorent. There were no investment deals.
TPI Česká republika signed a contract to
lease the last vacant unit in Building E in
Avenir Business Park in Prague 13–Nové
Butovice. Jones Lang LaSalle represented
the landlord, Immorent, on leasing the
346 sqm unit. Another Immorent project,
Futurama Business Park in Prague 8 attracted
Všeobecná zdravotní pojišťovna, which
agreed to lease 450 sqm on the ground floor
in Building B. The health insurance company
plans to open a client center there.
 22 HUNGARY Investment Painstaking purchases | 25 €6.5 to €8 per sqm | 46

Class B real estate is probably attracting less

Class B not immune investor interest than class A, but distress
seekers have a better chance of success
to crisis Robert McLean

It's perhaps natural to focus on class A real now shoots for rents of Tamás Sellyey, sales director at Indotek
estate, since that's where most of the money 46 between €6.5 to €8 per
tends to flow through the sector. But across the sqm. The upside for the
region, class B properties are an attractive niche crisis has been the inflow
market offering solid returns for those who of tenants from more
understand the asset class. upmarket buildings. 

That understanding, however, is made more “I can't give you a concrete

difficult by a level of transparency that would percentage, but we can
probably drive pampered class A players crazy. see movement from class
That's not to say that the market is a carefully A, because they can't
guarded secret, but rather there's no equivalent afford those levels of rent.”
of the Budapest Research Forum for buildings Such companies will be
built between 1970 and 1995. Even its self- taking a step down in
proclaimed dominant player is unsure of the quality, but they'll also
total stock of office in Budapest. Tamas Sellyey, likely be making massive
sales director at Indotek, says he believes cost savings, since their
Budapest has between 1.2 million and 1.5 old leases will have been
million sqm of class B offices and warehouses. signed when the class A
Besides his own company, however, he's only market was far stronger.
aware of one other major player of such assets. 
As Indotek is interested
The result is that while Indotek may be the in expanding its current
market leader, significant growth of the holdings by at least half,
company's portfolio (currently somewhere now would seem to
south of 600,000 sqm) would require be the perfect time to
25 painstaking purchases from individual owners. do so, especially since
It also makes predicting what will happen to Sellyey claims its debt
rents in the future difficult to calculate. “It’s burden is unsubstantial
hard to answer that, because the class B market and in no way a limiting
is not as structured as class A. That makes it factor. Unlike the class A
almost impossible to judge because you don’t market, however, he says
know all the players, you don’t know the exact there's no lack of distress
size of the market.” on the market, creating
a plethora of opportunities. “The final price movement moving down the food chain,
What’s clear is that recent shifts in the market depends only on the financial status of the meaning that even if Indotek did want or have
have been imposed on it by disturbances on seller,” he says. “If they're in big trouble, you can to sell, buyers would be tough to find. “There's
the class A market. Focusing on new office push the price down as far as you want.” interest but it's very low,” says Sellyey. “We get
schemes, the rapid rise of vacancy in the two or three inquiries per month, but only one
shiny new schemes has created a city full of Moreover, in situations where the bank is of them is worth dealing with. We have one
increasingly anxious developers. And while the looking for someone to take over the debt, transaction under due diligence and there are
best projects in town may still command solidl extremely interesting deals can be found for in discussions with others, but they're near the
double-digit rents, clear-headed owners of the simple reason that “usually the loans were beginning.”
office buildings with less than perfect locations granted before the crisis, so they have quite
have now occupied the €8 to €10 per sqm good conditions.” He says yields before the crisis were roughly
range that class B offices once enjoyed.  in the 9.5 percent range, but that in general,
If there's not much activity yet on class A they're not solidly in the double digits.
The result, says Sellyey, is that his company investments, there's arguably even less

FIEGE AND RETZ TAKE SPACE
Logistics provider Fiege filled
8,300 sqm of its distribution
center at the ProLogis Park He-
gyeshalom. The facility is located near the M1
motorway junction, which leads to Bratislava,
Budapest and Vienna. “ProLogis Park Hegye-
shalom is our first development in Hungary out-
side the Budapest area,” says László Kemenes,
vice president and market officer for ProLogis
Fiege has taken space along the
Slovak and Austrian borders
News Briefs
in Hungary. “We believe that this location is be-
coming a strategic hub for the regional logistics
activity of our customers, as it simultaneously
benefits from the vicinity of the three markets.”
Fiege now leases more than 121,000 sqm of
space from ProLogis.
Peter Amos, the executive director CEE at Fiege,
says Park Hegheshalom will become one of its
strategic growth locations. “The park’s location
was the main deciding factor when choosing
this park, and it also meets our specific logis-
tics requirements.” ProLogis currently operates
485,000 sqm of space in six Hungarian distribu-
tion parks.
In other industrial news, the signing of Retz
Furniture at the WestLog DC along the M1 mo-
torway has brought the logistics facility to 50
percent full. The family-owned company was
created at the end of the 1990s and has grown
into a chain of 30 stores around Hungary.
Tamás Beck, head of the industrial division for
Colliers International, says the market now
could be heading for stabilization. “Although
it is important to emphasize that following the
maturity of discounted products, pricing of the
newly built properties may be different from
last year’s favorable prices,” says Beck.
HUNGARY 23
BRF RELEASES Q1 NUMBERS
The Budapest Research Forum
reports that Budapest’s total of-
fice stock reached 3,024,888 sqm
at the end of the first quarter of 2010. This figure
includes owner occupied buildings by the pri-
vate sector (495,297 sqm) along with class A and
B speculatively built stock (2,529,591 sqm). The
BRF reports that despite the delay of some com-
pletions, 91,927 sqm of class A office space was
brought to the market in the first quarter in seven
buildings, whose average vacancy rate is 90 per-
cent. This has driven vacancy up to 24.8 percent
on speculative stock.
Demand in the first three months of the year hit
76,689 sqm, of which 33 percent was made up of
lease renewals. Net take-up was 45 percent of to-
tal demand, of which 39 percent represented new
transactions and expansions made up a mere
6 percent. The largest deals were Ernst & Young
(6,868 sqm), Unliever (5,500 sqm) and Cemex
(3,476 sqm).
The members of the Budapest Research Forum
are CB Richard Ellis, Cushman & Wakefield, DTZ,
GVA Robertson, Jones Lang LaSalle and King
Sturge
 24 HUNGARY Q&A Single digit rents | 14 Push the button | 88

Adorjan Salamon, director of Eston

Salamon: Quality International, says Budapest’s history of
high vacancy shouldn’t count against it for
offices still strong investors

The situation in Hungary has stabilized, but there aren’t many trans- product and the bad
actions being talked about and new development looks risky at best. product. If you check,
In Hungary the pricing issue has been difficult, because everyone knows the on the periphery you
crisis is here. Liquidity has stopped, but no one wanted to realize the drop in get 40 percent va-
prices. At the end of the day, we had a lot of sellers, but their prices are not cancy, while on Vaci
reflecting the present market situation.  ut you have below 20
On the other hand, you’re right, doing an office or retail development in percent.
Hungary today is fairly risky. Yields have gone up, though no one knows
where they are because there haven’t been transactions. There are only es- That’s still high
timations. That’s one risk.  when you look at
But also, comparing Budapest to Warsaw, the leasing activity is at a much other CEE capitals,
lower level. The only prices that have gone down are rental fees, where for though. Prague de-
office space they’ve fallen 10 to 30 percent. It depends if it’s downtown or velopers start hy-
14 out of town, but single-digit rents aren’t a surprise anymore.  perventilating when
it gets close to 10
So, talking about €9 rents is no longer taboo? percent.
It depends on the location and the quality of the building. On Vaci ut we’re Look at the history of
still signing at more than €12, so the one-digit brand isn’t valid for all build- the Budapest office
ings and locations. It’s not a positive message for the market if it’s €8 or €9 market. We never had
euro, but if it’s not a quality building, then they have to accept these types below 12 percent in
of rent levels. the last 10 years. So
if the average is 14 to
But you can’t start developments with those sorts of rents, can you? 15 percent, if it’s 18 to
I fully agree, even if there’s an expectation on the market that rents have to 19 percent right now
go up. Probably not this year, but in the coming two to three years. It’s very then it’s only a bit
difficult to predict, though. In 2000, all of the agents, advisers and develop- higher than normal.
ers said rents had hit bottom and would start increasing. But nothing really
happened, except for inner Buda and the downtown area. Everywhere else, But why should that kind of history reassure an outside investor?
rents stayed the same, but there was strong yield compression which bal- We’ve always had bad buildings on the market and most of the vacancy was
anced them out. At the end of the day, developers were still profiting, so produced by the minority of buildings. Two-thirds of the vacancy is coming
no one was so worried that rents weren’t rising. Rising rents were not a cru- from one-third of the buildings, meaning the majority of buildings are very
cial factor, as even apart from this, profits were  coninously growing (by the healthy, have a strong track record and achieve good rents. So if an inves-
yield reduction). tor is coming here, I’d advise him to check the location and to check certain
locations, along with the concept of the building. If they’re all good, then
Is now a good time to invest in Budapest office? he will probably never have 18 percent vacancy once the building is com-
I don’t think we will reach the previous prices in the short-term or even in the pleted. If you’re only looking for value and quality products, then you can be
medium-term. At MIPIM this year I spoke with many investors, and I heard assured that your building will be successful.
the most sophisticated, negative answers ever. Everyone was open to be-
ginning discussions, but they all said “we have certain concerns with your In fact, we’re finally starting to hear people outside the country talking
country these days.” But if there’s a 75 bps yield difference compared to War- about Hungary as good value. It’s taken a long time to get to this point.
saw, then investors can make a very nice profit. There were a few months when Hungary was not on the map for institution-
I hope that by the end of the year the attitude of these investors will change al investors. But they’re looking around now and checking the market. I can’t
and they will come here as it seems they have already started “window- feel strong sort of interest yet, in terms of them saying they need to buy to-
shopping”. Preparations for a few investment deals are now underway so I morrow. But I think that once they see that the economy has stabilized, and
expect the first closing will come not later than September. the market starts recovering, the button will get pushed on deals. Once that
happens, today’s yields will only be available for a short time. There will be a
Still, 24 percent isn’t the best argument to invest, is it? 88 few deals this year, but I don’t think they’ll push the button. I’m still hoping
That’s true, but I think there’s a significant difference between the good it will happen next year.
 www.cijjournal.com/cedinvest

13 May | Bank Center | Budapest | Hungary

Breakfast and the Rule of Three

PROGRAM

08:00 – 08:45 Market Presentation by Colliers International

08:45 – 09:15 Breakfast: Sponsored by Colliers International

09:15 – 10:00 Budapest office: Lies, myths...and inconvenient truths

Is Budapest’s high vacancy rate overblown? Developers will argue that supply should be analyzed district by
district, but try telling a foreign institutional investor that +20% vacancy doesn’t matter. Developers are blaming
banks for holding up projects, but what’s the economic rational for building anything at the moment? A frank look
at Budapest’s most roller coaster sector.

10:00 – 10:45 Retail: The ultimate stress test

Today’s shopping centers were never built to withstand the current crisis. So two and a half years after the credit
crisis began, how are they holding up? What have owners found out about their assets? Are tenants escaping their
leases? Are their catchments as strong as they hoped? How effective is the property management proving to be?
Are there any lessons to be learned as developers consider their next centers?

10:45 – 11:15 Coffee Break

11:15 – 12:00 Industrial: The wrong place at the wrong time?

Industrial developers in Hungary have the toughest sector, in what’s arguably CE’s toughest market. At some point,
as unemployment bottoms out and supply shuts off entirely, existing industrial stock in Hungary will begin to look
attractive again. But are we there yet? Are we even close? What signals are we getting from Western Europe that
consumer and industrial demand is coming back?
Partners

Supporting Partner Event Partner Media Partner Organized by

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or visit our website cijjournal.com/cedinvest
 Names of the tenants | 17 €138m first phase | 54 Development HUNGARY 27

The developer claims that neither

ToPark passes construction nor leasing at ToPark has been
slowed by Hungary’s deep recession
another milestone Robert McLean

In April, the developer of ToPark topped out the The first phase of ToPark is made up of office and services in a 350 meter long series of buildings
200,000 sqm first phase of this vast, mixed-use
project on the western edge of Budapest. The
project has continued to prove the skeptics
wrong. Few believed construction would ever
begin on this ambitious scheme, and fewer still
that the shell would actually be completed on
the 12 buildings, which stretch for 350 meters
between the M0 and M1 motorways. 

But there’s still a year’s worth of work to be

done before the new office space can open.
Marketing director Attilla Somos says this
should be long enough to complete the job of
leasing the space, which he claims is already
halfway done. The development team says it’s
anxious to be given permission to reveal the
17 names of the tenants who have signed up for
the first 50 percent of 93,000 sqm of GLA.  along with services and shops will be available,
Given that construction work began in 2008,
after the financial crisis had truly blown open,
the size of ToPark is remarkable. But so too is
the design of the buildings. Generic, efficient
boxes are what one would naturally expect
from a project located deep in suburbia.
Instead, this project features a covered internal
passage at ground level in a high street-like
environment. Numerous restaurants and cafes
Employees in the new offices will be able to walk through a
covered passage to restaurants, cafés and stores
while the individual buildings are designed in
the style of Dior, Armani and other icons.  meters away to the west. Somos admits that
“We want to keep people here after work, not
have a ghost town” says Somos. “We would
like to create the type of mood you have in
downtown Budapest or Prague or European
towns. This is the kind of area people like to
spend time in. They won’t stay after work to
drink coffee in these futuristic office parks
made out of concrete
and glass and steel.”
Headline rents for the
office space began
at €9.90, but Somos
claims the developer is
currently asking for a
euro more.
Attention will be
focused on the as-yet
secret list of prelease
clients, because the
fate of this €2.4bn
scheme could hang
in the balance. After
completion of the
€138m first phase next 54
spring, work should
get underway on what’s being described as
Hungary’s largest mall on land located just
along with attracting important anchor tenants
to the mall, the developer will have to come up
with some kind of special attraction. The goal is
not just to attract customers from the western
portions of Budapest, but from as far afield
as Vienna and Bratislava. Clearly, a multiplex
theater and food court won’t be enough to pull
that off, but if he already knows what it’s going
to be, Somos isn’t giving any clues.
In time, ToPark has an even grander vision
encompassing everything from office and
apartment buildings to sports facilities and in
time a new exhibition center. The scheme will
have high capacity access routes from the M1
and the M0, as well as an existing commuter
train line from Déli-pályaudvar and Etele tér
that will be extended to the site. A new station
will be built by 2015 and connected with a new
P+R for suburban commuters.
Several new park areas are to be developed
on the huge plot, including a 1,500-meter
pedestrian path, and the lake that’s already
on site (currently used by fishermen) could
eventually be used by the Hungarian Sailing
Association as a sailing school. 
 28 POLAND CEDEP Survey Unexpectedly good conditions | 94 Construction costs have fallen | 178

CEDEP 2010 CIJ took advantage of the high concentration

of prominent real estate players at CEDEP to
Survey: Risks and sound out their opinions on current market
structural change concerns

Scott Dwyer CEDEP was a private event this year, a format which allowed participants to speak more openly

General Manager
(ING Real Estate Development
International)
How will
developers get
back into the
game in Warsaw?
What will their
strategies be?
Smarter
land option
agreements and
phasing of office
developments over
time will become
more prevalent.
As the market bottoms, you will see long-term
leases entered into in the city center. Mokotów
will have its challenges – unless [a project changes in the funding structure of banks, partners enables us to jointly go higher up the
has] a good location regarding amenities and amongst others the German banks, who risk curve beyond the portion that covered
transport; 15k is a good size. The leasing risk have traditionally provided the bulk of real bonds be associated with.
for larger projects is a big factor. As such, the estate financing in CEE. During the crisis, the
only larger projects which will appear will German covered bond market was virtually
have either a substantial prelease or be heavily the only funding instrument which stayed Peter Számely
equity funded.  intact. Deutsche Pfandbriefbank will use
this instrument as its predominant funding
Head of Team, Central and South
instrument and is committed to continuing to Eastern Europe
Dieter Knittel provide services to its customers in CEE. (HYPO Investmentbank AG)
Director Europe But even today uncovered funding for real How has the
Real Estate Finance International, estate lenders (i.e. funding outside the covered business
Deutsche Pfandbriefbank AG bond eligibility) remains expensive and limited environment
for all lenders. As a consequence, LTVs remain changed over the
What are the in general closer to covered bond funding past six months
biggest structural level and between 60 and 65 percent. Funding from a lending
changes currently above that level will continue to be very point of view?
taking place expensive for banks if it is available at all. It is In Poland,
in the banking important to understand that this constraint drastically. Some
sector, especially comes from the funding side and not from the six months ago,
as they will risk side. However, Deutsche Pfandbriefbank there had been
impact on has access to a wide network across the global hardly any financing available, except for Hypo
commercial real organization which allows sourcing of different Investmentbank, for example, although there
estate financing kinds of debt to fill funding gaps at stretch were some signs of recovery. Since October
in CEE? senior, mezzanine and preferred equity levels. 2009, German banks became active and offered
The financial crisis has led to significant The combined underwriting capacity with such 94 unexpectedly good conditions to investors

making them available to carry out transactions.
As a result, yields dropped drastically compared
to the perceived valuation yields some months
ago. As a result of too much money chasing too
few investment opportunities, the safe haven of
Poland will become a nightmare. This scenario
will be repeated in the rest of Europe.
In CEE, although there are some signs of more
interest, lenders are still less active due to the
macroeconomic situation of more countries,
but there are still significant differences
between Romania and the Czech Republic.
What are the biggest risks in your opinion
that remain when considering development
financing?
When considering  developments probably the
associated risks are completion and letting. In
a fragile environment when many firms can go
bust, the risk is about completion and whether
a general contractor can finish the job. You can
hedge against this risk by getting a completion
bond. This will protect you against the risk
that you need to replace your contractor. Cost
overruns are usually covered by the guarantee
of the project sponsor. The latter was less of
an issue when construction costs were going
down during 2009 as a lack of construction
projects created severe competition among
the construction firms. However, construction
is for future tenants. The question is always:
will there be any tenants at all to produced
enough cash flow to cover at least debt service?
What if potential tenants engaged in preletting
don’t survive until completion? There is no
instrument to hedge against this risk within the
framework of non-recourse financing.
How confident are you in the ability of banks
to handle their CEE/Polish RE portfolios
without resorting to foreclosures?
I think the most difficult part of the crisis is
over. Most of the projects which survived will
probably manage to continue. If they have to
foreclose, there will be a bit stronger demand.
CEDEP Survey POLAND 29
cijjournal.com/cedep
Renata Mc Cabe – Kudła Have developers resumed construction
Country Financial Manager because they’re optimistic about the future
or simply because they have very little stock
(Grupo Lar)
to sell?
What factors 178 Firstly, construction costs have fallen by
could prevent approximately 30 percent in the last year, much
residential prices more than prices of apartments have fallen.
from rising Therefore, if one does not have oversupply, it
over the next is a good moment to build. We are optimistic
couple years? Is about the future for apartments costing
it only incurable between PLN 350,000 and PLN 420,000,
optimists who especially two-room apartments. We don’t
think that banks, believe there is much optimism for expensive
developers and or large apartments. There is a large supply of
customers have learned their lessons? ready apartments in districts such as Wilanow
I don’t believe that clients have learned many or Mokotów, and the rhythm of sales is slow.
lessons. Most clients are taking the maximum
the banks offer. The real question is whether
banks have learned their lessons. The amount
of defaults is very small both here and outside Robert Dobrzycki (Panattoni)
Poland. If the banks learned lessons abroad,
they will probably keep some procedures
limiting loans in Poland also.
As for the level of residential prices, they
are determined mostly by land prices and
construction prices. Land prices have not
fallen significantly yet, but construction costs
have. Contractors are now complaining that
they are signing contracts with hardly any
margins. Therefore, a small increase in prices
should be expected in the next two years on
small apartments for which there is limited
supply. For big apartments, there is currently an
oversupply of finished apartments. We expect
their prices to fall until the existing supply is
sold.
Partner Media Partner Organized by
 30 POLAND Valuation
Valuations still
falling
As the season of 2009 property valuation
announcements unfolds, it’s not surprsing to see
the continuing downward trajectory in the value
of real estate assets. According to the property
companies that CIJ spoke to about the issue,
however, valuation figures don’t mean much
in themselves. It takes a context of individual
companies’ condition and the overall market
situation for the valuations to come into focus.
For long-term asset holders, or those with no
intention to sell anytime soon, valuations are
just figures in the book, though there may be an
incentive to discount them when times are tough.
Contrasting examples are provided by Atlas
Estates and GTC. There’s a formal takeover
bid for Atlas Estates that, following its
obligations as a listed company, published
the overall valuation figures of its
properties, but its chief financial officer
Michael Williamson declined to comment
or elaborate on them, citing that more
information on valuations wouldn’t be
advisable in the takeover context.
Another listed company, GTC , also published
a detailed valuation of each and every asset
in its CEE portfolio. The numbers for 2009 were
all down against 2008, but GTC’s board member
for investor relations, Mariusz Kozłowski, doesn’t
consider them as anything more than one of the
petty accounting obligations. “We don’t think this
is any message to the market,” Kozłowski says. It
would be one, he says, if the company was going
through difficulties and the lowered valuations
constituted breaks of LTV covenants with banks.
“But it’s not the case with GTC,” he assures.
36 “Publicly held companies are subject to
regulations which make it necessary to update
such valuations regularly. The result being
some volatility in the balance sheet of such
companies in unstable times. The reasoning
of such a mark-to-market method is showing
potential risks in a company’s balance sheet,
which can occur if a transaction, like a sale or
lease, has to be concluded,” says Harald Jeschek,
managing director of Karimpol.
Subject to regulations | 36
When nearly no deals are happening, many
property companies believe the importance
of valuations is, well, over-valued
Wojciech Kość
“In my opinion, the financial instability caused
by these constant adjustments in balance
sheets outweigh the benefit of investor
protection. In the years before the crisis when
valuations reached unrealistically high levels
there was very little public discussion on
the reasons behind valuation adjustments.
Now, after a heavy decrease in valuations, the
positive effects of this method are questioned
much more than before,” he says.
In other instances, Jeschek says, valuations are
of little practical significance. “From a cash-flow
Platinum BP
perspective for a long-term investor, valuations
have practically no impact. There is no reason
that an asset with long-term lease agreements
and steady income should decrease in value
just because some market parameters have
changed,” he says.
Padraic Coll, general manager at the Irish
property investor and developer Keyinvest,
is less willing to dismiss the value of
valuations, particularly in the context of bank’s
involvement. “All assets are currently being
marked down by valuers. The main beneficiaries
of it are banks, because they are using the lower
valuations against clients with LTV covenants
to renegotiate up the margins which were
negotiated in better times for investors,” he says.
Skanska Property Poland’s managing director
Nicklas Lindberg sees a still different use
for valuation in the times when developers
An important tool | 80
are having trouble. “The importance of the
valuations for us is to have a fair value of our
assets in our books even if we are not going to
80 sell any of them. This is also an important tool
for us to be able to start projects at a particular
moment in the market’s cycle,” says Lindberg.
In Poland, however, working out just where the
property market has been in the cycle has been
unclear, says Niall O’Higgins, managing director
of retail developer Caelum Development in
Poland. “The peculiar aspect of property in
Poland is that buyers were looking for cheap
distressed property, while Polish property and
the economy generally were faring significantly
better than those expectations. Neither
purchaser nor vendor could see fair value and
no transactions really occurred. Hence, the
professional practice of valuation was very
difficult to be precise about and indeed while
it has improved significantly this year, it is still
fraught with difficulty,” he says.
“One could speculate that for Poland there was
a drop in vendor prices, which quite reasonably
incorporated the added trading risk attached
to lower rental revenues expectations and the
security of cash flow. Purchasers, however, were
looking to the extremes of the financial crisis
and looking for distressed properties, which
was not the Polish situation,” he says.
“There were and continue to be investors
looking to buy assets ‘cheap.’ However, it is
clearer day by day that buyers’ perceptions of
value are increasing for Poland and beginning
to match those of vendors. Soon the mismatch
will return to a natural balance between both
parties,” says O’Higgins.
According to off-record talks with Warsaw-
based agencies, there are “more than 10” due
diligence procedures underway for Warsaw
properties at the moment. “It’s pretty certain
that most of them will result in concluded
deals,” says one agent on the condition of
anonymity.
 News Briefs POLAND 31

WORKS START AT VDHG’S
ABC
After signing up Porr as the gen-
eral contractor, underground
works have started on the construction site of
Von Der Heyden Group’s Andersia Business Cen-
tre, a €33m joint venture between Von der Hey-
Foundation works are underway at
Andersia Business Centre
den Group and the City of Poznan. The building
will comprise 14,500 sqm of net usable area and
170 parking places on two underground levels.
There are no pre-leases on the project as of yet.
POLNORD BETS ON HIKE IN
FLAT SALES
The development company Pol-
nord is planning to launch up to
11 residential projects in 2010. The company
also said that its goal for the next two to three
years is to sell up to 2,000 flats annually. “We
expect to multiply [residential] turnover and
profits in the next couple years and have made
radical growth in residential sales our goal,” Pol-
nord CEO Wojciech Ciurzyński wrote in a letter
to company shareholders. He said the company
was going to grow its commercial development
arm.
“I’m convinced that the diversification of the
company’s activity into residential and com-
mercial segments is the best strategy now,”
Ciurzyński wrote. Polnord’s biggest sharehold-
ers are Prokom Investments with a 33.71 percent
stake, along with another 11.64 percent via its
subsidiary Osiedle Wilanowskie, and Templeton
Asset Management with 13.94 percent. Polnord
posted a profit of PLN 63.63m (€16.47m) in 2009,
up from PLN 41.9m (€10.85m) in 2008.
ŁÓDŹ FINES DEVELOPER FOR
HOTEL FAILURE
The city of Łódź imposed a fine
totaling PLN 10m (€2.6m) on Ba-
coli Properties, a development company that has
failed to make any substantial progress in the de-
velopment of a five-star hotel, as well as a high-
rise office and apartment building on a centrally
located plot at the intersection of Łódź’s chief
Piotrkowska street and Mickiewicza avenue. The
company has shown very little activity on the plot
for three years now. The company claims disa-
greements with the city over the height of the
office buildings, originally planned at more than
80 meters, and the global financial crisis have
slowed progress. While the company eventually
bowed to the inevitable and is now working on
a smaller office building, its plans for a top-notch
hotel haven’t changed. The company says that
the hotel will be operated by Hilton and will open
in 2013. When it purchased the plot, Bacoli Prop-
erties had said the hotel would open in April 2010.

POLAND
w w w . c i j j o u r n a l . c o m

May 25, 2010

FIDIC Construction Claims – Their Mysteries Unravelled
Delays to the planned completion date are very common on construction projects. This usually results
in construction claims submitted by the Contractor to the Developer (or Vice Versa) which, in turn, could
lead to litigation, arbitration and other forms of dispute resolution. The number of claims has significantly
increased in the past couple of years due to the financial crisis.
This seminar aims to shed some light on the science behind construction claims; the following topics will be covered:
1. Classification of Claims, Critical Delays and Introduction to Delay Analysis Methodologies for Analysing Claims.
2. FIDIC Clause 8.3 (Project Programme) & Clause 8.6 (Rate of Progress) and the Complicated Contractual Relationship between These Clauses and Claims.
3. Preparing a Defence against a Construction Claim - Strategic Advice.
Presented by: N.M. Raj; Principal Consultant/Managing Partner of Prime Consulting – Construction Claims and Contracts Consultants
This session is aimed for all those who own or manage real estate property.

For further information or to register please contact: Organized by: In cooperation with:
Marta Niezgoda I mail: niezgoda@cijjournal.com I tel.: +48 22 848 60 21
All PLP Poland classes are held at InterContinental Warsaw, ul. Emilii Plater 49 in Warsaw,
Time: 9:00 – 9:30am Coffee break, 9:30 – 11:00am PLP Lecture
 32 POLAND Development
New developments
to neighbor Sea
Towers
In March, the Gdynia town hall’s spatial
planning office passed a master plan covering
land owned by the state-owned deep sea
fishing company Dalmor, which is about to
be privatized. The plan paves the way for
the development of four high-rise buildings,
ranging from 36 to 90 meters in height. Half
the space would be earmarked for commercial
use, while the remainder would be residential.
The area covered by the new plan contains a
long wharf strip suitable for public services,
restaurant or hotel infrastructure. “The plan
should be effective soon, as it only takes a
30-day period [to become valid] once it is
published officially with no remarks from the
Endangered species | 20
Development fends off environmental restrictions
Portuguese developer Gerium Polska De-
velopment’s multi-million euro residen-
tial and park project around a water-filled
former quarry in Kraków’s Zakrzówek area
could be launched within a year. Gerium’s
hopes were reinvigorated after a resolu-
tion to introduce a landscape and nature
protection regime in the area was rejected
by the Kraków city council.
Piotr Cholewiński, CEO of Gerium Polska,
says rejecting the resolution should actu-
ally prove beneficial for an area that envi-
ronmentalists say is biologically valuable.  eral recreation and leisure amenities. The
Cholewiński claims that by being allowed
to move forward on the scheme, the area’s
natural assets will be better protected.
“Passing the resolution would have meant
the destruction of Zakrzówek, as it would
be fenced off, not taken care of, and the
20 endangered species there would have dis-
appeared within two seasons,” he claims.
Over 10 ha of land | 25
By passing a master plan, Gdynia has cleared
the way for major new investments in an
attractive location
Marcin Śmietana
governor of the Gdańsk province so far,” says
Marek Karzyński, head of the spatial planning
office at the Gdynia town hall.
According to Karzyński, local, national and even
international developers have long expressed
an interest in the area. However, it’s still not
known who will participate in the tender to buy
a sizable chunk of the 19 ha plot. Karzyński says
the Polish treasury ministry is not going to sell
25 the entire area. “There will be slightly over 10 ha
of land for developers, amounting to 300,000
sqm of pure investment space,” he says.
A shortage of interested buyers doesn’t appear
to be a main concern. Sławomir Gajewski, CEO
of the Tricity-based developer Torus, is not
interested in the Dalmor area but considers its
In order to appease environmental activ-
ists, Gerium reduced the original size of
the project from 187,000 sqm to 106,000
sqm.
“We expect that the city’s decision on the
environmental impact report will be re-
leased in the summer,” Cholewiński says.
Once the report is accepted, he says, the
city could then issue conditions for devel-
opment, a prerequisite to a construction
permit. The Zakrzówek project is supposed
to begin by developing a park with sev-
park part of the project will cost PLN 70m
(almost €18m), for which the company al-
legedly has bank financing. A residential
scheme of an upper-medium standard
with an average flat size of 80 sqm and ex-
pected number of inhabitants of 3,500 will
follow after the park and will be phased,
depending on the market situation. “Geri-
Forming a consortium | 47
waterfront location a valuable attraction. “It’s
adjacent to one of the most prestigious parts of
Gdynia, which is Kościuszki square,” he says.
Zbigniew Łytkowski, a member of the board
responsible for land purchases for the
development company Hossa, expressed a clear
interest in Dalmor. With five residential projects
currently underway across Gdynia, Hossa would
not mind Dalmor becoming its flagship project,
Łytkowski says. According to Polnord’s deputy
CEO, Andrzej Podgórski, the attractiveness of
the area will boil down to a reasonable tender
price, which in turn will influence pricing of the
final product. He says that banks would finance
the potential scheme in the Dalmor area only
47 by forming a consortium.
um has the funds secured for the whole
project, both equity and bank financing,”
says Cholewiński.
However, not everyone shares Gerium’s
joy about the Zakrzówek area develop-
ment. According to Jolanta Kapica, lead-
er of a local association called Zielony
(Green) Zakrzówek, Gerium’s environ-
mental arguments are designed to divert
attention from the fact that Zakrzówek’s
natural character will be ruined. She
won’t comment on the environmental
impact report before it’s released in May,
but Kapica hopes that a master plan for
the area, which she claims is now ready
to go before the Kraków city council for
a vote, will render Gerium’s current plans
useless.
Cholewiński says the new master plan will
benefit the company if it helps fine-tune
what can and can’t be built in Zakrzówek.
 News Briefs POLAND 33

PANATTONI SHOWS LARGEST
BTS PROJECT TO DATE
Panattoni Europe reported an
agreement on its biggest build-
to-suit contract to date. The client is Tesco, for
which the developer will build 57,000 sqm of
warehouse space on a 12.8 ha plot at the junc-
tion of the A1 and A4 highways in Gliwice. “The
choice of the developer depended on factors
like strategic location in Gliwice, adapting the
design of the warehouse to our expectations
and short-term horizon of delivering the invest-
ment,” says Tesco’s director of distribution, Wo-
jciech Zabiłowicz. The warehouse in Gliwice will
constitute a distribution center for the chain, re-
sponsible for delivering supplies to Tesco shops
in southern Poland. According to Panattoni,
the project will also offer an environmentally
friendly performance, predominantly in terms
of power-saving solutions. The project will go
online in October 2010.
ARMADA DITCHES HOTEL
PLANS
The Bytom-based Armada Devel-
opment announced it was about
to push forward on another stage of its flag-
Bytom has been slow to develop
itself, says Armada
ship project of turning a former coal mine into
a leisure and a non-profit education and culture
center. The center will be housed in the former
coal mine’s historic shaft, called “Krystyna.”
Armada Development says it will pay PLN 1m
(€260,000) this year to renovate the shaft. The
center’s name, “A Mine of Knowledge,” will re-
fer to the shaft’s industrial past and will exhibit
the region’s heritage as well as unspecified “sci-
entific development.” The idea of the center is
a compromise by the developer in terms of the
project’s overall commercial function, as the
shaft was originally planned to host a hotel. The
company says it hasn’t found an operator for it
yet, blaming delays on the area’s transport infra-
structure and Bytom town hall falling behind on
local planning.
DIPSERVICE PLANS 100,000
SQM OF OFFICES FROM 2012
The state-owned real estate
company Dipservice said it plans
to significantly increase its office develop-
ment activity in Warsaw. The new strategy of
the company will focus on the development
of “big modern office projects and selling
smaller properties,” Dispervice CEO Rafał Krze-
mien told the Puls Biznesu daily newspaper.
Krzemień also said Dipservice was going to
invest between PLN 800m to PLN 900m (€205
to €230m) into three office buildings, totaling
100,000 sqm. In 2012, Dipservice is planning
to begin construction on a 56,000 sqm office
building at Świętokrzyska/Twarda streets, op-
posite the Rondo 1 office tower, as well as a
40,000 to 70,000 sqm office and retail project
on Wilanowska street, near Galeria Mokotów.
The company wants to start work this year on
a 5,200 sqm office project on Foksal street. In
late March, the Polish treasury ministry said it
is pushing to float Dipservice on the Warsaw
Stock Exchange.
BERLIN HYP/LANDESBANK
BERLIN REFINANCES
HARMONY OFFICE CENTER
Berlin Hyp/Landesbank Berlin AG
announced it is refinancing more than €34.7m
for the construction of the 18,000 sqm Millenni-
um Park, located on Warsaw’s Żaryna street, be-
tween the city center and Heitman/Immoeast
Empark Mokotów Business Park. Millennium
Park, formerly known as Harmony Office Center,
is fully rented out to Bank Millennium. Accord-
Refinancing of Millennium Park has
been achieved
ing to the bank, the project features good trans-
port links as well as underground parking. The
location has attracted some criticism, however,
for its proximity to a nearby residential complex
and fears that it could increase traffic in the area.
Jan Bettink, chairman of Berlin Hyp’s manage-
ment board, said “the Polish real estate market
remains exceedingly interesting, also in the year
2010.”

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 34 POLAND Residential A grain of salt | 6 13,718 flats finished | 29

It may be too soon to say the crisis is over,

Residential but Q1 residential numbers demonstrate
significantly higher confidence
revival? Wojciech Kość

For years, anything Keen Property Partners has put 38 apartments in Holland Park Apartments on sale
positive residential
developers said about
their sales levels has
habitually been taken
6 with a grain of salt.
But new numbers
from Poland’s Central
Statistical Office (GUS)
indicate there could now
be some grounds for
cheer.

According to GUS,
the number of new
permits is down 31
percent year-on-year,
but construction of new
projects is up from 2009.
During the first quarter
of 2010, developers
broke ground on projects
comprising 11,500 flats,
an increase of 53 percent over the same period
in 2009. March saw the most action, with work
on projects totaling 6,258 flats kicking off.
That’s twice as many as in March 2009, when
residential construction and sales were at their
lowest.  2010, more than in the last quarter of 2009,
29 GUS reports there were 13,718 flats finished in
the first quarter, a drop of 24 percent against
the first quarter of 2009.
According to residential analyst REAS, the GUS
data suggests two things. First, there seems
to be somewhat more optimism with the
residential developers in Poland that makes it
easier to begin new projects. Secondly, a lower
number of new permits might only mean that
developers have plenty of projects with valid
permits that were secured before the start of
the year.  (€2,446) per sqm. In addition, Echo Investment
The revival of the market has also translated
recently into improving sales figures for
companies like Dom Development, JW
Construction, Gant and Polnord. Gant sold 168
flats in the first quarter, just eight fewer than it
had projected. JW Construction sold 286 flats
in the first quarter, 10 percent more than in the
last quarter of 2009. And Dom Development
sold 343 flats during the first three months of
and more than in the entire first half of last
year. The company is also pushing foward with
construction on its first project in more than a
year and also its biggest to date – Saska Kępa
– with another phase of 145 flats announced in
late March.
Robyg said it started two new stages of Nowa
Rezydencja Królowej Marysieński project
in Warsaw’s Wilanów district, totaling 218
apartments. Ronson began work on the third
phase of its Imaginarium project in Warsaw’s
Bielany district, with prices starting at PLN 9,500
has resumed sales on a new residential estate
called Kasztanowa Aleja on Wojskowa street in
Poznań. The Kasztanowa Aleja development
will consist of two independent buildings
with yards, green areas and a playground for
children. It will offer 282 apartments, 37 to 94
sqm in size. Prices of apartments range from
PLN 6,070 (€1,560) to PLN 9,238 (€2,380) per
sqm.
SGI Baltis announced the start of a new
residential project, located on Bartycka street
in Warsaw’s Mokotów district. Construction of
the PLN 60m (€15.51m) project will begin in
June and delivery is set for the end of 2011. The
project will consist of two five-story buildings,
totaling 134 flats, ranging from 38 to 115 sqm
in size. There will also be 201 underground
parking spaces.
At the top end of the market, Keen Property
Partners, the owner and property manager of
Holland Park Apartments, has announced the
sale of 38 apartment in the complex’s Oscar
building. Sales on apartments in the Brunello
building begin at the end of 2009. Two-thirds
of the Brunello apartments have now been sold
or are in the process of being sold. KPP offers
buyers a two-year lease guarantee at Holland
Park.

TWO MONTHS ON, HORIZON
PLAZA PURCHASE OFFICIAL
Union Investment formally ac-
quired the Horizon Plaza office
building in Warsaw from IVG Immobilien AG in
Horizon Plaza
a transaction worth around €103m. The deal is
the second Polish investment for Union Invest-
ment’s UniImmo: Global open-ended real estate
fund. Union Investment previously purchased a
shopping center in Katowice for €95m in Oc-
tober 2008. “This transaction is an excellent
fit with our investment strategy for UniImmo:
Global to generate higher returns in core-plus
countries,” says Karl-Joseph Hermanns-Engel,
a member of the management team of Union
Investment Real Estate GmbH. “Poland has en-
joyed impressive growth over the past 10 years
and its economic structure increasingly resem-
bles that of the original 15 EU member states.”
Completed in 2009, Horizon Plaza offers 38,000
sqm of space, including 32,700 sqm for office
and 3,200 sqm for retail plus additional storage
space. Located in a prime location in Mokotów,
the city’s second largest office sub-market, the
building is 90 percent let.
BZ WBK FUND GETS PERMIT
FOR A CHEAP ŁÓDŹ OFFICE
PARK
BZ WBK bank’s property fund
has received a construction permit for the first
building of an office park project called Park
Biznesu Teofilów. The 10,000 sqm building will
be developed on a 1.15 ha plot on Traktorowa
street, about a 20-minute drive from the Łódź
city center. The fund bought the plot for PLN
17.08m (€4.39m) from the local property com-
pany Sunco in July 2009. According to Ag-
nieszka Jachowicz, managing director of the
bank’s property funds, the building will target
a particular niche on the Łódź office market.
“The project’s advantages are its non-central
location and the quality-to-price ratio. In Łódź,
office buildings are either new and located in
the center, or they’re very cheap C-class build-
ings. We want to compete with a quality build-
ing for companies that either want to leave their
C-class premises or ones looking for a quality
office space that’s not in the center and isn’t
as expensive as the current modern offer,” she
says. There are currently 143,000 sqm of existing
office space in Łódź, which has a vacancy rate
at 24.7 percent. Rents are among the lowest in
Poland, averaging €12 to €12.5 per sqm, accord-
ing to recent figures released by Colliers Inter-
national. Colliers says the city’s subbornly high
vacancy rate will have an impact on rents in the
short-term.
SECOND RESI AUCTION IN
WARSAW A FLOP
There was a deafening PR silence
following the second residential
property auction, which took place in Warsaw
in late March. The auction was organized by Col-
liers and two auction houses, Rick Levin & Asso-
ciates and DESA Unicum. In all, 23 flats were on
the auction block at the Warsaw Sheraton Hotel
that night, but only five were sold. The result
could be interpreted as a demonstration that
buyers and sellers still haven’t agreed on pric-
ing yet. But developers suggest that Poles may
simply not be used to the auction format. The
developer Dantex got a few flats out the door
by offering relatively low starting prices be-
tween PLN 5,200 to PLN 5,700 (€1,346 to €1,475)
per sqm. But Malik Construction (starting pric-
es from €2,070 to €2,226) and Orco (€1,941 to
€2,097) failed to attract any attention. Another
auction was set for Kraków at the end of April.   now getting underway and should be completed
PROLOGIS SUMS UP Q1
Warehouse developer ProLogis
reports that in the first quarter
of 2010, the company signed
173,000 sqm in lease agreements for warehouse
News Briefs POLAND 35
space in Poland. It’s a 200-percent increase in
comparison to the same quarter last year. The
result enabled ProLogis to maintain its leading
position in the warehouse space market in Po-
land in terms of supply (35 percent of the market
share) as well as the number and volume of the
agreements signed (47 percent of all the lease
agreements). Of the total, more than 58,000
sqm was for new leases. New clients include DC,
DS. Smith, DTA and TM Toys. According to Pro-
Logis, customers were most interested in loca-
tions in southwestern Poland and in the Warsaw
area. The ProLogis portfolio consists of approxi-
mately 2.1 million sqm in 25 distribution parks in
Poland and 3.7 million sqm in 40 parks around
Central and Eastern Europe.
SKANSKA AIMS FOR LEED
CERTIFIED OFFICE PROJECT
IN WROCŁAW
Skanska Property Poland started
construction of a LEED (Leadership in Energy and
Environmental Design) certified office project,
Green Towers in Wrocław will go for
LEED certification
Green Towers. It will be located in Wrocław on
Strzegomska street, one of the fast-developing
office locations in the third largest city in Po-
land, a major destination for companies’ back of-
fice processes. Green Towers will consist of two
10-story buildings totaling 25,000 sqm of office
space to lease. The first building, of 12,000 sqm, is
by end of 2012. The developer says it will try to
get Green Towers LEED-certified. According to
Skanska, location choice and design were already
done in line with LEED requirements. LEED is a US
system of building certification based on criteria
like energy use, water management and public
transport friendly locations.
 36 POLAND Retail
CBRE: Polish
retail pulling
ahead
If Poland is pulling ahead in any one sector
more than another, it’s likely to be retail. Peter
Gold, head of CB Richard Ellis’ Cross Border
EMEA Retail, says the country’s economic and
political stability is now reaping rewards when
it comes to global retailer demand. “Proven,
successful markets is where retailers want to
be,” he says. “That starts at the country level, but
that means France and Germany, Italy and the
UK are the priority for retailers. You stay in the
best, proven places. Pioneering new shopping
centers? Not so convinced,” is how he describes
the world view of retailers.
And he says Poland also fits the bill. “Poland is seen the country’s total shopping
15 as an economy that’s far more robust and stable
across CEE. Its size matters but so does stability
and disposable income.” A recent CBRE report
entitled Poland Retail Destinations points out that
Poland’s shopping center stock has climbed to
7.7m sqm in 325 schemes. Eight percent of this,
writes CBRE, is “specialized shopping formats (13
retail parks and six factory outlets). With a little
more than 200 sqm of GLA per 1,000 residents and
weak high streets, the modern retail network in
Poland remains underdeveloped.
SHOPPING CENTRE DENSITY IN MAJOR CITIES
(sqm per 1,000 inhabitants)
Source: CBRE
Robust and stable | 15 Barely 15,000 sqm | 71
Size matters, according to CB Richard Ellis,
but when it comes to retail, so does political
stability and economic growth
Robert McLean
“In 2009, the Polish retail SHOPPING CENTRE STOCK IN MAJOR CITIES (‘000 SQM)
market continued to expand
dynamically, but it was the last
in a series of record-breaking
years in terms of the shopping
center stock completion. New
shopping center additions
reached nearly 830,000 sqm
of GLA, after the completion
of approximately 700,000 and
630,000 sqm in 2007 and 2008
respectively.”
The report points out that of
space area, 60 percent is
located in the country’s eight
key cities and regions. With
this covering 7.8 million
(registered) inhabitants, this
translates into 600 sqm of
retail space per 1,000 people
in Poland’s main urban
centers. “Drying pipeline,
expected to add up to Source: CBRE
approximately 750,000 sqm
of GLA in 2010 and 2011 in Does that mean Warsaw is finished as a
total, indicates that the Polish destination for developers? Hardly. “Warsaw’s
retail market has reached the retail market is far from saturated,” writes
developmental threshold CBRE. “Market niches persist in terms of
when qualitative change is to the geography, type of formats, and store
replace quantitative growth. concepts. For example, there is a considerable
Market diversification will opportunity for convenience centres
reinforce and retail formats will (supermarket anchored developments with
diversify further with both small small retail and service gallery) in several
convenience/neighborhood dynamically developing residential districts,
centers being constructed including Bialoleka, Wilanow and Wawer,
alongside with regional where retail provision remains scarce. On the
parks such as Helical’s Europa other end of the market spectrum there is a
Centralna in Gliwice.” Warsaw room for some larger formats with regional
is clearly the country’s primary catchment in the southeast and northwest of
retail hub, with 1.3 million the city.”
sqm of retail GLA, a figure that
translates into 760 sqm of retail And it’s not the only region that will see growth.
for every 1,000 Varsovians. Still, CBRE predicts that Upper Silesia currently has
2009 saw just two completions 170,000 sqm of retail under construction and
of barely 15,000 sqm, and 2010 71 high street saturation there is also improving,
isn’t looking any better. albeit more slowly.
Photo: Robert Ceranowicz
 Demand rising | 4 New tenants at Wars, Sawa, and Junior | 79
Capgemini, Raben
and FM Logistic top
deals listing
It’s been rather busy on the Polish property
market recently. News on lease deals has
poured in, providing substance to developers’
4 usual claims about the demand rising for all
sorts of space. This time, it seems, they mean it.
The lease deal of the month easily goes to
consulting, IT advisory and outsourcing
company Capgemini Polska, which expanded
their BPO center by 10,000 sqm in Kraków’s
Quattro Business Park, a project from local
developer Buma Group. Capgemini will move to
the new premises in the third quarter of 2010.
In the industrial sector, electronics producer
and distributor Apollo Electronics leased
3,000 sqm of warehouse and office space in
Millennium Logistic Park Pruszków I, a project
from MLP Group. King Sturge represented the
developer in the transaction.
Azymut, a book wholesaler, leased an
additional 8,700 sqm of warehouse space
at Segro’s Tulipan Park Stryków. Azymut now
occupies 18,300 sqm of space in the facility.
ProLogis announced the extension of three
lease agreements totalling more than 52,000
sqm at ProLogis Park Chorzów. Extensions were
from providers of logistics services: Raben,
(28,800 sqm), FM Logistic (19,500 sqm), and
Ponetex (4,000 sqm). Another extension came
in ProLogis Park Poznań II, where IBP Conex,
a manufacturer of connectors for gas, sanitary
and heating systems, leased 14,000 sqm.
An unnamed importer and distributor of
spare parts and accessories for cars signed
a new lease agreement for 15,750 sqm in
ProLogis Park Chorzów. Colliers International
acted for the developer in lease negotiations.
Toy distributor TM Toys leased 3,650 sqm at
ProLogis Park Szczecin.
PointPark Properties completed its
second lease transaction this year. Norbert
Dentressangle, a provider of logistics and
transport services, leased 13,000 sqm of
It’s not just logistics developers that are pulling
in the big deals
warehouse and office space at PointPark
Poznań.
Panattoni began construction on the next
phase of Panattoni Park Ożarów, after finalizing
new leases there. New tenants include logistics
company Loxxess-Transteam (7,270 sqm plus
380 sqm of offices), represented by CB Richard
Ellis, and an unnamed company involved in the
telecom market took 9,210 sqm of warehouse
space and 700 sqm of offices. The new tenants
are set to move in during the third quarter of
2010.
Panattoni also signed a lease agreement
for 12,000 sqm in Panattoni Park Mysłowice.
The new customer, PartnerTech, will open
a production unit for enclosures and system
integration. Jones Lang LaSalle represented
PartnerTech in the deal.
In the retail/leisure sector, Multikino said
it decided to lease space in Korona Kielce,
a 36,000 sqm GLA retail development from
Dariusz Miłek’s Church Land Development set
to go online in 2011.
Cushman & Wakefield, the agency working
to lease AIG/Lincoln’s Galeria Słoneczna in
Radom, announced that 53 percent of the
project is currently leased. Among the new
tenants are Camaieu, Sizeer, Ochnik, Bijou
Brigitte and KFC.
Marks & Spencer opened its first shop in Płock
at the newly opened retail project Galeria
Mazovia, from Lewandpol. Marks & Spencer
will occupy 1,700 sqm over two levels in the
mall, which is financed by Pekao SA, managed
by King Sturge and leased by Cushman &
Wakefield and Mallson.
79 New tenants are moving into Wars, Sawa, and
Junior, the trio of downtown department stores
in Warsaw: Marks & Spencer (4,000 sqm),
Reserved (2,360 sqm) and TK Maxx (4,081
sqm). Wars, Sawa and Junior are owned by
Prime Warsaw Properties, a joint venture of
Deals POLAND 39
Capgemini Quattro BP
Centrum Development and Investments and
ING Real Estate Investment Management
fund named ING PFCEE.
Three new brands – Selene, Drogerie Stars
and Media Expert – leased a total of 1,290 sqm
of space in the Zielone Tarasy shopping center,
a project from Budizol in Elbląg. Selene offers
bedroom furniture and accessories, Drogerie
is a cosmetics chain, while Media Expert sells
household electronic goods. Jones Lang LaSalle
is the mall’s leasing agent.
The delicatessen retailer BOMI signed a lease
agreement on 1,250 sqm in Wzorcownia, another
project from Budizol in Włocławek.
In the office sector, Fusion Invest Polska,
a fund investing in new technologies and
renewable energy, leased 440 sqm of space in
the Rondo 1 office tower in Warsaw. The tenant
was represented by Ober-Haus.
Mermaid Properties signed a lease agreement
with the Polish ministry of foreign affairs on
4,300 sqm in Warsaw’s Młodziejowski Palace.
The ministry intends to house the OSCE’s Office
for Democratic Institutions and Human Rights
there. The organization promotes human
rights and democracy in OSCE member states.
Kancelaria Brochocki brokered the deal.
King Sturge, the exclusive agent for the Zaułek
Piękna office building in Warsaw, announced two
new tenants are moving in. Investment banking
services company Fidea Corporate Finance
signed on for 530 sqm, while law firm Grynhoff
Woźny Maliński took 830 sqm.
 40 ROMANIA Development Very strong backers | 46 Increase our customer base | 88

While other sectors have struggled during

Good news from the past couple of years, the underdeveloped
health care sector has boomed
the health front Amelia Turp-Balazs

When the state fails, private companies step in.
Sanador, Medicover, Centrul Medical Unirea,
MedLife, Romar and many other private
Romanian health care companies have all made
large investments in recent years to meet public
demand for good quality health care. The good
news for the real estate sector is that this trend
looks set to continue.  is difficult to rent property at sensible prices,”
Sanador for example recently leased a 15,000
sqm building from Castrum Corporation, a
deal brokered by DTZ Echinox. The building
will be converted by September into a general
hospital with 120 beds, following an investment
of €40m. “This transaction is important not
only because of its size, being the largest of its
kind in the recent past, but also by the positive
message it sends to the market,” said Mihnea
sqm. Ryan claims this figure could double over will not compete against full-scale hospitals,
the next three years.  such as our facilities in Wilanow, Warsaw.”
Medicover’s revenues exceeded €200m in
“In addition, we own some 20,000 sqm and 2009, and Ryan expects them to top €250m in
expect to add another 30,000 sqm of our own 2010.
space over the coming three years. In Ukraine
we are forced to build our own premises as it Medicover isn’t the only game in town,
however. Local businessman Ionut Negoita,
Ryan explains. a developer and owner of hotels and
residential complexes, recently announced
Medicover’s CFO says that expansion during he would create a new medical facility out of
the crisis isn’t proving to be particularly a project originally conceived as a mall and
Sanador’s investments in the health care sector mean it’s becoming a significant player on the
property market

50

Building a full-scale hospital

means that you have multi-
million euro operational deficits
for between 2.5 at best and more
normally five years.

Serbanescu, DTZ Echinox’s general manager.

Sanador in Romania currently owns three clinics
and two labs of its own, as well as a number of
private rooms inside state-owned hospitals.

Medicover, one of the biggest players on the

CEE private health care market, plans to invest
€20m into new developments this year. “Last
year we invested some €18m into health service
property (bricks and mortar, and land) and
overall we invested over €30m,” says Joe Ryan,
Medicover’s CFO.  46 difficult. “We have very strong backers who see
“This year we will invest some €20m in bricks,
mortar and land, and in the two years after
that we expect to invest between €20m and
€30m per year in land and buildings,” he added.
Medicover’s projects are in the former East
Germany, Romania, Poland and Ukraine, with
its regional renting footprint currently at 35,000
this business in a 20-year time horizon. With
an IFRS consolidated net equity of over €100m
and solid profitability, we have the resources
50 available to fulfil our plans. Building a full-scale
hospital means that you have multi-million
euro operational deficits for between 2.5 at
best and more normally five years. Smaller
scale one-day surgery or specialized facilities
two office buildings into a medical facility.
He told local news agency Mediafax that
construction work on a 25,000 sqm hospital,
a clinic along with space for dental and
plastic surgery offices could begin by the
summer. 
(When contacted by CIJ, his marketing
executive Adelina Pirvu stated that “Confort
 Development ROMANIA 41

Medicover is one of CEE’s biggest players on
the private health care market
CMU’s commercial manager. He
adds that CMU is negotiating
with various local operators for
the takeover of medical centers
in Romania’s largest cities. CMU
invested around €20m in the last
couple of years into developing
and modernizing its clinic
network.
“In the last couple of years we’ve
opened five new locations:
Constanta, Ploiesti, Cluj, Sema
Parc and Bacau, plus a stem cell
bank in 2009 and the first private
maternity ward in the country,
at the end of 2008,” Alexandru
Popescu said. CMU’s expansion
will proceed at a faster pace,
now that the investment fund
Advent International acquired an
80-percent stake in February of
this year.  partner in order to secure the
CMU’s representative pointed
out that the group has
performed surprisingly well
during the crisis, even compared
to other health care operators,
and that its business grew by
72 percent last year, to €17.3m.
The nationwide private health
care market grew by 15 percent.
Besides the opening of its new
Bucharest hospital, CMU’s plans
for 2010 include the extension of
the Pasteur Clinic in Cluj Napoca
and of a laboratory in Ploiesti.
“We can’t estimate the turnover
for 2010, but growth in Q1 was
37 percent,” Popescu said.
Finally, operator Gral Medica
plans to invest €3.5m this year in
finalizing new medical centers
in Romania. In addition, the
company will try to get the
support of an international
financing for a hospital building,
estimated at €25m.

Group [Negoita’s company] cannot development and expansion

offer any specific details related
to this project,” as it is still “at the
planning stage.”)
Last month, another group,
MedLife, opened a new medical
center in northern Bucharest, in the
Baneasa area, and it plans to open
two more this year, in the capital
and in Cluj Napoca. The company
invested €1m in its new facility and
will expand it with an additional
€1m investment to include a new
surgery theater by the end of this
88 year. “This new unit will increase
our customer base by 20 percent,
meeting the demand we’ve had
from clients, both corporate and
individuals, located in the north
of Bucharest,” said Mihail Marcu,
MedLife’s main shareholder, at the
recent medical center opening
in Baneasa. He added that the
company will open a hospital in
Bucharest at the beginning of 2011
and that this year’s budget for
is set at €15m.
Thanks to an increasing
focus on corporate clients,
MedLife’s turnover grew by
20 percent in 2009 compared
to the year before. It reported
an EBITDA of €5.6m for 2009,
and expects this to grow to
€7m in 2010. In November,
Societe Generale bought a
36.25-percent stake in the
company.
The coming period will
also be one of intense
development for Centrul
Medical Unirea (CMU),
another major private
healthcare player in Romania.
“This year we plan to
open a surgery hospital in
Bucharest with 100 beds. It’s a
greenfield investment, which
will us cost around €12m,”
says Alexandru Popescu,
 42 ROMANIA Office That number skyrockets | 31 Save 10 percent | 57

Europolis hopes to bring end users back to the

Orhideea to bet on office market by offering a highly efficient new
building
efficiency Robert McLean

Europolis has gone public with Orhideea, a Europolis is betting that when demand for office space returns, end users will be looking more
carefully at the total costs of the real estate they occupy
43,000 sqm office project in Bucharest it’s been
quietly working on for nearly two years. The fate
of virtually all new projects these days lies in
their ability to attract preleases, so developers
are listening closely to what tenants want. The
message Europolis has heard: efficiency.

Cost-cutting is now rampant everywhere, but

Europolis director Helmut Neubauer says
Europolis suggests tenants would be wise to
look under the hood of their budgets. “Driven
by the crisis, companies are finding out from
their balance sheets where their costs are
coming from, and they’re assessing very closely
where the money is going, and they’re learning
that after personnel costs, real estate is their
second biggest cost factor.”
Orhideea has been designed with efficiency in mind,
which should make it cheaper to operate
He’ll be relying on these sorts of
realizations leading tenants to
start looking around for options,
and has had Orhideea designed to
be competitive on rent for high-
quality space (headlining around
€16.50 per sqm for preleases) but
highly attractive when it comes
to service charges (€4.40 per sqm
per month). A common practice,
says Neubauer, is that developers
will produce contracts with service
charges estimated at €3.50, but at
the end of the year reckoning, that 31
number skyrockets. He admits, for
example, that at his own company
headquarters in America House, the
operational charge is €7.50.
“If you can just pay €4.40
operational charges on top of a
€17.50 rent rather than €7.50 service
charges, it makes a huge difference,”
he says. Orhideea’s service charge
are to be checked and certified by
Romania’s Facility Management
Association.
Efficiency of space and employee
comfort are also crucial issues, both
when it comes to staying in the black and in
attracting and keeping existing staff motivated.
“There’s a tendency for companies to try to
pack too many people into a space,” he says.
Europolis has invested in a high-performance
facade along with window shading, as well as
a high-capacity HVAC system that’s far more
powerful than most other new buildings in
town. One statistic Neubauer says is often
ignored is the add-on factor, which will amount
to just 9.6 percent at Orhideea. “You could
57 save 10 percent just on the add-on factor and
another 20 percent on service charges,” he says. 
So while it’s easy to focus on the main rent
number, Neubauer says the only rational way
to decide if you’re really saving money is to add
up the rent, service charges, add-on factor and
divide that by the number of people you intend
to put in the space. 
Located a minute from the metro at the
edge of the center by the Dombovita river,
Orhideea consists of two 20-story towers that
will be joined by a central, transparent bridge.
Construction could begin by September,
though this will require Europolis to have a
bit of luck with preleasing. Talks are currently
underway with contractors ahead of a final
decision on who will build it.
 2 June
Bucharest
www.cijjournal.com/ceder
InterContinental | 4 Nicolae Balcescu Blvd | Bucharest, 010051 | ROMANIA

Leadership in Turbulent Times

CONFERENCE PROGRAM: The Q & A Discussions
09:00 – 09:45 Market Presentation

09:45 – 10:15 Breakfast sponsored by Jones Lang LaSalle

10:15 – 11:00 Office market: dead or alive?

Bucharest’s office market is between a rock and a hard place. There’s surprisingly little top quality space near the center, but an
abundance of poor quality stock in bad locations. Will an oversupply of empty buildings kill the leasing market for new prime
offices? And will it scare off investors from Bucharest for the foreseeable future? How low will vacancy have to fall before preleases
become feasible, and before exit possibilities for developers emerge? This panel will also discuss how seriously the crisis has hurt
Romania’s position as an investment target for institutional investors.

11:00 – 11:45 Industrial sector: Stuck in the slow lane

With a huge consumer market and a skilled, work-hungry labor force, Romania’s got the basics for a strong logistics sector. But
with the collapse in foreign investments, little project financing and the lack a real motorway network, no one’s in a rush to build
industrial schemes across Romania. Are there any signs of growth? Do developers have any chance of selling their schemes, even
if they managed to fill them?

11:45 – 12:15 Coffee break

12:15 – 13:00 On the edge: Retail developers playing a high stakes game
No one doubts that Romania’s consumer market is vastly undersupplied, but that doesn’t mean it can support an unlimited
amount of new shopping centers all at once. Serious developers are working on serious projects, but so are some highly
leveraged players who came in at the last minute, looking for a quick profit. What sort of rent reductions are being used to keep
tenants in their shops? How much are bad projects ruining the market for quality ones? Are they presenting opportunities for
distress hunters?

13:00 – 14:00 Lunch

Partners Media Partner Organized by

To register or for more information regarding CEDER 2010 please contact:

Robert Fletcher | CEO | +48 506 074 042 | fletcher@cijjournal.com
Adela Balan | Sales & Events Manager | +40 743 794 364 | balan@cijjournal.com
or visit our website cijjournal.com/ceder
 44 ROMANIA PLP Being unrealistic on costs | 13

Costs under control Developers can’t succeed without keeping

at the latest PLP
seminar
How best to keep control of building costs and
issues concerning cost estimation were the
topics of the latest PLP seminar in Bucharest,
held in April as part of a series organized by
Roberts Publishing Media Group together with
the RICS.
Martin Bradley, who has been working as
senior commercial manager for the Romanian
team of AECOM since 2007, provided valuable
information to an audience of developers,
surveyors, architects, brokers and contractors.
He offered real-life examples of building cost
13 problems, such as clients being unrealistic
on costs, and trying to take advantage of the
current economic crisis. “Some developers
believe that costs are lower than they actually
are,” Bradley said. “There may have been
some reduction in the cost of labor and base
materials such as concrete, but elements such
costs under control, but taking things too far
can get them into market trouble 
as finishing materials and technical equipment, Keeping an eye on costs shouldn’t
mean cutting corners
like boilers and electronic equipment, which
are imported into Romania, have not reduced
significantly in cost.”
Bradley said that other problems arise when
developers undertake construction with the
sole objective of procuring everything as
cheaply as possible. “This causes a problem for
end-users in that when the project is finished
it has lost its attraction and appeal, and it may apartment projects. They build the project
lose out to other projects. Currently, end-users to a high standard which may not match the
have considerable choice in the market place,” aspirations of the end-user. Hence it is very
Bradley reminded the audience. important that the developer understands his
target audience,” Bradley said.
A third problem that Bradley identified
was the unrealistic split of major projects His advice to investors was to develop realistic
into high, medium and lower class finishes. estimates, to understand the target audience
“Some developers do not take into account and to maintain the balance between price and
‘affordability’ when constructing large quality.

ROMANIA
w w w . c i j j o u r n a l . c o m

May 20, 2010

Valuation for secured lending
The importance of Valuation Standards and how they are interpreted by
Lenders and Borrowers.

Presented by: Christopher Shonn & Charlie Henry (both from NAI Property Partners)
This session is aimed at developers and those involved in property transactions.

For further information or to register please contact: Organized by:

Adela Balan I mail: balan@cijjournal.com I tel.: +40 743 794 364
Location: InterContinental, Bucharest, Time: 9 – 10 coffee break, 10 – 12 seminar
 Independent hotels | 51 Hotels ROMANIA 45

Adela Cristea (Hilton Worldwide) reported on

Hilton eyes Romania’s hotel sector, along with Hilton’s
ambitious plans on it
Romanian growth Amelia Turp-Balazs

“At a time when residential, office and industrial
developments are experiencing commercial
challenges, the hotel development business
is continuing to perform relatively well,” Adela
Cristea, Hilton Worldwide’s development director
for Europe and Africa said at a recent PLP seminar
in Bucharest. Despite the severe economic
downturn, Hilton Worldwide is actively working to
increase its presence on the Romanian market.
In 2009, it opened a Hilton hotel in the Saxon
town of Sibiu in southern Transylvania (the second
Hilton in Romania), and announced a Doubletree
by Hilton for Oradea, which is expected to open
by the end of 2010. Additionally, Hilton Worldwide
recently announced it plans to open Hampton by
Hilton Brasov in 2011.
Sibiu Hilton was a conversion project, requiring
a €30m investment by local businessman
Nicolae Minea. The Doubletree by Hilton in
Oradea is owned by SIF Banat-Crisana. This new
147-room hotel will require a €15m investment.
“Hilton Worldwide has a range of brands,
suitable for many different types of locations and
markets,” Cristea pointed out during the seminar
which was organized by Roberts Publishing
Media Group at the InterContinental hotel.
Cristea said The Hampton by Hilton brand, of
which there are more than 1,700 worldwide,
would work in some of Romania’s smaller cities.
The company also offers mid-market brands like
Hilton Garden Inn and the full service Doubletree
by Hilton and Hilton Hotels brand. Conrad and
Waldorf Astoria are its luxury brands.
51 “Independent hotels in Europe offer us the
Cristea added that she is currently negotiating
with local partners to open new hotels in
various other locations across Romania,
particularly in cities which have more than
100,000 inhabitants, like Brasov, Timisoara, Cluj
Napoca, Craiova and Iasi.
Hilton Worldwide’s plans for Romania are
part of its wider development strategy, with
development growth expected in Europe and
Asia. The company currently has more than 180
hotels operating in Europe and has added 60
new hotels in the last three years. Currently in
Europe there are more than 70 Hilton Worldwide
hotels in the development stage, one of the
strongest pipelines in the company’s history. One
of the big opportunities it sees in Europe is the
fact that just 25 percent of all hotels are branded.
opportunity to expand our brand portfolio,
particularly through hotel conversions and
franchise agreements” Cristea said.
 46 SLOVAKIA CEDES Survey
CEDES 2010 Survey
Based upon your own observations, and
what was discuss at CEDES 2010, will
Slovakia’s real estate market turn around
in 2010 or in 2011? Later? Will there be any
institutional transactions this year?  opportunities will become an object of their
Andrew Thompson (Cushman & Wakefield):
The real estate market will make strides in
2010 – shoppers will spend more, industrial
production has rocketed already which
should encourage development, exports will
increase, encouraging job growth. In addition
the supply and demand of, particularly office,
but also other markets, is likely to come under
pressure although banks need to get on-
side.  Developers will need to be more creative
to get the deals that are there to work and
their advisers will be more active in this regard.
Frankly, this will help the industry and the
market to mature.
Yes, there will be further growth in 2011 when
I think people will “feel” things moving – after
elections etc. Elections are actually quite
important, and it would be nice if we had some
more pro-business leadership.   be able to continue solving their problems in
Olga Humlová (Salans): Things are starting to
happen, but it is very slow still. If there are are
any institutional transactions, they will be rather
towards the end of the year.  may get tougher or call in some loans, although
Bryan Wilson (Wilson & Partners): I believe
there may be one or two transactions this year
if sellers are sensible about pricing given that
there have been a few buildings on the market
for a while with quite a bit of interest. However,
I do believe that the market is still struggling
and that 2011 is the year we may see some
return to normality
Marek Kalma (Penta Investments): It’s hard to
predict, however the end of 2011 seems to be
the time when [the market will start] moving
again. There’s a much deeper differentiation
between “good” and “bad” projects though.
Marian Fridrich (Tatrabank): I believe the
Minimize their losses | 61 Deal with problematic assets | 87
There’s unlikely to be a rush of distress
hitting the market. At least, not for public
consumption
market will start to slowly turn around this CEDES participants took part in a
post-conference survey for CIJ
year as many tenants who are and were able
to expand were employing a waiting strategy.
But as the potential bottom is reached, the best
interest. However, I do not think the market will
ever go back to its pre-crisis figures, and the
effect of the downturn in relation to national
unemployment and decline in disposable
income will affect the retail market over the
mid-term basis. 
I presume that within 12 to 24 months we may
see some transactions as current institutional
owners will see their figures dropping. As is
the case with other investment commodities,
when such events occur, there has to be at least
a handful of investors who will suffer from the
classical investment sentiment and will want
61 to minimize their losses by selling at present
conditions, as their assumptions for the future
are negative.
Do you expect any significant change in the
availability of distressed assets, or will banks
private?
Wilson: In my view, the banks will continue
Thompson: Some requests for equity 87 to deal with problematic assets behind closed
(including searches for JV partners) and banks doors to avoid public knowledge of the level
of distress and to avoid being the bank who
it sounds from CEDES as though the legislation repossess. I believe that the banks do see light
protects the borrower. I am sure there are at the end of the tunnel. They may even be
plenty of discussions happening and this is, in more prepared to re-negotiate financing terms
many ways, healthy. with borrowers rather than force them to hand
the keys back.
However, I expect most of the real activity will
be on poorer products. I think that debt service Kalma: Distress will be dealt with mostly in
coverage is the key issue and development is private.
simply going to be quieter than the last five
years so vacant space on existing product Fridrich: I believe Slovak banks were
will continue to lease up, and rents may well considered conservative even before the crisis,
increase to shore up and meet this DSCR and therefore I don’t believe there will be too
banking covenant.  many distressed assets placed on the market
(both from private and corporate clients).
Humlová: It looks like rather the latter However, to completely reject this would seem
(privately), unless the debtors start to hand over foolish to me. After all Slovakia has a market
the keys on their own. economy with all its instruments.
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 48 SLOVAKIA CEDES 2010
CEDES 2010:
No easy answers to
the crisis
After being held for five years in the same place,
the property conference CEDES 2010 moved
to a new venue. The new Sheraton hotel, along
with the rest of the recently opened Eurovea
development, was keenly anticipated, as one of
the largest and most ambitious projects of its
kind in the country.
And judging from the tone of the discussions
at CEDES, it could take quite some time before
anything similar is attempted. A cast of speakers
gathered for four panel discussions that sought
answers to the basic questions of what stage
we are at in the crisis, how best to survive it and
how long it’s likely to last.
According to the first panel, moderated by
Hugo Green of PwC, Slovakia has already seen
the worst of the crisis, but it’s unclear still how
much longer the pain will continue.
“We reached the bottom in the second quarter
of last year, and the economy began to grow
from that time,” said Mária Valachyová, a senior
22 analyst Slovenská sporiteľňa. “Of course there
are huge uncertainties about what will follow,
and much will depend upon foreign demand.
Slovakia has been proven to be very dependent
upon what’s going on in the EU. We’re not an
island here.”
Valachyová warned that while the industrial
sector appeared to be moving toward growth
already, the property and construction sectors
Robert Daniš (Wilson & Partners)
There are huge uncertainties | 22
The panic of 2009 may be over now, but
property professionals in Slovakia are
cautious at best about the future
According to the retail panel, store owners are waiting to see how Eurovea does before signing on
could now be moving into their lowest points.
On the other hand, she predicted that domestic
consumption would remain stable, despite the
potential for rising unemployment, as wages
could rise slightly.
Radoslav Jakab (Slovenská sporiteľňa)
Andrej Glézl, a manager at KPMG Slovakia, said
that the denial phase of the recession was over
and that the hard work was about to start. “We
are now beginning to dig down, roll up our
sleeves and begin the restructuring work that
needs to be done in such a crisis,” he said. “The
real settlement of things, finding where the
Tenants are pushing | 107
to new schemes in the Slovak capital
value is and all the big renegotiations are just
about to begin.”
The retail panel, entitled “Positive retail
strategies for negative times” was led by Robert
Daniš, a partner at the Wilson & Partners legal
firm. He quizzed panelists about the level of
optimism they were able to muster when
pushing their projects and activities. Asked
about retailer appetite for expansion within
Bratislava, Marek Kalma (Penta Investments)
said his company’s project was fortunate to be
getting underway now. “They’re cautious,” said
Kalma. “They’re waiting to see how Eurovea
does, but from the beginning of the year, we’re
seeing a big impulse from retailers that want to
sign up for space. It’s based on predictions for
2012 to 2014, when we’ll be open, because they
see a bright future.”
Marco Cinelli, managing director of the fashion
retailer Calzedonia, said at this point, he wasn’t
concentrating on any particular type of scheme
or location, saying that ultimately his company
will need downtown, high street and typical
mall locations. “What we are looking for is more
the quality of the project in terms of tenant mix,

Mike de Mug (Ballymore Properties)
number of shops and affordable location,” he
said.
Mike de Mug, group retail director at Ballymore
Properties, admitted that while he’d prefer to be
able to say that it was still a landlord’s market,
the situation has shifted somewhat, putting
tenants more in the driver’s seat. This didn’t
mean Ballymore was so desperate that it would
accept any terms at all, and there are some
interesting omissions to the Eurovea tenant
list. But there’s little doubt that filling shopping
malls is a far more difficult job than it once was.
Laurie Farmer of Spiller Farmer warned that
there is an increasing number of retailers who
want to open new stores, but they lack the
finance to complete their fitouts. “They need to
tell us whether they actually have the money
to do the projects,” he said. “They want to
expand and they have board approval for it, but
sometimes you can find they signed leasing,
and they’re not in the building because of
finances.”
Andrew Thompson, managing director of
Cushman & Wakefield, moderated an important
discussion on property and asset management.
His discussion centered around the fact that
General Partner Partner
CEDES 2010
many developers of commercial real estate
were building with a view to sell their project
as quickly as possible. This was feasible while
the market was booming but has now become
a statistical rarity. The result is that both
developers and some investors are being forced
to hold on to their buildings for a longer period
than they originally envisaged and that this
necessitates a long-term management strategy
to be created.
All three speakers, Jozef Halasz (King Sturge),
Pavel Klimeš, (Euro Mall Centre Management)
Olga Humlová (Salans)
and Roman Tožička (Cofely), confirmed that
107 tenants are pushing for lower rents while
owners are yelling for service charges to be
reduced. Greater efficiencies are possible,
they said, but cost cutting can only go so far.
Toward the end of the panel, a discussion over
sustainability broke out, with debate centering
over whether the push toward green buildings
was achievable or simply naive idealism.
The final panel, moderated by Olga Humlová,
a partner at the legal firm Salans, produced
the least conclusive result, mirroring in its way
the current predicament of its subject: distress.
Since the crisis erupted in full force toward
Associate Partners
SLOVAKIA 49
www.cedes.sk
the end of 2008, opportunistic investors have
been making the rounds of Central and Eastern
Europe on the hunt for distress. Precious little
has been found, but there are still those who
believe its time is coming.
The members of the CEDES 2010 panel,
however, were unable to reach a definitive
answer as to if or when. Humlová tried
to provoke the two bankers on the panel
(Radoslav Jakab of Slovenská sporiteľňa and
Gréta Slaninková from UniCredit Bank Slovakia),
but they were defiant in insisting that Slovak
banks had never given in to the temptations
of offering easy credit. “The banks in Slovakia
financed on conservative principles, so
annuities were for 20 to 25 years, and usually
full debt service was paid after a small grace
Gréta Slaninková (UniCredit Bank
Slovakia)
period, and there were no interest-only loans
provided,” said Jakab.
Slaninková said that the investors currently
facing problems were generally the clients of
German and Austrian banks who made loans
almost exclusively on the basis of calculated
LTVs. That’s a potential problem, she said,
because banks in Slovakia today don’t tend to
have the appetite to refinance such clients. 
Media Partner Organized by
 50 REGIONAL Banking Credit crisis powder keg | 17 It’s not liquidity | 46

Can regulatory Part II of our Banking Focus considers how

uncertainty over new financial regulations
clarity unlock isn’t making lending any easier

finance? Robert McLean

It’s long been fashionable for banks and get a third opinion, just to avoid overlooking The main stumbling block, he says, is
financial institutions to blame poor financial something. In my opinion, this is one main working out an effective model that won’t
results on overly strict regulations. What’s odd 46 reason why there is a kind of credit crunch. It’s kill off business or easily avoided. “These
is how the crisis has stood that time-honored not liquidity, that’s been solved for the most part. measures need to be taken on a global level,
tradition on its head. Banks have been revealing It’s now nervousness that we may make a wrong otherwise you’d open up fantastic gaps for
stunning profits despite the fact that credit decision, we maybe have overlooked something. arbitrage opportunities. Sophisticated global
has been super-tight, and virtually the entire financial groups can easily relocate their
Western world has been casting about for a “I can understand my risk managers, but on branches and subsidiaries or even their head
new, stricter model of regulation.  the other hand, we have to realize that we also offices to places which would be better than
need some sort of cash flow to survive in the others.”
Arguably, the biggest issues on the plate of future.” Not just to show a profit, he says, but
regulators today aren’t so much concerning the to meet whatever the new requirements of the For all the regulatory mumbo-jumbo out
financing by banks of real estate projects, as regulators will be for more equity, or payments there, what’s at stake is really rather basic: how
they seem to be how to finance that financing. into special funds. profitable should banks be? It’s quite simple,
Shoddy, corrupt rules and controls over the really. As with other companies, the more risks
mortgage bonds that funded US sub-prime Petr Kříž, a partner at PwC in Prague, says there’s they are able to take, the more profitable they
mortgages (themselves woefully mismanaged) no doubting the momentum toward tougher can be. 
17 lit the fuse on the credit crisis powder keg.  regulations. “I would say it’s clear that we should

This is frustrating for European real estate

professionals, who complain that the mildly
excessive exuberance on the continent has
been unfairly punished in what they see as a
US-instigated crisis. However, the price to be
paid for forgetting that such crises can and do
occur is clearly going to be tighter regulations
on lending and finance, and the impact will
mean less money to throw about for everybody.

Or will it? Taken from today’s perspective, it

could be argued that the uneasiness banks
have toward lending stems precisely from the
fact that no one can predict what regulators will
be demanding of banks in the future.  © 3dbrained | Dreamstime.com

From a journalistic point of view, it’s painfully

obvious how touchy a subject this is, as
numerous banks contacted for this article after
days of deliberation finally responded with
words like “we do not choose to comment on
this issue at this point in time.” And bankers who
agreed to speak were unable to do so freely, at
least on record. expect quite heavy financial regulation reform, It’s fine for an angry public to say that banking
because there is common interest coming from should be a bit more boring, less flashy and
“There’s so much less activity on the real estate the regulators and the politicians to ensure that simply less profitable. But at a time when banks
market, because it takes ages until you can a future crisis, which will inevitably come, won’t need to be not only storing away more cash
make a decision,” says one German real estate have such a deep and devastating effect on the for a rainy day, but also raising new equity, it
banker. “You do a second due diligence, you global economy.” presents a dilemma. 

Our German real estate banker imagines a
presentation to a group of potential investors
for a new issue of shares in his bank.  Europe (€970bn according
“What will the reaction from them be if you say:
‘I can’t give you a clear picture right now if you’ll
get 5, 10 or 15 or 20 percent return on equity
because our politicians aren’t sure how we have
to change and our cash flow is unpredictable
now, because we’re triple checking everything
so everything takes much longer.’ I mean, would
you invest?”
“When a client comes and says he wants money
for a project, but he’s not sure if he owns the
land and if he can get planning, we say ‘thank
you, come back when you’re ready.’”
Absolutely no connection | 9
Regulatory reform
a touchy subject
Is uncertainty over the level of reserves
banks will need to keep making them less
likely to lend in general and as well to the
property markets?
The current stagnation of lending activities is
mainly driven by low market activity. The real
estate market in particular has been affected by
the crisis and therefore there are only a very few
9 projects which are realized. There is absolutely
no connection to the level of reserves.
Are you at all concerned that the perceived
need to tighten banking regulations
worldwide could go too far and seriously
disrupt current commercial real estate
lending practices?
New regulations are currently the subject of
discussion among regulators and commercial
banks. No one can currently predict the result
and final regulation. Obviously any tightening
Banking REGIONAL 51
With a mass of refinancing With new regulations still not in place, banks don’t know how
much they can afford to lend
still to be handled across
to CB Richard Ellis, as we
reported last month), the
priority for real estate
banks must be to figure
out how to resolve that
issue. Hitting up existing,
or new shareholders for
fresh equity would be
ideal. It will be difficult
to do so, however, until
banks have a better
understanding of the
sort of returns they can
reasonably offer.
The final principles of regulation | 23
Only Česká spořitelna managed to answer a
set of questions from CIJ about the impact of
financial reguation reform
of the regulatory condition will have an impact competitive environment you believe to be
on lending. Commercial real estate will not be emerging. 
an exception. But we cannot currently foresee The presence of banks on CEE real estate market
23 the final principles of regulation. will depend on the speed of the economic
recovery. Because the of majority of banks are
Do you expect some of the other banks not monotonic, which means that they are not
currently active in commercial real estate to involved only in commercial real estate business,
leave the market in CEE? Please describe the we do not expect any huge changes.
A sample of no comment responses
”After consulting with my colleagues to express our hesitation to comment
in the department about the analyses, on the below listed questions.”
we would like not to comment on “While [the bank] is in an extraordinarily
this issue so far as there are still too good position and kept its good public
many factors that are unclear...” rating also during the crisis and could
“We regret, after consultation with our report excellent annuals for 2009, we ask
press and communication departments, for your understanding not to answer.”
 52 REGIONAL Retail parks Critical mass | 17 The tenant mix is different | 54

Retail parks are Tomas Rask, MD at Inter Ikea Center Poland

envisions a new type of hybrid retail park
evolving that’s similar to today’s shopping malls

Has the consumer market in Poland suffered in any way that could give
retail developers headaches?
Private consumption in Poland is in good shape, unlike in many other Eu-
ropean countries, so that answers your question in straight terms. Looking
more closely, of course, there are some retail categories that could be faring
worse than others. Some retailers are suffering not just because of turnover
but also because of the financing environment in which they’re struggling
to get financing for expansion.

Which retail sectors have suffered more than others?

Fashion is down more than one would expect. In other branches, there are
issues with retailers that sell goods that consumers don’t need here and
now, like furniture. There’s an exception to that rule, however, as electronics
retailers are doing very well.

Are retail parks less vulnerable when a crisis happens than malls?
The range of tenants you find in retail parks makes them a more sustainable
concept. With malls, you need to come up with critical mass. It’s different
17 from city to city, but if you’re below that critical mass you’re not going to
survive. If you build a mall that’s too small, it’s not going to work. As for retail
parks, you can have one with only an Ikea store in the beginning and add
other tenants later on. You’re less dependent on that critical mass in terms
of size and number of tenants. Operational costs and rental levels are lower
in retail parks than in malls, because the land is cheaper, and you don’t have
a lot of common areas to maintain. Rents are also lower because tenants
usually occupy much bigger units than in the malls.

How many functioning retail schemes do you have in Poland now?
Eight, including our Port Łódź shopping mall that opened most recently in
March. It’s averaged about 15,000 to 20,000 visitors daily since.
And how many projects do you have underway?
We’re now working to get the construction permit for the €75m Bulwary
Poznańskie in Poznań. It’s an open-air shopping village, inspired by similar
projects in the US. We want to open it in September of 2011, after starting
the construction this spring. It’s 60 percent pre-leased already. We also
secured land in three locations: Lublin, Częstochowa, and Świlcza, near
Rzeszów. We’re also looking to buy land in many other locations, in or close
to cities of 150,000 people or more.
54 when you look at such projects in the UK, the tenant mix is different, with
What’s the minimum size of land that you would consider for a retail
park project?
The minimum is 30 to 35 ha.
Who finances your projects?
We do so ourselves. We’re not dependent on other investors. It’s a strength
that shows in difficult times like these, when unlike many other developers,
we can plan and carry out projects. Once the economy turns, we’re going to
have a gap on the market for a couple years with no new projects, except
for ours. 
Has the concept of retail parks that you’ve done so far aged in any way?
Is it going to change?
Yes, our strategy for the future is actually not to do retail parks the way we’ve
been doing them. Naturally, new projects will be developed in connection
to Ikea stores but with big regional shopping centers accompanying them.
Their size will be similar to Port Łódź. There may be different configurations
with a hypermarket, for example, which we don’t have in Łódź. But the direc-
tion we will be going in will be towards the mall format.
If you look at retail parks in Poland, furniture retailers dominate, whereas
more fashion retailers successfully leasing big units. So we’re working to
change our tenant mixes in Poland in the direction of those in the UK. We’re
aiming to have projects that will become more like malls than retail parks.
The strategy is also to dominate the new markets that we’re going to go
into. We won’t build small. In Częstochowa, for example, we will have to
build bigger than GTC. The exit strategy will remain unchanged. We don’t
sell our projects, as we think that tenants like long-term stability in terms of
projects’ ownership.
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 Bought as much land | 22 Break clauses | 70 Retail parks REGIONAL 55

On the face of it, lower cost retail parks

and strip malls should be doing a good
Retail parks also business during the crisis. In fact, it's tough
feeling the hurt everywhere

Robert McLean

The rush to retail parks and other alternatives to The boom times for retail parks peaked in 2007, along with the rest of the real estate industry
the shopping mall format in Central and Eastern
Europe ended almost as abruptly as the rest of
the development market once the crisis set in.
In fact, the reality is that the competition from
malls and a change of strategy by retailers is
forcing a major rethink from the developers of
retail parks, strip malls, and everything else that
isn’t a mall.

Marek Kalma, sales director at the Slovak

developer Penta Investments, is actually
working on both at the same time for that
company’s enormous effort, Bory. Located on
the western edge of Bratislava on the motorway
toward Brno, the original concept involved a
huge shopping mall with a sizable retail park
tacked on. 

Kalma insists this wasn’t simply a matter of

buying as much land as possible and then
figuring out what to do with it. Back in 2006,
when it commended planning the scheme, the
company contacted numerous retail outlets to
determine what sort of demand it could expect.
“We thought it was a good location, so we
decided to see how much interest there would
be for the retail part of the concept, and then
22 we bought as much land as we thought we
needed according to that.”
He admits that the crisis has caused a
substantial shift in plans, which Penta has
reacted to by reducing the size of the mall
by 20,000 sqm. “Demand is slower with the
retailers in the retail park and its slower with
the retailers in the malls,” he says. However, a
contract with one of the anchors, Metro, was
signed earlier this year, and talks on finalizing
a deal with Bauhaus also appear to be on
track.
If anything, the crisis has hit Romania even
harder. The developer Red, for example,
is repositioning several of its projects. For
example, rather than building an upmarket
shopping center in Braila, says international
director Andrew Hardy, the developer is
currently creating a discount center profile for
his company’s projects.
In fact, this illustrates a trend across the region,
in which retail parks and even strip malls are
feeling the pressure from under-pressure mall
developers. “You have retailers who usually you
find in retail parks because they have lower
operational costs, lower fit-out costs and so on,
but now they have access to reasonable space
in shopping centers for nearly the same price,”
says Beatrice Mouton, CEE director of retail for
Jones Lang LaSalle.
Jiří Kristek, a retail parks specialist for Cushman
& Wakefield, says there’s more going on than
just a matter of pricing. “Some retailers from
retail parks weren’t welcome in shopping
centers before because they were more
discount oriented, but that’s changed. A
few years ago there was no interest to put
discounters in malls. Today, they are a good
attraction for customers.”
Viktor Csedrik, a retail services negotiator
at Cushman & Wakefield in Budapest, says
increased retailer demands for fit-out costs to
be covered by developers, and for the inclusion
70 in leases of break clauses after two or three
years has contributed to a strangling of new
supply. On top of this, he adds, rents have
decreased up to 40 percent for parks in smaller
towns.
Kristek says in Slovakia and the Czech Republic,
the boom in retail parks ended in 2007, with
a drop in 2008 sliding further still in 2009. The
biggest shift in the supply pipeline for the
future is likely to be that small towns of 20,000
where parks were once being planned aren’t
likely to see those projects completed.
“The retailers are focusing on bigger towns
now. In the past, a year or two ago, the focus of
retail parks was on smaller towns but now these
towns aren’t of interest for major retailers.”
 56 REGIONAL Events

CITYSCAPE ABU DHABI

Volcanic ash failed to stop Cityscape Abu Dhabi from going forward in April, but it gave organizers a chance to quash fears about the event’s future, given the gloomy
predictions for the region’s property markets. More than 250 exhibitors gathered from 36 countries for this event, which provided a showcase of the city’s ambitious plans.

Sheikh Mohammed

EUROVEA’S OFFICIAL OPENING

Irish developer Ballymore officially opened Eu-
rovea to the public on April 24, after six years of
planning and construction. With the new hotel and
mall already completed, the final public areas were
finally handed over to the city. The €450m invest-
ment is Slovakia’s largest mixed-use development.
Ballymore founder and CEO Sean Mulryan said the
Sean Mulryan and Mayor of project pulls together everything the company has
Bratislava Andrej Ďurkovský
learned about large-scale development.

CORNERSTONE LAID ON FASHION ARENA PALAC FLORA FASHION SHOW

EXTENSION The Prague 2 mall held a fashion show designed to get shoppers through the door. Finalists from
Fashion Arena Outlet Center on the edge the Czech Miss beauty pageant were on hand to promote the latest fashions along with a popular
of Prague is expanding despite the crisis. moderator named Vlasta Korec.
TK Development and LMS Outlets laid
the cornerstone for the extension in April
for the work which will be completed by
the end of the year. This phase will add
7,200 sqm to the center, enough room
for 37 new stores at a cost of €6.2m. The
general contractor is GEMO Olomouc.

Cornerstone ceremony in Štěrboholy

 Appointments REGIONAL 57

Colliers International Poland has appointed Aleksander Karkut as joint head of its valuation department. He will
co-manage the department with Ewa Czarnecka, partner at Colliers International Poland. Karkut has more than 15 years
of industry experience. He began his career at PricewaterhouseCoopers Real Estate and moved on to Knight Frank and
Savills, where he oversaw valuations at both agencies. Most recently, he was the associate director and head of the
valuation advisory services department for Cushman & Wakefield’s Moscow office.

Radosław
Wawrzyniak
CB Richard Ellis has announced several key promotions in Poland. Maciej Wójcikiewicz is
the new senior director of the valuation department. He joined CBRE in 2001 and specializes
in valuations of industrial, office, retail and residential properties. Joanna Mroczek will be the
director of the company’s research and consultancy department. She has been with CBRE for
nearly four years, heading a team that analyzes all aspects of the Polish real estate markets.
Radosław Wawrzyniak is now director of global corporate services. He joined CBRE in 2006
and has almost 15 years of experience in various aspects of the Polish commercial real estate
market.
Maciej
Wójcikiewicz

Stefan Camphausen has succeeded Christoph Kohlhaussen as chief financial officer and vice president of the
Executive Board for Hochtief Polska. He has taken over responsibility for all commercial functions. Stefan Camphausen
joined the Hochtief Group in 2006. Before joining Hochtief, Camphausen held various commercial positions at different
companies outside the construction industry.

RPMG EVENTS CALENDAR 2010

CED–INVEST HU 2010 CIJ GOLF TOUR CZECH REPUBLIC MAPIC
May 13 | Budapest | cijjournal.com/cedinvest September 8 | Prague | cijjournal.com November 17–19 | Cannes | mipim.com/en/mapic

RO PROGRESSIVE LEARNING PROGRAM CZ PROGRESSIVE LEARNING PROGRAM CIJ AWARDS CZECH REPUBLIC
May 20 | Bucharest | cijjournal.com September 21 | Prague | cijjournal.com November 24 | Prague | cijawards.com

PL PROGRESSIVE LEARNING PROGRAM CEDEM CEE 2010 CZ PROGRESSIVE LEARNING PROGRAM

May 25 | Warsaw | cijjournal.com September 22–23 | Prague | cedem.cz November 30 | Prague | cijjournal.com

CZ PROGRESSIVE LEARNING PROGRAM EXPO REAL CIJ AWARDS HUNGARY

May 27 | Prague | cijjournal.com October 4–6 | Munich | exporeal.net December 2 | Budapest | cijawards.com

CEDER 2010 CITYSCAPE GLOBAL CIJ AWARDS SLOVAKIA

June 2 | Bucharest | cijjournal.com October 4–7 | Dubai | cityscapeglobal.com December 7 | Bratislava | cijawards.com

CITYSCAPE JEDDAH 2010 CZ PROGRESSIVE LEARNING PROGRAM CIJ AWARDS ROMANIA

June 7–9 | Jeddah | cityscapejeddah.com October 19 | Prague | cijjournal.com December 9 | Warsaw | cijawards.com

CZ PROGRESSIVE LEARNING PROGRAM CIJ AWARDS POLAND

June 22 | Prague | cijjournal.com November 4 | Warsaw | cijawards.com
 58 MAY 2000 Ten Years Ago

Warehousing construction
ion
picks up
Last year may have been a good year for the
developers of warehouses and the construction
companies that build them, but the indications
are that the sector is set to grow even more this
year. The combination of increased foreign
investment and the expansion of international
retail chains is resulting in ever greater needs
for storage space. Moreover, the trend is
expanding beyond the Prague market into
Moravia as secondary logistics facilities begin
to become must-have items.
Curiously, while there appears to be strong
demand for warehouse space, the idea of build-
ing such projects speculatively seems to have
been well and truly buried. In large part, this is
probably due to the lack of success enjoyed by
ProInvest in leasing space in its Airport
Logistics Park.
Hadley Dean of King Sturge says the park has
gotten a bad rap for items which are manage-
able, in particular the traffic argument. “As long
as you get a security guard who can keep trucks
from parking where they shouldn’t, it can be
managed,” he said and insists that the buildings
offer first-rate, modern warehousing. But he
concedes that the market is tough at the moment
and that his team is now offering more com-
petitive rates than before as well as a DM 5 per
sqm for the remaining months of 2000.
Karel Stránský of Colliers International (which
had the original al
exclusive on what
was Prague’s first
and last spec ware-
house deal) admits
in retrospect that
the location wasn’t
as advantageous
for companies as
the D1 highway.
Some companies
require the ability
to deliver goods Even warehouses near the Prague airport were a tough sell ten years ago
within 24 hours to
any location in the country no matter what the increasingly looking for logistics solutions.
weather, and Stránský said that studies have More and more, he said, companies are asking
shown that this is possible only from the D1 logistics companies to handle their transport
side of Prague. and storage needs. This has been good news for
Such figures play into the hands of one of companies like FM Logistics which looks set to
Colliers’ biggest clients, AIG/Lincoln, which expand its existing warehouse in Tuchoměřice
has been building warehousing space success- quite significantly, further proof of the consoli-
fully along the D1 in Jesenice, two exits out- dation taking place in the industry.
side Prague. While the western side of the GBB’s warehouse center in the town of Rudná
highway is mostly filled up, the American is perhaps the most obvious success story in the
developer is now reported to be moving sector. Begun in 1996, the project has grown to
across the road to begin a major development 60,000 sqm of leased commercial space. This
there. year, the developer has received planning per-
Stránský said that one of the more interesting mission for zones three and four and in late May
trends he’s noticed is that rather than looking received construction permits for the infrastruc-
simply for warehouse space, companies are ture work.

MITZI LINKA
There’s been an almost unseemly rush for
the door in the past weeks by people decid-
ing to take up other positions. The question
of pushing on, or getting pushed, is pretty
much irrelevant these days as we hurtle to
what can only be hoped is that final bottom.
Certainly with bomb scares in the Big Apple,
a gargantuan slick in the Gulf of Mexico and
lava spewing mountains up north, things
really do look Armageddon-like. It was over
lunch in Warsaw with Mr MegaGoodPerAn-
num that we first heard about the impend-
ing airline ash-out, as he was worried he
wouldn’t make it back for a couple days. Once
he did get to his email, he was announcing
he’d switched to a company with one fewer
initials. That lunch in Warsaw was interesting
for the off-record savaging agencies took at
the hands of some investors present for their
valuations. Not that anyone was complaining
a couple years ago on the way up, of course. 
Another push/shove situation of real signifi-
cance was the exit of Mr Rosebud, who left
InMy Opinion after its merger with the bank.
He deserves credit, you’d think, for stick-
ing with it through what we hope were the
toughest times. Perhaps we’re most curious
about where Mr Turban will end up after
apparently resigning from Myopia. 
 DRINKS BEFORE HOME DBH REGIONAL 59

NIGHT
We’’d llike to thank all the sponsors of DBH for their support
We’d
during
duri
point
p
ing these turbulent times, as it’s created a monthly meeting
nt tthat is sorely needed in today’s marketplace. We’d like to encourage others to
oin
DBH events
sponsors
sstep
tep forward to help maintain the tradition. In the event there is no sponsor, there
p fo Hungary
will be a paying bar.
October 15
2009

Tamas Sellyey (Indotek)

November 5
Indotek, which sponsored 2009
the April DBH in Budapest, is
planning to expand its portfolio March 4
of class B real estate by around
50 percent. But with the non-
2010
prime market so unstructured, Diána Kiss, Andrea Beliczky, Helena Huszta, András Kovács (Orco) and Szabolcs
this could take quite a while to Gabriella Aradi (Indotek Group) at DBH in Koroknay (Colliers International) April 1
achieve. Budapest 2010

May 6
2010

June 3
2010

Stephen Saraarcco (Bank Center)
and Sebastien Hidreau (King Sturge)
Radomir Milosevic, Andrew Jackson
(First Title), Mike Edwards (Cushman &
Wakefield) at the Budapest DBH in April
Supporting HU
Partner for 2010
Roberts Publishing CEO Robert
Fletcher at the most recent DBH
evening in Warsaw. With its
conferences CEDEP and CEDES
Poland
behind it, RPMG will be finishing out
its spring conference season with
September 10
CED-Invest in Budapest (May 13) and
2009
CEDER in Bucharest (June 2).
October 22
2009

February 17
2010

April 22
2010
Kacper Remiśko (DTZ), Agnieszka
Wierzchowska (CBRE), Kamil
Małgorzata Wiśniewska (King Sturge),
Kwiatkowski (DTZ), Aleksandra Patrick O’Gorman (CBRE), Philip Evison Olga Kowalska (Knight Frank),
May 27 Event available
Biesiadecka (Colliers) (Evison & Co), Padraic Coll (Keyinvest) Andrzej Hleb-Koszański (King Sturge) 2010 for sponsorship

June 24
2010

Romania
November 26
2009

Silviana Badea – Country February 18

Roxana Bodo (Building Support
manager RO (VALAD)
Services) and Cristina Pop (Valad) at Catalin Hanu (CTP Invest), Adela Balan 2010
Valad has begun constructing a (RPMG), Ciprian Paltineanu (Unicredit) at
the DBH in Bucharest
9,000 sqm building at its the Bucharest DBH
logistics development called March 25
A1 Park. Work on the building 2010
will take about a year.
April 15
2010

May 20
2010

Natalie Cooper (Aviva Investors), June Event available

Ben Bannatyne (ProLogis) and Tom Maja Biesiekierska (Valad) Victor Constantinescu (Biris Goran) and 2010 for sponsorship
Gibney (Epstein) Blake Horsley (Colliers International)
 60 REGIONAL Education
The fundamentals
of real estate
transactions
Real estate can be an excellent way to diversify
and supplement the returns of a large financial
portfolio. However, as with any other asset class,
successful investment requires expertise in the
nuances of that asset’s unique traits.
This article covers the basics of real estate from
a portfolio manager’s perspective. It examines
how money is made in real estate, how real
estate is valued, the differences among various
types of real estate, and finally, how to do basic
financial modelling such as Net Present Value
(NPV) and Internal Rate of Return (IRR). With
the proper knowledge and strategy, real estate
can be one of the most stable, controllable and
inflation-hedged investment vehicles available.
Long term, it has historically outperformed
stocks.
REAL ESTATE PROFITABILITY
There are generally more elements involved in
real estate’s profitability equation than simply
“buy low sell high,” although with certain types
of real estate (such as vacant land), the equation
does remain that simple. In most other cases,
there are several sources of profitability that
make a significant contribution to the bottom
line:
1. Property value appreciation (e.g. buying
property for $100,000, selling it for $150,000)
2. Cash flow (rental income minus operating
costs, debt servicing costs and taxes)
a. For most rental properties, property
value is largely determined by cash flow,
as discussed later, so the two are closely
related. However, other market conditions,
such as the trendiness of an area, can
significantly affect values as well
3. Paying down debt (debt depreciation)
b. When investors are looking at cash flow,
it is sometimes easy to forget that each year
the mortgage gets paid down, resulting in an
increased equity position. It is important to
ensure that this amortization is included in
the profit forecasting model
In assessing an investment, it is important to
differentiate between the amortization and
High Return on Equity | 84 A standard cap rate range | 181
For those not involved in real estate
transactions on a daily basis, here’s a crash
course in the basics
Marc Folch, Richard Ivey School of Business
The valuation of real estate is one part art, one part science
the free cash flows since the amortization is Property Value $100,000
not easily available for use in managing the Mortgage (25-year amortization) 80,000
property or for investing elsewhere. Equity 20,000
ANNUAL PROFIT
These three elements of profitability often Cash flow 1,000
Mortgage Amortization 2,000
combine to create reasonable but potentially
Appreciation 3,000
unimpressive returns on the overall asset value;
TOTAL $6,000
however, real estate is rarely bought for 100 per
Return On Assets (ROA) 6.00%
cent cash. It is the ability to use leverage that
Return On Equity (ROE) 30.00%
makes real estate so attractive and profitable.
As can be seen, despite a modest Return
on Assets (i.e. the $6,000 profit divided by
A Numerical Example the $100,000 asset value), the investment
Let us take a look at an example where a
provides an excellent Return on Equity (i.e. the
property is purchased for $100,000 with an $6,000 profit divided by the $20,000 equity
$80,000, 25-year mortgage. The cash flow, investment). ROA is equivalent to the return on
a 100 per cent equity purchase.
which is total revenue minus operating
expenses and debt expense, puts $1,000 into
the owner’s pocket before income tax each 84 While it is possible to obtain high Return
year. (For more details on revenue and expenses on Equity with high degrees of leverage, it
which contribute to cash flow, see the IRR and is believed by industry experts that typical
NPV section below.) In addition to the cash, leverage uses ranges between 50 per cent and
$2,000 of the mortgage is paid off this year, and 70 per cent to reduce the debt burden and the
the property appreciates by $3,000. risk of negative cash flow in the event of rising
interest rates or unexpected vacancy. Debt

magnifies the effect of negative returns as well
as positive ones and can be quite dangerous if
overused. For example, using the same example
as above, if the appreciation were -$4,000, the
ROA would be -2 per cent but the ROE would be
-10 per cent.
Maximizing Real Estate Returns
One of the best ways to generate above-
average returns on real estate is to optimize
the property’s use. The same property can be
worth very different amounts after minimal
renovations to alter its use. For example, a
regular warehouse may bring in $5,000 a
month in rent, but if it is subdivided into 100
personal storage areas that rent for $200 per
month, its gross revenue would be $20,000 per
month. Even after renovation, management
and security costs, this can be a very profitable
conversion.
There are several other conversions that have
been popular in recent years. Old, rundown
factories can be renovated into lofts. Single-
family residences can be changed into student
residences near universities and colleges (with
revenue based on the number of bedrooms).
Vacant or unbuildable urban land can be
changed into parking lots. Farmland can be
converted into golf courses. In the last case, it
allows the owner to hold onto large tracts of
land with relatively low taxes while covering
the holding costs until the land appreciates. The
golf course would generally be split into smaller
parcels and sold off to developers as an exit
strategy.
REAL ESTATE VALUATION
Real estate valuation is part art, part science.
Unlike publicly traded stocks, where there is a
constant interchange of identical units, each
unit of real estate is unique and transactions are
far less frequent. So value can be very difficult
to gauge in advance with certainty. As a result,
property valuations are often given as a range
rather than as a precise number. There are four
primary methods used to value real estate:
comparables, cap rate, discounted cash flows
and replacement value. These methods are
generally what is used as the basis for making
purchase offers and (adjusted for appreciation)
to estimate terminal value when creating
financial models.
Comparables
This method involves a comparison of other
similar properties that have sold recently in
the area. The appraiser will attempt to find the
best possible matches in terms of location,
property type, age, condition and amenities.
Once several comparable properties have
been identified, their prices will be adjusted
up or down to account for the differences. For
example, air conditioning in a three-bedroom
home might add $3,000 to the price while a
covered garage (carport) might add $20,000.
Cap Rates
Cap rate is short for “capitalization rate,” which
is the discount rate used to determine the
present value of future earnings. In real estate,
it applies only to income-generating property
and uses the Net Operating Income (NOI)
of that property to determine a price. This is
similar to using a target hurdle rate to calculate
NPV, but cap rates are generally determined
by the market, whereas hurdle rates are
selected by the portfolio manager based
upon his or her target returns. The cap rate
valuation process starts with gross revenues,
from which are deducted all operational costs,
including property taxes, maintenance, utilities,
insurance, the property manager’s salary and
any other costs incurred to keep the property
running and in good shape. It is important to
note that the costs of debt servicing, income tax
and depreciation are not included. The amount
left over is the NOI. The NOI is divided by the
cap rate to arrive at a value of the property.
High cap rates are good for the buyer because
it means that they get more cash flow for each
dollar they invest. Conversely, low cap rates are
good for the seller because, when selling, they
get more money for each dollar of cash flow
their property generates. Generally, a region
181 and property type will have a standard cap rate
range that is considered acceptable. This can
vary significantly, but at the time of this writing,
it is most often between five per cent and 11
per cent in North America. When it is a buyer’s
market, cap rates tend to be pushed higher
by anxious sellers lowering their prices (lower
selling price for the same cash flow equals
higher cap rates). The opposite happens when
it is a seller’s market.
As an example, let us assume a property has a
Education REGIONAL 61
gross income of $15,000 a year and operating
expenses totalling $5,300 (breakdown of
expenses shown below). If the market cap rate
for this type of property is six per cent, dividing
the Net Operating Income by six per cent gives
a valuation of $161,666.67.
CAP Rate Calculation
Gross Income /year $15,000
Taxes −1,500
Maintenance −800
Utilities −300
Insurance −1,200
Property Manager −1,500
Net Operating Income $9,700
Cap Rate (NOI / Price) 6.0%
Purchase Price $161,666.67
An alternate use for cap rates is to compare the
attractiveness of two similar properties that are
already on the market at a given price. In this
case, the same general equation is applied, but
NOI and value is used to solve backwards for a
property-specific cap rate. This technique can
be particularly useful when faced with numbers
that are not easily divisible. For example, let us
compare a $1,129,000 property with an NOI of
$67,800 per year to a $2,895,000 property with
an NOI of $189,000.
Property 1 Property 2
Asking Price $1,129,000 $2,895,000
Net Operating Income $67,800 $189,000
CALCULATED CAP RATE 6.01% 6.53%
Using cap rates, it is easy to see that property
2 is more attractive (from a purely NOI
perspective at least). In a complete analysis,
however, it is important to take into account the
differences in risk levels or growth rate that may
account for the different cap rate.
Discounted Cash Flows
The discounted cash flow (DCF) valuation
method involves forecasting the yearly cash
flows of the project for a finite number of
years and then including a terminal value. The
terminal value is an estimate of the value of the
asset at a specific point in the future (e.g. 5 or
10 years from now) and is generally intended
to reflect the price one would receive from the
sale of the property at that time. For example, if
a company is building a hotel, planning to make
it operational and then selling it off, there will
be several negative cash flow years at the start
of the project, followed by positive years, and
then a large positive year from the sale.
 62 REGIONAL Education
Once the cash flows have been forecasted, they
are discounted to the current time period at
an annual target rate of return (hurdle rate),
determined to be appropriate (by the portfolio
manager), thereby reflecting the risk of the
investment. This discounting process accounts
for the time value of money and estimates the
value in today’s dollars of all the future cash
flows resulting from the investment. This is
somewhat different from a straightforward cap
rate calculation because it allows the portfolio
manager to see the effect of various levels of
debt, profit splits between partners and target
returns on the valuation. Cap rate valuations
typically use the cap rates found on similar
properties in the area and are calculated based
on pre-debt cash flows. The DCF method
instead includes all the elements that affect
cash flows and is therefore a far more flexible
and widely applicable approach for modeling
purposes.
Further details on discounting can be found
in the net present value (NPV) section and
the internal rate of return (IRR) section since
both are versions of the discounted cash flow
approach. NPV tells us, in current dollars, how
much the investment would return in excess
(or shortfall) of the defined hurdle rate. The
IRR gives us the implied return on the capital
investment assuming an NPV of zero.
Replacement Cost
In circumstances where cap rate and
comparables valuation is not possible or
applicable, appraisers will estimate the cost
of rebuilding the property from scratch. This
amount can be significantly more than the
market value of the property, particularly
when dealing with old or poorly maintained
buildings. This method is always used in doing
insurance appraisals since it more accurately
reflects the costs to the company in the event
of a claim.
Fundamentally the process of establishing a
replacement cost is based upon subcontractor
quotes and research into recent construction
costs of similar properties in the area. However
in any relatively large population center,
estimators generally have a chart of average
costs per square foot, which simplifies the
process.
Transaction methodology has to quantify the
REAL ESTATE INTERNAL expectations both sides have for the deal
RATE OF RETURN AND NET
PRESENT VALUE
For investors, it is not simply
important to value real estate at
a given point in time, but also to
model the forecasted return on
the invested capital (which can be
significantly affected by changing
cash flow payout dates). Because
real estate tends to be a long-term
investment with multiple years
of cash flow, but will not be held
forever, modellers often forecast
cash flows for a specified period
and then assume a terminal value
as described above. The cash flows
in this context could be net of all
non-debt expenses, or they could
include debt, depending on what
scenario is desired by the portfolio
manager. Costs would include but
would not be limited to:
• Operating expenses (utilities,
maintenance, insurance, property
taxes, managers, etc.)
• Construction costs (plans, land
purchases, building costs, etc.) want one model with debt and another one
• Marketing costs (in the case of condo sales, for with no debt (or various different debt levels,
example) depending on the deal’s specifics).
• Depreciation
• Taxes on gains (though management may ask To calculate the NPV, the cash flows would be
for pre-tax cash flows in some cases) discounted by the investor’s target minimum
• Partner fees (in the case of a joint venture) return (hurdle rate). If the value is positive,
the investment exceeds the investor’s return
Revenues would include but would not be requirements.
limited to:
• Revenue from operations (rents, deposits, For example, consider the following cash
vending, parking, ad space, etc.) flows: Year 0: -$100, Year 1: -$50, Year 2: +$300;
• The sale of units also assume a hurdle rate of 10 per cent. The
resulting net present value would be:
The terminal value would generally be
forecasted based upon the most appropriate NPV = −$100 + −$50/(1.10) + $300/(1.10)2 = $102.48
method from this article’s Real Estate Valuation
section. The method chosen would generally be Since it is above zero, the project’s return
dictated by what is generally accepted for that exceeds the hurdle rate and would be
type of property in that area. considered acceptable.
Often, senior management would be interested For IRR, the same basic calculation would be
in cash flows and returns after the taxes and all used, but instead of supplying the hurdle
other fees that have been paid, but they will rate, the calculation would assume an NPV of
likely also want to see the effect of leverage zero and would work backwards to derive the
separated out. In other words, they would internal rate of return (i.e. solve using the IRR
 Education REGIONAL 63

function in a spreadsheet program), which This example models a hypothetical project can now be modelled. If we had tried to
would achieve that zero NPV. In this case, the which involves the building of condominium calculate the equity partner’s IRR before
rate would be 50 per cent. units. The optimistic scenario assumes that this point, it would not have been accurate
the project is completed and sold a year because it would have been impossible to
For certain real estate transactions, there are earlier than projected, whereas the pessimistic accurately model the promote payment for
several unusual elements to NPV and IRR scenario assumes the original build timeframe, the managing partner.
calculations. When an equity firm partners but with higher costs than anticipated.
with a developer or operator on a project, this Below is the chart which indicated how the In this example, the equity partner contributes
partner is compensated at a variety of different managing partner’s compensation would half of the equity and in the final year of
rates, depending upon the overall performance change as the overall project’s IRR increases the project is paid back for the original
of the project. This is an important element of (this is the promote). investment, plus the share of the profits. So in
the deal called “the promote,” and it is intended Partner Compensation Breakpoints the expected scenario (see Table 2), the year
to align the interests of the equity investor and 3 terminal payment is $5,000,000 (the initial
Total Project IRR Partner Receives
the operating investor. investment) plus $4,500,000 (the share of the
<25% 35%
25–40% 50% profits). With these payments modelled, it is
Generally, on deals of this type, the equity >40% 60% a simple matter to calculate the managing
investor will contribute the majority of the partner’s IRR using any spreadsheet software’s
funds but will have minimal involvement The first step is to calculate the pre-split return IRR function.
in the day-to-day operation of the project. (IRR) for the overall project, in other words,
The equity investor relies on the
operating partner to make the project TABLE 1
as successful as possible and wants to
IRR BEFORE OPERATING EQUITY PARTNER YEAR
provide proper incentives to this end. TOTAL PROFIT
SPLIT PARTNER’S CUT PROFIT DISTRIBUTED
The operating partner will generally
contribute some equity but not as Expected 30% 50% $9,000,000 $4,500,000 3
much as the equity partner. One Optimistic 42% 60% $9,000,000 $3,600,000 2
advantage of this method is that the
promote terms can be structured in Pessimistic 13% 35% $4,500,000 $2,925,000 3
virtually any way conceivable in order
to properly align and satisfy both TABLE 2
parties’ interests.
CASHFLOWS YEAR 0 YEAR 1 YEAR 2 YEAR 3 IRR
In most deals that use promotes, profits Expected −$5,000,000 $0 $0 $9,500,000 24%
will be paid out only at the end of
Optimistic −$5,000,000 $0 $8,600,000 31%
the project since total profitability is
indeterminate before that point. Pessimistic −$5,750,000 $0 $0 $8,675,000 15%

Example of calculation: the net return of the project before its profits Notice that in the optimistic scenario, even
Here is a sample project with three possible are allocated between the partners. The next though the equity partner receives less profit
outcome scenarios. step is to calculate the proper percentage to in dollar terms than in the expected scenario
be allocated to the managing partner based (more goes to the managing partner), their
YEAR 0 1 2 3 upon the IRR calculated above and the partner IRR is still higher. This is an example of a
Expected Scenario
compensation breakpoints. This is where the well-structured promote agreement because
Gross Revenues 13 13 13
Construction Costs −10 −10 −10 “promote” is taken into account. it aligns the interests of both partners.
Net Revenues −10 3 3 13 Equity partners generally judge their own
The next step (see Table 1) is to calculate the performance based upon IRR or a similar metric
Optimistic Scenario
equity partner’s share of the profits and the and therefore structure their deals to reward
Gross Revenues 13 26
year(s) in which it will be distributed. The partners who can increase the performance of
Construction Costs −10 −10 −10
Net Revenues −10 3 16 distribution of profits will depend on the this key indicator above all else.
project’s end and the terms of the partners’
Pessimistic Scenario agreement. © (2010) Harvard Business Review.  
Gross Revenues 13 13 13
Distributed by New York Times Syndicate
Construction Costs −11.5 −11.5 −11.5
Once the profit payouts have been
Net Revenues −11.5 1.5 1.5 13
calculated, the IRR for the equity partner