Sekyra makes its moves on CEE

By: Petra Breyerová, 13. 02. 2006
Czech Business Weekly

Sekyra Group, one of the largest local real estate groups, is set for a massive expansion in Central and Eastern Europe and plans to enter the United Arab Emirates this year. Ludìk Sekyra, the chairman of the board of directors, says the group will soon enter the hotel sector and plans to set up a new real estate fund for small investors. Sekyra said recent developments in the real estate market have compelled the group to change its strategy and focus more on acquiring commercial properties and developing luxury residential projects. The founder and co-owner also says the Sekyra Group is eagerly awaiting the launch of public-private partnerships (PPPs) in the real estate sector. Sekyra Group, which operates as a developer, real estate investor and asset and portfolio manager, will invest around € 2 billion (Kè 56.7 billion) in Central and Eastern Europe (CEE) in the next five years.

Q: What kind of expansion on the Czech market are you planning?

A: Today we have over 50 development projects in Prague in the volume of roughly € 1 billion. In the residential segment, it [amounts to an] annual production of about 1,000 flats and we’re preparing to launch new, large projects like Centrum Maleљice [Prague 10] and Residence Korunní [Prague 2]. In the next three to four years we’re planning to build 5,000 flats. As the demand in the lower and mid-price segment of flats has weakened, we’ve changed our strategy a bit and now go for the development of luxury flats. In this segment we’re developing the Residence Myљák [Vodièkova street, Prague 1] where the price for a square meter exceeds Kè 200,000.

Q: What are your plans in the commercial sector?

A: Regarding office space, we’re starting projects of 200,000 sqm. The main developments are headquarters for Nestl&eactute; [Prague 4-Modøany] and headquarters for Èeská spoøitelna on Antala Staљka street [Prague 4]. We’re preparing a development of 20 hectares in Jiћní mìsto [Prague 4], including commercial projects Centrum Opatov and South Park. In the next five years we should deliver over 300,000 sqm of office space to the market. I’d like to mention two projects that are of great significance — not only for us but also for the city. The first is the revitalization of the Smíchovsk&eactute; nádraћí [Prague 5] train station, which means development of about 20 hectares and an investment over € 500 million. Construction of that multifunctional development including office, residential and retail space should start in two years. The second project is the Dejvice Center development near Vítìzn&eactute; namìstí [Prague 6]. Construction of the center, which will be at least 50 percent retail space, will start at the beginning of 2007.

Q: Are you considering entering the industrial or hotel sectors?

A: We’re monitoring opportunities to develop industrial parks, but at the moment we aren’t preparing any concrete investments. Regarding the hotel sector, there are two acquisitions in the pipeline. Within a month we’ll purchase two hotels; one of them in Prague and the other in Љpindlerùv Mlýn [in the Krkonoљe mountains, North Bohemia]. The transactions together are worth Kè 1 billion.

Q: Why are you entering the hotel sector now?

A: We recognize a strong demand [for hotel services] and the occupancy rate in the hotel sector is increasing. We also want to diversify investments. … We consider it healthy to have 10 percent of our investments in the hotel sector. We should reach that target in five years, [during which time] we plan to spend Kè 1 billion on hotels each year.

Q: Do you plan to expand in the regions?

A: In Brno [South Moravia], we have a roughly 20,000 sqm office project with potential for further development. In Brno we’re also monitoring several industrial sites. The former industrial parks can be transformed into residential or office complexes. We’re also looking at Ostrava [North Moravia] and other regional cities. We’re already participating in the tender for [the development of] Karolina [a 60-hectare former industrial area in Ostrava] and plan to participate in more tenders in towns like Hradec Králov&eactute; [East Bohemia].

Q: How is the expansion on the Central and Eastern European market progressing?

A: We’re mainly interested in Russia, Ukraine and Slovakia. This year, we’re planning to open offices in Croatia and Romania, where we’re looking at retail, residential and hotel projects. In Moscow, we’re mainly working on residential developments and preparing several big office projects and acquisitions. In Ukraine, we’ve opened an office and are now analyzing two projects, one residential and the second office. On these markets it’s more about handling the risk management well rather than about [having enough] capital. There are many legal aspects [like problematic land ownership] that complicate the investments to a certain extent. In Slovakia, we have projects in the volume of € 300 million [including Mlýnská dolina and Starohorská in the center of Bratislava] and we’re finalizing an acquisition of one large office and residential project that will be the biggest in our portfolio there. In Bratislava, we’re systematically building up our portfolio and would like to have the same strong position there as we have now in Prague.

Q: How much do you plan to invest in acquisitions in the CEE region?

A: Our investment in the region [including the Czech Republic] should reach € 2 billion in the next five years. These will be investments both from our group and from the funds we manage.

Q: Developers say it’s a good time to enter the Prague Stock Exchange. Is the Sekyra Group considering an IPO [initial public offering]?

A: Entering the bourse makes sense when somebody needs capital; we face the opposite [challenge] as at the moment we have a problem allocating our capital. So, we currently have no need to raise capital through the stock exchange. Of course, it’s true that valuations of real estate companies on the stock exchange are very attractive; they’re usually higher than the companies’ net asset value.

Q: Are you considering investments outside the CEE region?

A: We’re preparing investments in the United Arab Emirates as it’s the most attractive real estate market in the world; there’s an incredible real estate boom happening there. According to statistics, 19 percent of all cranes in the world are now in Dubai. We’re in concrete negotiations about some mainly residential projects there, to buy plots and invest. Specifically, we’re looking at one project valued at € 100 million. It would be a tower building, over 40 floors high. If we manage to complete the acquisition this year then construction will start in 2007. The market there has its specifics. There’s a different legal environment and it’s important to have a local partner [to cooperate on projects] there. We’ve already selected a local financial investor. If we come to an agreement with the partner, who is very interested in cooperation, then it’s very likely we will realize the project there.

Q: Are you planning to form a strategic partnership?

A: We can see interest from a range of important international financial groups, such as Goldman Sachs and Credit Suisse. Many other groups are interested in cooperation in the [Central and Eastern Europe] region. But at the moment we’re not in negotiations to close a partnership.

Q: The new bill on collective investment will soon enable the creation of real estate funds for small investors. Are you considering setting up such a fund?

A: We’re considering the creation of such a retail fund this year as we already have a fund for institutional investors [CPDP B.V., administered by Sekyra Group Asset Management]. We have our asset manager, but we don’t rule out inviting in another financial partner for the fund. The market is ready for these funds and demand from small investors will be high, for sure. But it’s important for the funds to secure enough suitable products and that’s not easy at the moment. We have an advantage in that we have such properties in our portfolio, like the T-Mobile building [Prague 4 – Roztyly]. It’s also important to learn from what happened in Germany, where open-ended real estate funds got into trouble when shareholders started selling their assets. The bill deals with some aspects but not with others. It’s important to bear in mind that the funds’ initiators will be strong banks and financial institutions, as it’s important to secure sufficient liquidity in case shareholders want to exit. This was a problem for institutions like Deutsche Bank.

Q: What do you think about the future of Real Estate Investment Trusts (REIT)?

A: REITs are one of the European phenomena with great potential. The model comes from the United States and has been legalized in France; some legal changes are being prepared in the United Kingdom and Germany. [REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax status and typically offer high yields.] REITs are obliged to pay a certain amount of profit, for example 80 percent, to their shareholders in the form of dividends. The creation of REITs in Western Europe will be an important stimulus for the market as many of these funds will enter the Czech market. But it’s still a question as to how Czech legislation will deal with them, as there’s no law concerning them right now.
ASHINGTON, Jan. 23 /PRNewswire/ -- Foreign investors say that even though the U.S. is regarded far and away as being the most stable and secure country for real estate investments and as having the best capital appreciation, they will spread their dollars more globally in 2006, according to the results of a survey released today by the Association of Foreign Investors in Real Estate (AFIRE). Respondents identified Western Europe and the UK as additional key markets for their real estate dollars. The survey was conducted by AFIRE in association with Kingsley Associates, a San-Francisco-based real estate research and consulting firm.

Among the new EU countries, The Czech Republic, Poland, and Hungary remained in first, second and third place, collectively garnering 81 percent of the vote. Within these countries investors are primarily targeting office buildings (80 percent), retail properties (72 percent), and industrial properties (36 percent).