Ondřej Křivanec (Fidurock): Euro leases for residential work

Published: 07. 08. 2023

How far apart are buyers and sellers right now on price? And how has that affected your pace of acquisitions over the past 12 months?

With the cost of capital nowadays, selling a Czech koruna income asset for 6% or 6.5% isn’t achievable. The general opinion on the market now is that buyers and sellers are around 100 bps apart in terms of price. So far this year, we’ve acquired two retail properties with 30,000 sqm of GLA and four residential properties with 78 flats. If we look back a full 12 months, I’d add another two residential buildings to the list.

Aren’t you somewhat atypical when it comes to funds, in that you’re willing to buy development projects?

Our strategy has always been to maximize the value, so we are always searching for assets where we can add value. At some point we even had more development projects than active assets. We either have to buy well, or we have to see potential in the asset. Take the 78 flats we just acquired: when we’re finished with the asset, there will be over 120 units. That’s a perfect example. It currently has 5,700 sqm of space, but it will eventually be nearly 7,000. That’s the key for us.  The market may be diversified with a lot of players, but there aren’t too many investors willing to roll up their sleeves to do both development and asset management.

Market conditions have changed incredibly in the last couple of years since you joined Fidurock. How has the company changed in that time?

We found that leasing residential apartments in euro is no obstacle at all. We first began collecting euro rents in January 2022 when we completed our project on Bratislavska street in Brno. It’s just 30 flats, but I was quite skeptical whether clients would be willing to accept it. But they did. So, we repeated it in Olomouc for our project on Křižkovského street, which we finished last August. It’s a building with 149 units in which all but two are leased in euro. The same goes for another 52 units on Antoninská street in Brno which we leased this year. Around 60% of our tenants there are Czech, but they’re willing to pay in euro. We’ll continue with this approach because it makes the most sense in terms of financing.

Internally, we’ve dramatically increased our knowledge when it comes to development and the planning process. We’ve also established standards for the residential product we’re developing. Layout is key, so we try to imagine how the customer is going to use the space, which amenities are needed, and which technologies we should use. We’ve changed a lot — but the foundation is that we search for properties where we can add value. That’s our core.

What’s your reading of the economy now and how it will impact real estate? Do you see a lot of opportunity in the future – as in, better prices?

We’ve been preparing for various scenarios. I’m not saying nothing serious has happened yet. Interest rates are up and the market has to reflect that. But in the end, I believe the European economy is pretty robust. In my opinion, now is a good time to buy residential. There’s been a significant drop in prices (around 20% on the secondhand market), but based on historical data, we can assume that the value of residential will again rise faster than inflation. Inflation was 15% in Czechia last year and it’s expected to be above 11% for 2023. I believe good opportunities will arise in the retail park market as well.

Because retail parks aren’t performing well, or because of the situation of the funds that own them?

There are multiple reasons. For some, the math might not work the way it used, given the higher capital costs and the revaluation that results from it. Some funds will reconsider their investment strategy with regards to new EU sustainability taxonomy and the costs associated with it. But there are also funds that have been making acquisitions simply because they raised too much cash. Those who didn’t buy well know that with the change of the market, they will have to sell.


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