Our goal is to build a portfolio of 800 apartments for rent in Poland
26 September 2019
Peter Noack, the CEO of Zeitgeist AM, talks to Rzeczpospolita on institutional market in Poland, student housing and private apartments for rental. Interview by Adam Roguski.
AR: You've been building a land bank in Poland for several years, in a current transaction, the biggest so far, you acquired from Orange the complex of the former Telecommunications and Telegraph Office headquarters in Warsaw for 81 million EUR. It's 49 thousand. sqm. space, offices so far. How will you use it?
PN: This is a long-term project. Orange will vacate the building in 5-7 years, so in the initial phase, we will earn the rental income. We will devote this time to the concept development. Today, I can hardly tell in detail what will be the facility's intended use, we'll have to discuss it with the historic preservation officer because some are buildings from the 1930s, and with the city authorities. We will definitely create apartments for rent there because that is what we mainly do. There is a good chance that the old office building will retain its function. As for the tower - we'll see, it is certainly an architectural challenge, most of the Orange technical infrastructure are accommodated there. As for the facility's development, we will definitely make apartments for rent here, we are also considering a hotel and a commercial segment, including offices. It is the very heart of Warsaw, and therefore a great responsibility towards the city's people and history. We've got plenty of time for planning, we'll surely create something good.
AR: Are there any other Polish projects in your pipeline after this major deal?
PN: We have already accumulated quite many properties in Warsaw, Gdańsk, and Krakow, so we undoubtedly need to focus on their development. Nevertheless, we have five or six ideas underway, so we will expand the land bank, also outside Warsaw. We are trying to look for historic properties, but because of the Polish specific historic heritage, it is obviously not always possible.
AR: The institutional rental market is just being created here. What's attracted you to Poland?
PN: Just the fact that this market needs to be created, entering the office segment here would not be interesting. We are not afraid to be among the pioneers; we are looking for our niche. We've got experience from the Czech Republic, Germany, and Austria, we know how to develop such projects and how safe it is for investors. The returns from rental are not spectacular, but stable and relatively safe due to the tenant dispersion. In an office building, one large tenant leaving can be a problem.
AR: What rates of return do you get from apartment rental in Prague?
PN: We do not disclose such data, we achieve the assumed results. The occupancy rate is 95-97%. This percentage may decrease slightly, as we launch a total of 12 projects. It usually takes a month or two to find tenants.
AR: How big portfolio do you want to build in Poland? Will you eventually want to sell it to another player?
PN: Our strategy is to build a stable portfolio that generates repeatable revenues from rental. In the 3-5 year perspective, we want to have about half a thousand apartments in Prague and about eight hundred in Poland. This is a basic plan; it cannot be ruled out that some of the resources will be sold and replaced by others. We intend to keep this strategy - as a fund we have a very long-term approach - and it is not five years, but rather fifty.
I believe that 800 apartments will be a good market share, the institutional rental in Poland will never reach the German size.
AR: When will you commission the first apartments in Poland?
PN: It will take some time because in Poland it is difficult to find a whole building that would allow earning rental income from the moment of purchase. We've talked to local developers, they are not eager for portfolio transactions, earning much better margins on retail sales. But even if one had agreed to build something for us, it would take two years.
So, we have to create everything from scratch, looking for properties, that can be developed. We're about to start work at Wrzesińska Street in the Praski Port, we hope to commission ca. 120 units at the turn of 2020 and 2021 r. At Długa Street in the Old Town, the planning works are in progress, we are talking to the preservation officer, there is no pressure because there are offices and bring rental income. Quite possible that owing to the transactions we are negotiating we will be able to enter the market as a tenant a little earlier.
AR: You've got the former Main Post Office and a plot at Cystersów Street in Krakow in your bank...
PN: The Post Office we've also acquired from Orange under the sell & lease back formula, so we have three years to plan. It's a good property for a hotel, but we do not exclude any functionality. The post office will certainly stay there unchanged. It will take some time to adapt the plot at Cystersów Street to our strategy, for now, we are considering housing and commercial uses there.
AR: Can our developers' approach to institutions as customers change?
PN: When housing prices are too high, people stop buying and are looking for renting opportunities.
AR: Who will rent apartments from you?
PN: We target the middle class, flexible and mobile people who go after work, today they are also often young families with children. We observe such a demographic trend and we want to be a partner for this generation. We offer short-term and long-term rental alike - with contracts renewed every year or every two years. We also create an important branch - private student houses.
AR: Will you also be building dorms here?
PN: That's what we acquired an old office building in Warsaw's Solec for. We'll see how your market develops, it's still a new business. In Prague in the Czech Republic, we have almost half a thousand beds in four houses, the student accommodations are managed by our own operator - Zeitraum. However, this is a completely different market than Warsaw. In Prague, there are over 30 private universities, there are about 30,000 students from the United States alone. Here are also foreign students in Warsaw, but rather from the East, besides, the capital city attracts people from other Polish cities. I think that we will offer a similar product as in Prague, but mainly for Polish students. In Prague, the percentage of foreign tenants is about 60 percent. One of our houses is fully occupied by foreign students of one university.
AR: thank you for the interview.Back to the list