Nicholas Watson in Prague -
One of those investors attracted by Poland's newfound quality as a bustling island of real estate opportunities in a becalmed sea is Palmer Capital.
The UK-based real estate fund manager, which beefed up its continental European business in 2012 by acquiring Middle Europe Investments, a struggling Dutch real estate fund manager with €232m of assets under management in Central and Eastern Europe, is planning a new fund that will target Polish retail properties in the country's regional cities.
"We are trying to play on our regional knowledge and coverage, and what we like are the dominant shopping centres and retail property investments in Poland's regional centres - we're not trying to buy class-A properties in Warsaw," says Ben Maudling, the regional managing director of Palmer Capital and a longtime resident of the Czech Republic.
The targeted investors for the planned fund are German institutions, which prefer lower risk property investments, such as well-located regional retail properties that can be purchased with debt financing. "There's less investment risk in Czech and Poland compared to somewhere like Ukraine, and we are looking to offer an income return of 8% net of tax," says Maudling.
Palmer Capital has had an instant impact on the funds it acquired as part of that deal in 2012. The Emerging Europe Property Fund for example, which has six Czech properties and 11 Slovak ones, mostly class-B and class-C office buildings, was the best performing real estate fund on the Amsterdam NYSE Euronext exchange (and the fourth-best performer among NYSE Euronext funds of all kinds) in 2012, with its share price rising 42% from €6.70 to €10.00 during the calendar year.
Maudling says they undertook a number of asset management initiatives to improve the performance of the property funds they took over from Middle Europe Investments last year. Many of these such as cost cutting were not rocket science and led to quick improvements in portfolio performance. "The current share price of our listed Palmer Capital Emerging Europe Fund still, however, reflects a 50% discount on NAV [net asset value]. We hope to further reduce this by continued restructuring including renegotiating leases and rents, moving tenancies and improving the financing of the portfolio, which includes bank debt and mezzanine financing," says Maudling.
Palmer is in the process of "pruning" the fund's portfolio - it recently sold one building in the Czech town of Zlin and plans to sell another two this year, something that testifies to the relatively high liquidity that exists in the Czech market, a stark contrast to the moribund markets further west.
That liquidity is also enabling Palmer to entirely liquidate one non-listed fund it inherited from the acquisition, which holds 60 class-B and class-C properties in the Czech Republic that were owned by the former telecommunications monopoly Czech Telecom. "We are seeing good liquidity in the Czech Republic for sales of these types of buildings worth €1m to €5m," says Maudling. "We've made a strong effort to access the local investor market and in the last 6 months we have sold five office buildings. There is a good level of interest in other properties we have."
Maudling says Palmer Capital would like to double its assets under management in the region from the current €300m. "We want to expand our Central European fund management business. At the moment, for us, Poland and Czech Republic offer better investment opportunities than Hungary."
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