Vladimir Bolek is a member of the board at IAD Investments, which has over €2 billion in assets under management across Central Europe.
The market is quite slow at the moment. As an investor, is that useful since there’s less competition for assets? Or are you in hibernation like so many others?
But you’re just talking about one side of the market — the transaction side. It’s true of course that the market has completely changed. But for us, as a long-term player, it’s back to normal. Because now you really have to be focused on the asset management and on the services you offer. All the puzzle points which have to fit together to create good value for the tenants. All the parts that drive what really brings you your return: rental growth. Today, nobody expects to make money on falling yields. That’s over.
Today, you have to take care of your assets, think about the financing, and find ways to bring additional value to your clients. You’re in partnership with them, so you have to listen. You don’t just shift the responsibility to some property manager and study the output from Excel files. You have to actively communicate with the property manager, but also with tenants. We set up regular meeting with the bigger ones.
How often do you see them?
I try to visit each asset once per quarter. I travel regularly to Warsaw, Prague, Ostrava, Budapest and in Bratislava.
But if we could return to the transaction market, with interest rates so high, can you really afford acquisitions now?
If you have enough equity, it’s possible. Most of our investors are retail investors and we always reflect their risk aversion to higher debt. That’s why we have a couple of purely equity projects with no bank financing and the LTV for the whole fund is approximately 30%. We may have missed out on some additional returns, but this reflects the risk position of our investors. Nowadays, it creates for us a better position to buy something that’s under pressure.
That being said, there doesn’t seem to be much distress at the moment.
Fortunately, though the situation could change. I think the market is in a good position because today’s regulations reflect the German experience in the 2007 -2008 when German funds faced huge outflows of investor money. Our regulations are strict about forcing us to keep 10% of NAV in cash. Nowadays, we’ve gone further and keep more than 25% in cash. It means we aren’t able to deliver much higher returns for the time being. However, I think we’re prepared for the upside.
So, high interest rates aren’t ruining your business?
No. We’ve been in the market 32 years. These higher rates obviously bring some limitations, so it’s not as easy as it was before. If I get 4% now, it’s still not as good as when it was just 1%… but it’s not a tragedy. Many market players today are still getting used the new “normal”. There’s a generation of investors and real estate professionals who grew up in an environment with 0% interest rates. For them, this is a new experience. Not for us. When I bought my first flat in Bratislava years ago, the interest rate on the mortgage was 6%.
The current high rates have caused disruptions in some sectors. But if the economy is still working, unemployment is low and companies can still sell their products, then as a fund, it’s about flexibility: how you set up the portfolio, the cash flow and where you find additional value. This is the puzzle you have to put together.
Your traditional customers can now get similar returns to commercial real estate in bonds or even savings accounts that are far less risky…and more liquid. Are inflows from retail investors slowing down?
It’s true they have more choices now, so it’s more competition for us. Obviously it was more before, but we still have more cash coming into the fund than going out. For us, it’s crucial to make a positive return even in this environment. Then we can explain to our investors that they should keep their money in the fund and put new money in. Because we’re investing in a very good time, when prices are lower. It allows us to bring assets with higher yields into the portfolio than before.
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