Residential developers more willing to build for institutional investors.

Warsaw, October 2020

Interview to Puls Biznesu in October 2020.

Flats for rent are undoubtedly the most attractive form of investing in the Polish real estate market. These projects require a lot of financing, so it is no wonder that foreign funds are pioneers in this area. But it takes two to tango. Construction requires developers who until recently had been reluctant to engage in such projects.

Zeitgeist Asset Management, a company managing funds of institutional and private investors, which until recently had been building its portfolio based on historical real estate in city centers, is blazing the trail in cooperation with residential developers.

- From the beginning, we also thought about investing in new buildings and sought cooperation with developers both in Poland and in Prague, Czech Republic. However, they were not interested in it, as they had been making great money selling apartments to individual clients. This is changing now and they are also opening up to institutional investors, says Peter Noack, co-founder of Zeitgeist Asset Management.

According to Peter Noack, the reason for the new approach is a very high cost of capital needed for development projects. Real estate funds have the money and cooperation with them can be financially profitable for both parties. Another reason is developers' uncertainty as to whether the pandemic will negatively influence selling apartments to individual clients. The advantage of joint projects is the fact that the fund has an impact on the investment from the beginning of its construction, which allows better control over the construction process and the final shape of the project. Also, it is worth noticing that for the residential developer working with a fund means communicating on every step of the development process with industry specialist which eases the work and creates less problems in the development pipeline.

An example of such cooperation is the investment of Zeitgeist AM in Gdańsk-Oliwa where the BMC developer has gotten into co-operation that will soon result in four residential buildings ready for letting in the center of the city. The works are already very advanced. The end of construction is planned for March 2020.

- Investment at the green field stage allows us to influence the planning of the distribution of various functions, such as bathrooms, toilets, and the size of rooms in buildings, which is essential from the point of view of our business. Thanks to this, we can profile real estate for various groups of clients. We invest in projects that already have a building permit, so the changes must not interfere with the body of the building, but with its interior - says Peter Noack.

The handover of the housing estate at Czyżewskiego 34 in Gdańsk will accelerate the implementation of Zeitgeist AM’s plans in Poland, which assume that next year it will have a portfolio of 350-400 apartments for rent and one working student house. In a few years, the fund would like to have a portfolio of 800 apartments in Poland. Currently, it has 12 properties under construction. These include the historic building of the Main Post Office in Krakow at ul. Wielopole or the Warsaw complex at ul. Nowogrodzka and St. Barbara. In Warsaw's Praga district, the tenement house at ul. Wrzesińska is restored to its original beauty and a modern part will also be added it to combine old design with modern architecture.

- Zeitgeist likes historical objects. The investment in takes 2-3 years longer, but this additional time and effort pays off. These are properties in prime locations, where we can provide tenants with greater comfort and the bonus of living in interiors with a history and unique appearance - says Peter Noack.

The fund is currently focusing in Poland on development and repositioning, changing the function of real estate. It often means restoring the original residential function of buildings that were later used as office properties. This will be the case, for example, with the historic buildings at Dluga Street in Warsaw – that is a part of widely recognized Warsaw Old Town.

Zeitgeist AM operates in Poland, the Czech Republic, Germany and Austria. In the Czech Republic, where it started operating at the earliest, today it has a portfolio of 20 rented properties. According to Peter Noack, the difference between our countries is that in Poland it is rare to have the entire building owned by one owner, and in the Czech Republic it is common. As a result, in the Czech Republic, the fund managed to buy 6 fully leased buildings at the beginning of its operation, and in Poland, the purchased facilities are still under construction. An example of an investment in the Czech Republic in recent days is the purchase of 70 apartments in Barrandov from the largest Czech developer FINEP. This is the beginning of a completely new segment of apartments for long-term rental in Prague, offered by a strong institutional investor with international experience in this area.

- However, Poland is very important for the development of Zeitgeist AM. We are active here and we are still looking for new opportunities not only in Warsaw, but also in regional cities such as Kraków, Wrocław and Gdańsk - says Peter Noack.

Long-term rental housing does not bring very high returns on investment, but it is very stable. According to Peter Noack, investors associated with Zeitgeist AM take the perspective of not a few, but several dozen years.

- We predict that the institutional rental offer in Poland will increase at least six times over the next five years. This is related to the increasingly difficult access to loans for the purchase of a flat and the uncertainty of income. The institutional rental offer is also a response to the needs of mobile, open to changes young people who prefer freedom in choosing a place to live and live. - says Peter Noack.

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