Against a background of global economic turmoil, Bank Austria Real Invest, the property arm of Bank Austria, is proceeding with its development projects in central and eastern Europe as normal. Management board member Herbert Logar explains: “This is a financial crisis, not a real estate crisis.”
Logar also believes that opportunities will come out of the credit market crisis. He says: “Even us, with our liquidity in our open-ended funds, will wait and see, because we think investment opportunities will come in six months’ time, when the fog clears and rationality comes back.”
In Austria, the Bank Austria Real Invest brand is well-known for its real estate investments. In November 2003, Bank Austria placed the first domestic open-ended property fund, called Real Invest Austria. With a fund volume of €880m and a market share of 44.2%, Real Invest Austria is today the market leader. The fund invests in Austrian real estate, including schools, residential property, offices and other commercial assets.
A second open-ended property fund, Real Invest Europe, was launched in March 2007. With the Real Invest Europe fund, Bank Austria Real Invest carries forward the success of the Real Invest Austria fund.
A two-part strategy for CEE
With a total market share of 48.4%, Bank Austria Real Invest dominates Austria’s open-ended property fund sector. Set up 27 years ago, it has two main parts to its strategy for the CEE region. It acts as an asset manager for a number of open- and closed-ended funds and has a total of €1.7bn of assets under management, covering 120 properties over 530,000 m2.
Bank Austria Real Invest also focuses on investments in office and commercial properties. In late 2006, it sold a package including seven office properties from closed-end real estate investments in Prague and Warsaw.
Some of the properties came from closed-ended property funds, some from the proprietary portfolio. A fund managed by Pramerica Real Estate Investors bought the package for more than €98m in a move intended to exploit booming demand by international investors for central and eastern European real estate.
The Bank Austria Real Invest package sale was the most significant deal of 2006 on Prague’s real estate market.
Apart from fund management, Bank Austria Real Invest also employs its own money to set up partnerships with local investors for developing property. It sells the completed projects on the open market, not necessarily to its own funds.
Development is always the first step. “We get to know the legal and economic system of the country and as a second step we start up funds three to five years later and manage them,” says Logar.
Its markets are Poland, Hungary, the Czech Republic, Slovakia and Croatia. It is avoiding Russia, Ukraine, and Belarus because of risk. “We would rather go first to Turkey, a market which we are observing closely,” he says.
Bank Austria has been active in banking for ten years in Kazakhstan but Bank Austria Real Invest has not yet decided to develop projects there.
Real Invest’s latest development project is Megapark, an 80,000 m2 scheme in the Bulgarian capital of Sofia. The company usually takes a 50% stake with a partner, and in this case it is Soravia Group, an Austrian developer active in central and eastern Europe.
Bank Austria holds senior loan
Megapark is 80% leveraged, with each partner putting in an equity amount of 10%. Bank Austria holds the senior loan on the project, which provides 50,000 m2 of office space, 3,500 m2 of retail space and a hotel.
The company favours developing in countries in which there is still the possibility of yield compression, such as Bulgaria and Croatia. It is looking at Serbia but is waiting for a little more political stability there.
Logar says that there has been no rental growth in central European offices over the past 15 years, but believes that in the long term, office rents in their target countries will be on a par with Hamburg and Munich, at between €10 to €14 per m2 a month. The exception has been Warsaw, where low supply has pushed up rental levels.
The tenant mix in Real Invest’s projects are 80% local and 20% international but this will change to 20% local as companies grow and become able to afford new office accommodation.
Its parent company, Bank Austria, is one of a handful of banks still lending to viable real estate schemes. Logar says: “A good project is still an opportunity. There is a lot of unjustified depression about property around at the moment.”
