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Capital Seeks Market
There is no shortage of assessed capital and, as such, investors are once again looking to the CEE & SEE states. However, investors must be cautious.
Once again, increasingly more capital is surging towards Central and Eastern Europe and also the South-Eastern European countries are the focus of international investors. And for good reason; the South-Eastern European countries are showing a growing GDP and the leverage ratio is low. Especially Romania, an investment focused on the capital, Bucharest, has a good chance of performing well. Investment sums had already increased by 200 % between 2013 and 2014, albeit from a low starting basis. Current demand is only focused on the capital city itself, which incidentally applies to all the South-Eastern European countries. International investors are keeping their distance from the second and third main cities, preferring to leave these to the regional players.
Regardless of where it is purchased, a crucial element of all construction projects is certification. Ultimately, this is not an issue for new buildings. For existing buildings, which were built a few years ago, it is relatively difficult. However, as the competition is correspondingly strong there is no way around it. This demonstrates again that virtually everything is exploitable in a boom, though if the market is shrinks, then the better (certified) projects have a competitive market advantage.
In the CEE countries, office properties have been those most sought after by investors and accounted for 60 percent of purchases, followed by the industrial sector. The market for retail properties is currently considered to be in a somewhat critical condition, as far too many properties have been built in the last 10 years. Investors are cautious. The main reason is not solely due to the surplus but moreover because residents consume less and thus visit shopping centres less frequently in difficult economic times.
Therefore, investors have discovered the hotel market. In 2014 just over 50 % more was invested in it than in 2014. Some 750 million euros flowed into Central and Eastern Europe by way of hotel purchases.
Poland continues to be the big favourite for investment. Over the past four years, the country has recorded an exceptionally stable investment volume of around three billion euros per year and it has already become clear that this trend will continue in the future. Interestingly, most of the real estate investments made last year, namely 90 percent, came from about 20 major international investors, a fact which underlines the importance of cross-border investments for Poland.
In the meantime, with an investment volume of just over three billion euros in 2014, Poland has overtaken Russia, as the current political and economic situation is having a great effect on the country. Up to now, Russia, and particularly Moscow, was the clear leader in the investment sector, though the country lost nearly 40 percent of total investment between 2013 and 2014. Total volume fell from 5.3 to 2.3 billion euros and, also, this year is unlikely to be much better. Even if the rouble exchange rate recovers, a high degree of uncertainty will remain among investors.
The Hungarian market appears to be on the rise again, despite the continued presence of some political uncertainty. This is also the reason why the moment for re-entry is under careful consideration. Nevertheless, the investment volume has increased to 470 million euros, which, in turn, represents a jump of just over 70 percent. The country also counts as one of those with the strongest growth rate, albeit from a low starting level. International investors showed particular interest in larger projects and portfolios. Due to the challenges in the market already mentioned, yields are considerable. The Hungarian market even offers qualitative opportunities for developers with good projects, particularly in the office or the logistics sector. In the retail sector, however, great uncertainty prevails due to the strong legal intervention of late. Further restrictions and regulations due to take effect in the next two years are currently being implemented. Exactly what impact all these regulations will have on the development and structure of the trading market is currently wide open and cannot be estimated at the present time.
Croatia continues to suffer from its overcapacity of shopping centre space, which emerged during the “second” boom. It had already become apparent back then that these retail spaces were simply too much for a country like Croatia. Now, in a sluggish economy, these centres are the focus of increasingly bigger problems. As Croatia continues to be uninteresting for international investors, supply and demand is stagnating. Residential property is the only sector to have seen any movement, particularly regarding the second home market. Since Croatia's accession to the EU buyers have been able to rent out their holiday homes, which, in turn, is interesting for investors. In addition, the Land Registry has been electronically upgraded and with that the process of entering property into it is very quick today. Buyers from the EU are now able to enjoy legal Land Registry status equal to that of the locals.
In neighbouring Serbia, investors are slowly beginning to prepare the Serbian market. It will be very interesting to see to what extent the announced investments from Arabian corners actually end up being implemented.
In addition to Russia, another special case is the Ukraine. Even if it is inaccurately depicted to us in Western Europe, the conflict in Ukraine is limited to the Far East. Due to the sheer size of the country the rest of the country is not directly affected by this situation. Whilst investors are cautious on the one hand, national and international entrepreneurs in Western and Central Ukraine, who export to the West in exchange for hard currency, are taking advantage of the current situation to add extensions and conversions to their production sites whilst others are relocating their company headquarters. There is still enormous potential for this country. This also applies to all the countries in the region, though developments and investments should be farsighted and sensible.
Revolution in the Building Industry
A few months ago the news circulated that WinSun, the Chinese “decorative engineering” company, had built the world’s largest private residence from a 3D printer to date; a 1100 sqm villa. In this case it is not only the process which fascinates, but rather something completely different.
Instead of ink or plastic, this printer uses a grainy dough, consisting of construction debris, glass fibres, steel, cement and binding agents. Much as toothpaste is pressed from a tube, a nozzle attached to the end of a huge arm zigzags about piping out the five-centimetre thick mixture. Ma Yihe, the inventor and WinSun CEO, has christened it: "Crazy Magic Stone".
The spray arm works at a rate of 80 m per minute. As the printing composition used consists partly of rubble and the involvement of actual labour participation is extremely low in the construction of these buildings, this method is extremely cheap. So cheap that it could revolutionize the construction industry, hopes WinSun CEO Ma Yihe, whose company has been working on the process for years. Printed houses are not only cheaper, but are completed at a fraction of the "construction costs" of a comparable home in just a few days.
The Fascination of Speed
However, what is most fascinating about it is how fast this new method has been and will continue to be developed. For example, in April 2014 the media reported that the Chinese company had presented its first houses. These were still very small: They only had one floor and a floor area of no more than four by six metres, and one could expect to pay around € 5000 for such a house. The concept was fast tracked for further developed and in the spring of 2015 WinSun were already able present the said Villa on the factory premises.
However, an element of manual labour is still required for the construction of 3D printed buildings, namely for the installation of steel reinforcement and insulation. Also, as the printer builds from the bottom up, flat floor surfaces and balconies are not yet fully technically functional. Nevertheless, the technicians dismiss it as only a matter of time, and thus, for the WinSun boss, houses and villas are just the beginning. Ma Yihe, and his team, believe that the construction of even larger buildings, bridges and even skyscrapers are within the realm of possibility. Although 3D printing is a relatively new technology, it was first patented in 1986 and in 1990 the 3-dimensional printing process was already being implemented in industry to create models or prototypes for car manufacturers, among others.
In the meantime, now houses can be “printed”, though the initial steps are always the most tedious, further developments are usually much faster. Therefore, there is still a lot to be expected in the next few years.
A revolution indeed.
Where the Money is Managed
From searching for a suitable plot of land to actual occupation, the “EZB-Neubau” (New European Central Bank Building) in Frankfurt has taken just about 16 years. However, the result is a magnificent architectural ensemble from the Viennese architects firm: COOP HIMMELB(L)AU.
Since its inception, the European Central Bank (ECB) has been a resident of Frankfurt am Main, though only in rented offices. The search for a suitable site began back in 1998 and in 2001 the site of the former Great Market Hall was chosen for its headquarters following a thorough examination. There were 35 sites to choose from, however, according to a feasibility study, this area was the most economical option, had easy access to local infrastructure, sufficient spatial requirements and was the optimal location as regard the necessary safety measures for a central bank.
After moving into its new building in autumn of 2014, and the official opening in March 2015, the ECB managed the currency of the world's largest economies from Frankfurt’s Ostend, and does so in a very impressive building. The design from the Viennese architects, COOP HIMMELB(L)AU, that won the previous international urban planning and architectural design competition in 2004, is visionary and unique. The initial preparatory construction work took place in 2008. The main construction work began in the spring of 2010. As of 2011, the office tower became visible above the skyline, while the refurbishment and remodelling of the Great Market Hall was simultaneously carried out.
The incorporation of old Great Market Hall, in which vegetables continued to be traded right up to 2004, into the new headquarters of the European Central Bank is an integral part of the design and a special feature of the project. The old market hall was purpose built between 1926 to 1928 as a central trading centre for fruits and vegetables to supply Frankfurt and its surroundings. As a supply building, it marked the rise of Frankfurt to the status of metropolis in the 20s. At the time, the hall was the largest free-standing reinforced concrete building in the world and the tallest building in the city and was locally referred to as the “Vegetable Church”.
Its original basic appearance has been preserved and, following extensive renovation, will take on most of the public functions of the ECB. Hall space is being developed above the new main entrance: All semi-public facilities, such as visitor centre, lobby, a cafeteria, conference rooms and a staff restaurant are housed here. The new functional facilities are arranged diagonally as a “House within a House” concept, whereby the interior spaces of the Great Market Hall can be partially experienced and, in addition, a variety of spaces with built-in components have been created between the hall as an outer-shell.
To the South of the Great Market Hall, the two polygonal high-rise blocks are grouped into a 185 m high double office tower, which creates the impression of two twin towers twisted together. The northern tower has 45 floors, the southern 43. The 41st floor houses the highest floor in which offices are housed. The floors above house the technical facilities. The office building complements the Frankfurt skyline with its height and its characteristic silhouette and is as distinctive a building in Frankfurt's Ostend as the city centre skyscrapers on the other side of the river. Breath-taking obliqueness and stylized shards characterize the exterior of the tower; inside crooked planking and steel braces appear to shoot into the sky. The glazed atrium between the two office towers is planned as a so-called "vertical city". By connecting platforms and overhead crossings, squares and streets are created similar to those of urban structural design.
Sustainability is a key objective of the ECB. Thus not only environmental issues, technical efficiency and functional requirements are taken into account but also the issue of urban renewal as well as social aspects. One element of sustainability is urban regeneration and conversion. As such, the mostly sealed area around the Great Market Hall, on which heavy goods vehicles once parked and unloaded, has been converted into a large leafy landscape in order to create a "green lung" for the city. Furthermore, by means of a variety of energy-saving measures the new building uses up to 30 percent less energy.
Portrait of Alfons Metzger
Alfons Metzger began his activities relatively early on in the 60s in a not yet existing real estate industry. Born into the hospitality industry, he completed his studies as an academically qualified hotel and tourism manager, though did not go on to run the family operation itself. Quite the opposite: The parental hood home, which housed a restaurant (now the Cafe Rochus on Rochusmarkt), was developed by him into an office project. Metzger: "At that time I already certainly understood that were I to develop the house before I sold it, its prospects would be much better. An office building seemed somehow logical."
After this first project, which was successfully sold to an insurance company, the catering industry came back into play. On the one hand Metzger was holding talks with Burger King to extend its fast food chain into Austria; whilst on the other hand also he’d had an offer from Swiss Air in Chile to develop the tourism market. However, the neo-project developer had to solve a much more urgent problem, because with the sale of his family business he was left without a home. His solution was to build a residential project on a plot in the Sieveringer Straße and to retain one of the apartments for himself. This worked without any problems, though there was one catch: "The apartment, which I had planned for myself in this complex, was the one which sold first, at a very good price."
Metzger decided that staying in this line of business would be the more “sensible” option, and with that dedicated himself to real estate development. "The real estate industry seemed more exciting than providing random people with a few schnitzels", says Metzger today, "even if I had to build everything on the “learning by doing” principle." His company, "Individual Living", specialised in small apartment complexes with just a few, though very exclusive, apartments. As it is today, his office back then was located at Gumpendorfer Straße 72. As he himself only needed one room, he rented the others out to a firm of architects which had won a major project: the construction of the Franz-Josefs- Railway-Station superstructure, among other things. In this project, Metzger was “involved only on the side-lines. An entire neighbourhood development came with this construction and I realized the dimensions of working with real estate."
In addition to his projects, he set up a property management company and at the beginning of the 80s his true destiny as an authorised appraiser began. He subsequently went on to become a property evaluator: "A former colleague asked me if I would help him draft an appraisal." Metzger delved into the matter and immersed himself ever further into the real estate industry. In 1989 he was appointed president of the FIABCI and was asked to organize the FIABCI World Congress in Austria. Not an easy task, due to the huge headwinds the political situation was generating at the time. For many companies, the former federal presidents National Socialist past, was a reason not to attend the event in Vienna. Following a trip around the world Metzger was finally able to lure 2400 visitors instead of the traditional 1200-1400: "I tried to make it clear that we must at last begin to pull together and orientate ourselves around the future." After this triumph, for him and Austria, he was appointed to the global Board of FIABCI and occupied himself intensively with the development of the international real estate industry. This was another phase which changed his views again, he said. With his extensive travels, contacts and discussions he established not only a global network, but also describes the time as a "superb learning process from which I have gained a lot of understanding and knowledge for my work. I was able to learn how the real estate industry functioned in numerous countries. Above all, I could see and learn that real estate accounts for almost 50 percent of a nation’s wealth and thus plays a particularly important role."
In those days, Austria was still rather antediluvian but in the mid-90s the globalization of the real estate industry also began to take hold in this country. Perfect timing for Alfons Metzger, as he was already well recognised in the real estate industries of most the world’s industrialized countries due to his involvement in the FIABCI and his international activities: "The challenge in Austria was to create awareness of the value of a property portfolio, though I encountered a large lack of understanding to begin with."
He faced one of his greatest professional challenges in the mid-90s. In the wake of the “Konsum” collapse, around 900 appraisal reports were completed in one year with just 50 employees. "The understanding that property valuation is a huge responsibility has stayed with me ever since. One must not only define exact values, but also protect jobs." As was international practice at the time, and Metzger was already well experienced, the properties were evaluated, bundled into packages and then sold.
He considers “the changes he implemented and the awareness he created for the value of real estate” as the greatest success of his entire professional career in the real estate business, both at home and abroad. His activities as a board and president of TEGoVA were equally as decisive as his work as a Member and Advisor of the six-member UNECE expert group, which dealt with issues such as the rating and valuation of real estate in the years 2008-2012. The intense debate on the issue is probably also why it never ceases to amaze him despite all the changes in the business: "The fact that those in positions of responsibility still haven’t realised that the proper valuation of a property or a portfolio is of immense importance. There are rules to be followed in evaluation, which are all too often ignored, and numerous evaluations are often found to be of a shameful qualitative level which always leads to a loss for investors and shareholders."
And that just when the real estate industry has a golden time ahead of it, opines Alfons Metzger: "We have to assume that in the next 30 to 35 years, around two billion more people will live on earth and these people need a roof over their heads, employment, social services and recreational facilities. The biggest challenge lies in the expansion of the cities."
A vision will become reality with prrc
In the course of his activates since 2008 as CEO and President of TEGoVA, and as a member of a six-member expert group of the United Nations Economic Commission for Europe (UNECE), Mr Prof Alfons Metzger has developed the rating procedures prrc. He then had the idea to establish a "complementary and comprehensive database", which enables an even more precise focus on the results and the comparability.
Following initial professional experience in the real estate industry with various players such as the Münchner Grund Immobilien Bauträger AG (UBM, Germany), Mesa Development, LLC (Chicago, USA) and JLL (Frankfurt, Munich) and an appropriate real estate study at the prestigious European Business School (EBS) in Oestrich-Winkel, I recognized the opportunity and benefits of the rating process and developed it into a process suitable for national and international use. My latest activities with JLL, such as the collaboration in building the Retail Investment Team in Munich, as well as larger transactions with international investors have conveyed to me the necessary experience and knowledge. In addition to my professional experience, it has also been possible for me to market and place the product internationally thanks to my multilingual skills.
With the help of several national and international events, such as with the Counselors of Real Estate (CRE) in Chicago, USA, or FIABCI in Washington, DC, USA and Rome, Italy, I have been able to efficiently adapt the rating model to the international market and establish a network with prospective partnerships.
The MRG Metzger Real Estate Group team has an active and supportive role in all rating processes. The individual employees use their years of knowledge, experience and know-how to create an instrument that not only serves as an important and meaningful tool and decision-making basis for investors, directors, supervisory board members, investment managers and asset managers, but which also delivers precise and clear statements on the status quo of a property or property portfolio which are understandable for everybody.
The rating procedure enables an evaluation of a risk-opportunity profile for an entire portfolio, individual asset classes or individual properties and therefore serves as a meaningful basis for buying, selling and financing decisions. The prrc ratings are based on professionally created assessments of current market value and include comprehensive analyses of the relevant country, market, location, performance and the object itself.
In combination with the database, a straightforward comparison of the opportunities and risks contained in the current market value with other objects is possible. On the one hand, the rating process classifies the objects by means of a grading scale of 1-10 thus making a simple comparison of the property within a portfolio possible and, on the other hand, provides a strategy on the basis of a decision matrix. With the help of up to 150 parameters opportunities, risks, priorities and weaknesses can be identified and edited using this strategy.
A vision will become reality with prrc.
The Other Germany
Investors rush to the seven biggest German cities. However, aside from the tracks regularly beaten by the big investors there are still underrated cities with high potential in the longer term.
If one asks any international investor what his favourite real estate investment locations in Germany almost all of them only have eyes for the top seven: Berlin, Cologne, Munich, Hamburg, Dusseldorf, Frankfurt and Stuttgart. Due to the enormous demand in recent years, prices in these metropolitan areas have increased disproportionately, especially in the residential property sector. Competition for the best properties is constantly increasing and yields are coming under increasing pressure.
There are however, other interesting cities with high potential which are not yet the focus of international investors to such a great extent. A prosperous location is judged not only its absolute size nor the number of inhabitants, but in particular by the growth of its population, the development of unemployment and economic momentum. The stable economic development and steady growth of the population enjoyed by German cities is mainly ensured by presence of flagship enterprises (e.g. automotive) and/or universities, as well as functional transport infrastructure. Considering these factors, there are surprising results outside the top seven, as well as outside of Bavaria, which undoubtedly represents the No.1 German growth region.
Following a thorough analysis and extensive research six cities have emerged which, in our opinion, are undervalued to date. These locations are interesting for investors as they possess a very good price/performance ratio in regards to real estate purchases and on the other hand have sound economic fundamentals.
These cities include Dresden, Leipzig, Potsdam, Magdeburg, Erfurt and Halle.
These six cities have certain requirements in common: They all have more than 200,000 inhabitants, except for Potsdam which counts as part of the German capital, and they lie within the radius of “two and a half hours travelling time from Berlin”. Thus, broadly speaking, they also profit from the development of the capital city. As with all cities located in the new federal states, they possess new and compact infrastructure which includes motorways, airports and stations among others things. Not to be forgotten are the billions of D-marks and Euros which have flooded into East German towns over the last 25 years courtesy of the solidarity tax and which have had an extremely positive impact on many a city and the quality of property. In addition, Dresden, Magdeburg and Erfurt are state capitals with corresponding political importance and therefore also administrative centres.
Although the population in these cities has either increased above the national average or remained roughly equal since 2000 the unemployment rate declined since 2012 except for Potsdam, which has grown by striking 25 percent since 2000. When comparing the average purchase price for a 60m2 freehold apartment from admittedly low levels in 2011 to prices in 2014, striking increases are apparent: from 25 percent in Leipzig to 44 percent in Erfurt, all the way up to 56 percent in Berlin.
Of course it is not possible to discuss all these six locations in detail here so I will mention a few points that are meaningful in terms of the respective cities and thereby explain the philosophy of our choice.
In a German city ranking, Leipzig occupies second place behind Berlin not only for economic stability but for quality of life. When calculated based on the rise in the number of employed persons between 2008 and 2013, this city, with its 522,000 inhabitants, occupies first place. Together with Halle and five other cities in Saxony-Anhalt, Saxony and Thuringia, Leipzig forms the "Metropolitan Region of Central Germany". One of the largest cargo airports in Europe (DHL and Amazon logistics centres), Porsche and BMW car plants and approximately 50,000 students contribute significantly to the dynamics of the well-known trade fair and book city.
As the capital city of Saxony, Dresden, with 62 % forest and green areas, is not only one of the greenest cities in Europe but also one of the most modern high-tech locations with particularly high levels of expertise in the fields of microelectronics, information and communication technology, biotechnology, nanotech and photovoltaic technology: all the industries with a future. The well-known cultural city (Semperoper) is also home to several universities, an increasing population and a lower than average vacancy rate, all of which add to its attractiveness as a look at the rental prices shows: rental prices for apartments rose by 23 percent between 2009 and 2014.
Potsdam benefits not only from its incredible location directly next to Berlin (the secret Beverly Hills of the capital) and its proximity to water (15 lakes are located in and around the city) but it also has three public universities with more than 24,000 students (with 161,000 inhabitants) and more than 40 research institutes. Apart from that Potsdam is also home to the renowned Babelsberg Film and Television Studios.
In a Germany-wide survey of citizen satisfaction with life in their city Magdeburg, the capital of Saxony-Anhalt, won first place. This quality of life is also reflected in the volume of transactions for homes, which rose by 20 percent between 2012 and 2013.
Last but not least, the yields speak clearly for these markets:
They amount to 3-5.5 % in Berlin, 4-6 % in Dresden and Leipzig, and up to 6-8 % in Magdeburg.
We were already on track ten years ago with our estimations regarding the Berlin property market. Berlin was undervalued for many years and meanwhile has developed disproportionately. The same can now be prophesised for the aforementioned cities.
Evaluation of properties according to AIFMD
The task of the Alternative Investment Funds Manager Law (AIFMD) is to harmonise and regulate the so far unsupervised AIFs (Alternative Investment Funds).
In contrast to other laws, the AIFMD regulates the fund managers instead of the products, taking into account the assets entrusted to it and the global economic impact of its activities and defines them as an alternative investment fund manager according to AIFMD.
The EU guidelines for the Alternative Investment Funds Manager Law (AIFMD) concern the compliance of transparent valuation standards in conjunction with basic principle of independence and, consequently, a reasonable remuneration for the adopted liability and to assure the independence of the evaluator. Likewise, the period of time in which a subsequent valuation is to be conducted is also given. Section §17 of the AIFMD provides that the assets shall be evaluated both monetarily and emotionally by an external evaluator and the AIFM her or herself at least once a year.
With regard to the valuation of real estate assets by the AIFM, the AIFM must guarantee that task of evaluation is functionally independent of the portfolio management and that the remuneration policy ensures, as well as other measures, be free conflicts of interest and that undue influence on employees be prevented. However, the Financial Services Authority (FMA) may request that the valuation methods and the valuations conducted by the AIFM be audited by an external evaluator or tax consultant.
In accordance with section §18 of the AIFMD, the AIFM has the right to transfer one or several of his duties to a third party and thus appoint an expert evaluator. This may only be a natural or a legal entity independent of the AIF. The AIFM must be able to demonstrate that the appointed external evaluator is a registered professional or subject to vocational rules which demonstrate sufficient professional guarantees which enable the evaluator to carry out the corresponding valuation functions and above all that the valuation shall be executed independently and with due skill, accuracy and diligence. The AIFM's liability towards the AIF remains unaffected; the external evaluator is liable to the AIFM. Likewise, an explanatory statement and a written notification to the FMA are necessary in order to delegate to the appraisal task.
The prevailing national and international valuation standards are the basis of any proper valuation.
Despite the Guidelines on key concepts of the AIFMD of 13.08.2013, issued by the ESMA (European Supervisory Authority), there are still many questions unanswered which are leading to problems, not only in Austria but also in other EU member states.
Furthermore, Austria differs from the European guidelines on certain points. In order to simplify the transition to and application of the AIFMD, the FMA has posted a support page on their homepage under FAQ (Frequently Asked Questions) including answers regarding application.
People & Real Estate
DI Herwig Teufelsdorfer has been on the management board of the Austrian BUWOG Bauen und Wohnen GmbH (Building & Living Ltd) and responsible for operative agendas concerning inventory since March 2014 and, since October 2014, also for Germany.
"Do good, be good and you will get good"
"He who works hard with a good attitude will reap the profits”, Herwig Teufelsdorfer formulates his work philosophy: “I’m talking about result orientated work”. When dealing with defined results, then the goal is the goal. For him, it’s important to focus on the job. The native Salzburger has often proved that this is what he does. Not only in Austria: “There was a time when on Mondays and Tuesdays I was regularly in Budapest, Wednesdays in Vienna and Thursdays in Milan.”
When he was studying at Graz (Industrial Mechanical Engineering at the TU) the idea of an international workplace hadn’t occurred to him, even though his occupation already had him commuting between Austria and Germany. During the summer months of his training, he worked for German companies, one of them being the Siemens Lighting Plant at Chiemsee. As he later confirmed, he had actually already become involved in real estate, because: “I was working in the Plant Conservation section. Years later when I started in the real estate sector I realised that it was nothing more than today’s FM, except it wasn’t called that”.
Following his studies he went to Vienna where he carried out corporate consultancy, restructuring and reorganisation projects in Austria, Germany and Switzerland. Further to the successful reorganisation of a real estate company he was finally head hunted by Vivico in Frankfurt am Main for the position of Head of Corporate and Portfolio Strategy and thus began his career in the real estate industry. “The last project I did with the company was a joint project with Morgan Stanley which involved the creation of a business valuation model in order to calculate a possible purchase price for VIVICO”. (N.B. Editor: Vivico was acquired by Austrian CA Immo PLC in 2006 and now operates under name of CA Immo Deutschland.)
He came back to Austria in the middle of 2004 and took up a position with the Federal Real Estate Company (BIG) and was responsible for development of portfolio management among other things. Once everything was on track he switched to the Bank Austria Real Invest Group as Head of Investment where he was responsible for all purchases made on behalf of the companies’ funds and its balance sheet.
2008 was followed by a start-up company whereby, he and a colleague set-up Hypo Real Invest AG which later became IVG Austria, a subsidiary of the German IVG. Teufelsdorfer saw this time as very challenging, “starting a company from scratch, defining its organisation, bringing it to life, finding the right the personnel, employing and developing them, everything in Vienna and a fund-subsidiary in Luxemburg as well and investments of € 200m was an exciting thing. How often does one have a chance to do something like that? “To be able design and set-up a company from scratch oneself and turn it into an up-and running company. That was exactly what excited me so much.” He left the safe-haven of Bank Austria Real Invest Group to pursue this challenge.
Now he is commuting between Austria and Germany again though for the same company. He took over the Portfolio Business for BUWOG in March 2014 and went on to do the same for the German branch in October of the same year. He feels very comfortable in the dynamic environment in which BUWOG moves.
“It’s fun and I like to work”, explains Teufelsdorfer about how it’s possible to cope with such immense tasks: “If it isn’t fun to do, then one should do something else”. He also has his own attitude with regards to professional problems which he sees as more than a challenge: “I also enjoy solving problems, and when one manages to solve these problems then it’s perfect”. Aside from the current professional assignment the most interesting is always the next one: “The jobs which arise during the course of a day at work”.
During his professional career he has often proved his ability to solve problems – also in Central Europe, where he has spent a lot of time. In his opinion, as an educated Austrian, one has it easier in this diverse international environment: “We have a certain advantage. With all the qualities that have been awarded to Austrians, we have brilliant conditions to act as the interface between West and Middle Europe. As an Austrian, one can render the necessary flexibility to be able to adjust oneself the most diverse framework conditions, to respond to them and work in a flexible and result-orientated manner.”
Property fascinates him, in all its various aspects. This doesn’t only concern the external form, but also “how a property’s interdependency on itself functions, regardless of whether it’s an airport or a production plant.” Even St Stephan’s Cathedral has its appeal for the BUWOG managing Director, particularly “when one thinks what kind of technical assistance was available for construction in those days.” For him, the value of a property is only the building itself: “A property is worth nothing if it’s not recorded. The property alone does represent the value itself as such, the value of a property is derived from its surroundings, the market, the location and the people involved with it.”
People & Real Estate
DI Dieter Hayde is an architect in Vienna who founded
his firm in 1994. Alongside the development of urban services, his spectrum of expertise includes all areas of building construction such as industrial and administrative buildings, housing, renovations and hotels among others.
We go into a house, over a bridge, work in an office: “Everything is architecture”, says Dieter Hayde. Well-being, open spaces, city. Except for a year in Munich at the beginning of his career, the architect has been operative in Vienna all his life, and extremely successfully. He has had a stylistic influence on Vienna, a city that has successfully developed into a metropolis over the past 25 years, since his studies in 1967 when he worked under Professor Wurzer at the “Institute for Urban Planning TU-Wien”. “One sees things evolve and leave visible traces in the city and if they are still reasonably attractive, then it makes one proud”. In addition, he has substantially influenced one of the most important aspects of future architecture; energy efficiency, and has created two Austria-wide, and also one world-wide, unica.
“One sees things evolve and leave visible traces in the city and if they
are still reasonably
attractive, then it
makes one proud”.
Residential construction was and still is a great love, in which “I love implementing different projects. That's the special thing about our profession; that we have to solve a variety of tasks. Thus one is always up to date and it broadens ones perspectives”. In addition to residential housing, his office (HD Architekten) also implements administrative buildings, hotels, industrial buildings, shopping centres and parking garages.
A parking garage was the first project which he brought to the establishment. However, this has since been torn down, in order to make way for the new central train station. The parking garage was already “planned as a temporary object at its implementation stage”, because it was always clear to the city officials that the former Southern Railway Station would undergo far-reaching changes in the future.
“One can’t be totally indifferent to a project being demolished, particularly when it was the first one”, said Hayde, who is committed to all of his projects: “It flows through one’s lifeblood and there's a lot of work behind it”. He compares it with parents who are asked to choose which of their children they like best. The answer can only be: all of them. Thus, he puts up with working 24 hours a day because ultimately, “I work around the clock because the ideas and solutions to problems always accompany you”. Despite his decades of work as an architect, which began with a drawing board, ruler and Aquafix, he is still fascinated by the transformation of a blank sheet of paper into a blueprint: “The evolution of an idea on a blank sheet paper is fascinating. I often used to simply make a mark on the paper, as a first step, so it wouldn’t appear so empty to me”.
Energy efficiency has been one of the strongest trends in recent decades, and Hayde had already with it during the first energy crisis in 1973. “We acted on the lessons we learned at the time”. It was decades until the development really “took hold”, but now the victory is unstoppable. “What has since evolved in terms of ecology is impressive and there is still much more to do”. This experienced architect knows what he is talking about as in Vienna he has set major milestones in this context: In cooperation with Maurer & Partner he was largely responsible for the new Raiffeisenhaus on the Danube Canal: the first “passive” (ultra-energy efficient) high-rise office building in the world! His name is also associated with the “Silbermöwe”, an office complex in Vienna’s 3rd district, which was audited by his HD Architects consultancy firm, and was the first fully renovated office building complex in Austria to be awarded a gold standard ÖGNI Certificate from the Austrian Sustainable Building Council and also associated with Austria's first “Turn of the Century Green Building” in Biberstraße in the 1st district. “However, one has to say, the clients have also made a great contribution in this area. Without the necessary level of understanding from the clients such projects would not be possible”. In his opinion, future energy consumption levels for property are already moving towards zero; above all, fossil fuels will become a thing of the past.
Alternative energy is only one part of the future of architecture. The other part? A subject Hayde goes into unwillingly: “There are many things that run through one’s mind and one can but wonder what some things might develop into, and I would therefore like to deal with it theoretically. So far I have only dealt with this theory on an outpatient basis”. As he has so many ideas regarding existing architecture and the concept of architecture itself, he believes it worth committing them to paper. “Architecture is always a reflection of society. In other words, what the architecture produces is influenced by society. Thus, one of the most important questions is: How will society develop? As what is necessary for architecture results from it”.
In order to allow himself time for his ideas, it was an essential step for the Hayde Studio, which is inextricably linked with his name, to convert itself into HD Architects: “It is my intention to render Hayde Studio into the HD Architect Partnership, with young colleagues with new ideas and input combined with my experience”. Then he will have time to put his thoughts on paper. One can therefore expect some interesting things in the future from someone with such commitment:
“Everything is architecture – everything is influenced by architecture.”
Politics & Investment
“Once we are no more, these stones will speak for us.” Mayor Karl Seitz, in a speech at the opening of the Karl-Marx-Hof in 1930.
In almost every European metropolis in 1900, housing for the working class in private tenement barracks was often defined by unacceptable living conditions. The situation was particularly bad in Vienna, caused by an immigration wave to the capital from the Austria-Hungary Empire, the population increased over 60 years from 600,000 inhabitants in 1850 to over 2 million by 1918 making Vienna the fourth largest city in the world.
At around the turn of the century, the first steps were taken to develop housing for the workers in the form of company housing to alleviate the housing shortage and the unbearable conditions. The first social housing was created for the employees of the Wienerberger Brick Factory. Victor Adler, a social democrat, was operating doctor at Wienerberger and was a strong advocate for workers’ rights. The work of the newly established charitable foundations and associations was a second approach to combat poverty.
After the end of World War I in 1918, the population of Vienna sank slightly and remained at around 1.8 million throughout the twenties and thirties, however, the due to the war, all residential construction developments were postponed. In 1917 almost three quarters of all Viennese residential units were over-crowded one and two bedroom apartments. The fall of the monarchy led to political changes and these were ultimately the hour of birth of a unique development in Vienna, which was regarded internationally as a pioneering achievement of urban and municipal apartment housing – and still is today.
Following the council elections in 1919, Vienna became the first social democratic megacity in the world. Mayors Jakob Reumann (1919) and Karl Seitz (1923) founded the slogan: “Red Vienna”.
They launched housing programs financed by a new housing tax. Including the properties finished after 1934, 382 council buildings with 65,000 apartments housing approximately 220,000 residents emerged during this period. Due to a lack of private demand it was possible for the City of Vienna to acquire a variety of real estate at affordable prices. Characterised by a socialist idea, the basic concepts and ideas of these housing estates, in regard to living conditions, were unique. As more than 190 different architects were commissioned by the municipality of Vienna, very diverse and architecturally advanced building solutions were developed in the context of community housing construction despite uniform specifications. Some felt confronted at being tasked with creatively using vacant lots, some were able to construct huge areas as so-called “superblocks”. Many of the resulting houses of that time still exist today and they have become an important part of the architecture and culture of the city.
The first council building to be erected in Vienna was the Metzleinstalerhof in the 5th district, the first main road-courtyard complex was built between 1924 to 1926 – the Jakob-Reumann-Hof at the Margaretengürtel with 480 apartments.
The superblock acted as their own cities within the city and were referred to as a “People's Residential Palaces” due to their monumentality. They were mostly implemented in block perimeter construction with a large gate leading into an often landscaped courtyard, from where one could access the individual stairways and apartments. Often were, or are, lecture halls, municipal libraries, club houses, parent counselling centres, laundry rooms, doctors' surgeries, shops and nurseries to be found. The low cost of land and renting the apartments at the cost of the community allowed a much lower degree of development than would ever have been profitable in private housing. Instead of the mandatory 20 percent, the courtyard areas in the apartment blocks increased by at least 50 percent and in some cases reached up to 80 percent of the total plot area. While the apartments embodied the possibility of a retreat into undisturbed privacy, they wanted to promote the sense of community through for all tenants through the established facilities. These facilities were also of frequent benefit to the people living in the surrounding area. Thus, the establishment of new community buildings worked as a city regenerative impulse for all districts. The Karl-Marx-Hof, completed in 1930 in the 19th district of Vienna with 1382 apartments, is still an icon of “Red Vienna” today.
Given the rapidly increasing unemployment in the early 30s, only small house-building projects were advocated by the community for the suburbs as part of a job creation program and the complete failure of the national socialist housing policy in Vienna led to a stop of the residential construction.
It wasn’t until July 1947, following a 13-year break, that an urban residential complex, in Viennas district
Favoriten, was once again handed over to tenants. In this year, an umbrella
organization for council residential housing industry was established in its current day form, which guarantees the population the supply of affordable housing today. During the post-war
period, social housing was carried out under different political and financial conditions. During the period of reconstruction the goal was to provide the largest number of apartments as fast as possible.
However, in the past 20 years council housing has again taken a leading role in new residential construction in Vienna. In 1995, two instruments were implemented in Vienna, intended increase competition and quality in residential buildings: All housing projects that receive government funding, must undergo either a developer's competition process or be approved by the Vienna Land Advisory Board. The assessment is based on four pillars: “social sustainability”, “architecture”, “ecology” and “economy”.
90 years after “turning the first sod” for the first Viennese council house estate, the role of the city in housing has changed, but its quality is still unique and delegations from all over the world regularly come to gain inspiration from Viennas “social housing” for their own cities.
Real Estate & Management
Properties that are managed for decades to the complete satisfaction of the customers and clients attest to the professionalism of a company.
MRG Metzger Real Estate Property Management and Facility Management GmbH looks back on a long history of corporate heritage. The company was founded by Alfons Metzger in 1978. Even when the company founder devoted himself specifically to the subject of assessment and the building of his international networks in the 80s, he always remained closely connected to property management. Property management is the “basis of my success” says Metzger himself and “emotional asset”.
What was once a property administration business has since become MRG Metzger Real Estate Property Management and Facility Management GmbH, though it is still a privately owned company with a small team. The management is shared between Silvya Metzger-Petz, who is responsible for Customer Relations and Marketing, and Regina Wolf-Zwerenz, who is Managing Director for the areas of Property Management and Finance. The company is specialised mainly in family-owned real estate, special-purpose real estate, family offices and foundations, areas in which personal contact with the clients is extremely important. Silvya Metzger-Petz: “Our clients have direct contact partners who always act in their best interest. A long-term cooperation between owners and tenants is based on trust, reliability and open communication.” So it is no surprise that it’s not only the numerous properties that are managed for decades by MRG Metzger Real Estate Property Management and Facility Management GmbH, but the working relationship with numerous satisfied clients is equally long. In the long run, maintaining the value of a property, and also increasing, is only possible by continuous, professional and solution-oriented engagement.
The demands on property management companies have changed significantly in recent years, as they take on more and more social, economic and organisational responsibility for the owners. “A high level of industry-specific know-how, market-oriented expertise, creativity and visionary thinking about the future are essential qualities for the optimal management of a property”, says Silvya Metzger-Petz.
The company's own code of ethics, which is part of the Metzger Real Estate Group, is integrated into the mission statement, as ethical competence is an essential prerequisite for functional cooperation.
Property administration was yesterday – Real Estate Management is today!
Finance & Business
In the past, agriculture and forestry operations used to be reserved for nobility. This investment has often helped to ensure the preservation of assets over many generations. What would the Princely Houses of Esterházy, Thurn & Taxis or the Habsburgs be without their forestry investments? For them, agriculture and forestry is probably the most original type of property investment. Many tradition-conscious families still have nearly 90-100 percent of their assets invested in agriculture and forestry in the broader sense and have been living very well on it for many generations. However, since the financial crisis of 2008 interest in investing in agriculture and forestry has picked up all over Europe – and not only from aristocratic families. Nature areas especially, of which there are many in Austria, have been particularly in demand in recent years. Indeed, they still are, though there are hardly any reasonable agricultural and forestry properties left to be had in Austria currently – in terms of large areas from 115 hectares upwards. Namely, with 115 hectares upwards one can already speak of a private hunting, and therefore they are especially sought after. The behaviour of these exceptional properties is much like that of the the famous Viennese apartment buildings: He who has one and it does not necessarily need to sell, does not. So it is only natural that the wealthy Austrians who are looking for an equivalent are currently looking beyond the borders. Buyers are especially active in the CEE/SEE countries. In doing so, agricultural land is also being purchased, in addition to forestry.
The commitment is understandable because logical forward-thinking regarding the Euro-zone crisis concludes in the increasing importance of real assets and agricultural and forestry areas are clearly among the big winners. Low complexity and high stability speak in their favour in most conceivable crisis scenarios; furthermore, an extremely low cyclicality and with that they fulfil the requirements of classical inflation-resistant assets. Investment in agriculture and forestry are not strongly correlated with the debt crisis and the stock and bond markets. In times of low interest rates, forestry and agricultural land don’t only count as a safe haven. A growing world population, increasing global prosperity with adjustments in dietary habits and numerous alternative uses for agricultural products (bioethanol, biogas etc.) guarantee a stable demand. The economic outlook for producers of agricultural commodities has rarely been so good.
The Earth's surface is covered
by about four billion hectares
of forest. 870 million hectares
of which are considered to be
investment grade woodland, with an estimated value of $ 480 bn.
In the US itself, the possibility to participate in agricultural area yields has been around for a long time. The “Timber” asset class has long been an integral part of the portfolios of institutional investors in the United States. Public and private pension funds and foundations have been able to buy forests and plantations for more than 30 years. In the mid-eighties, institutional investors owned forests with a total value of around $ 70 m, today they are worth more than $ 25 bn. At times, the Harvard and Yale endowment funds count among the biggest private forest owners in the world. In Germany and Switzerland fund initiators with participation offers are increasingly looking for investors. In doing so, the investment spectrum has extended from the flower meadows of Salzburg to the jungles of the Amazon.
Which of course makes the investment particularly interesting: Regardless of a low initial level, real estate professionals believe that agricultural land, and especially cultivated land, may more than double in value in the next five years, some expect that it may go even higher.
Real estate is traded in much the same way as any other goods
, and professional appraisals are becoming increasingly important for the prospects and risk management of real estate on the current market.
Over the past 20 years, trading in real estate has increased remarkably.
According to figures from JLL for this year, global business has reached a new record level. In the first half of this year around $300bn worth of real estate changed hands, on this basis, around $700bn is also expected to do so by the end of the year, which will be a new record.
In times of economic instability, real estate is considered a safe haven. As such, when buying and selling, it is even more important to have a corresponding base, which simplifies the
decision making process.
National and international real estate business currently faces a number of major challenges. On the one hand, the investors require minimum response times and professional management, on the other hand, the banks are interested in the efficient handling of customer requirements and the fastest possible appraisal of individual properties and/or entire real estate portfolios. In a rapidly changing market environment, often decisions regarding the purchase or sale of real estate need to be very prompt, forward-looking and competent. It is essential to gain a
professional, clear and swift overview of the prospects and risks of the individual properties or whole portfolios. Rating systems provide the ideal basis for decision-making.
A rating system is nothing new in itself. In the United States, rating systems have been in use since the beginning of the 20th century, and are commonly used to provide information about the
financial strength of individual companies. Examples of such include Moody’s Rating (since 1913) and Standard and Poor’s (since 1916).
In the meantime, real estate rating systems that are in continuous development have also evolved. Prof. Alfons Metzger is the only Austrian to be involved as an independent evaluator in the conception of different rating systems in Europe and indeed, worldwide. As Chief Executive and President of the TEGoVA (The European Group of Valuers’ Associations – an umbrella organisation of national real estate appraisal organisations), he was involved in the development of the “European Property and Market Rating” which was published by TEGoVA in 2003.
As a member and advisor of the six-member UNECE expert group, which further developed the TEGoVA rating in the years 2008 to 2012, he also dealt not only with the important issue of protection from real estate crises (as much a current topic of today as it was then) and the valuation of real estate but, above all, he developed a high-quality safeguard thereof via risk and rating procedures. The experience and knowledge of this enduring work in international expert committees has led to the conception of a proprietary Risk & Rating product which has become established on the European market via a separate Rating Company PRRC.
The idea of a credit rating is the appraisal of a prospect/risk profile based on a detailed set of criteria and is therefore a meaningful basis for purchase, sale and financing decisions for investors, financial institutions or companies. “R&R” allows for the standardized appraisal of the quality of a property, identifies risks and indicates its prospects. Property and market rating is always a forward-looking appraisal process, the results of which can be used as a yardstick for the medium-term marketability of a property and thus makes an important contribution to the risk appraisal process.
Thus, for existing properties, “R&R” represents the long-term quality of a property in its relevant market.
Risk & Rating is divided into several criteria, which concerns itself, among other things, with the market (national/international, social demographics), the location (micro-location, transport links), the object (architecture, structural condition, plot situation) and the quality of the real estate cash flows (tenant/user situation, rent increase potential, rentability, vacancy).
These groups are divided between objectively measurable criteria (e.g. purchasing power parameters, space efficiency) and subjective criteria (e.g. political stability, plot situation), weighted according to importance (market/object with 20 percent apiece and location/cash flow with 30 percent apiece) and thus result in an overall appraisal. The rating is carried out by means of a grading scale from 1 to 10, which enables a simple comparison of the property in its given market environment which is understandable for everyone. In the context of portfolio management, “R&R” is used for the identification of a strategy in consideration of investment management; on the other hand it is also an effective tool for the identification of risks
caused by the structure of the portfolio.
The conceived rating procedure is applicable not only to inventory objects, but is increasingly implemented in real estate development projects. It assists in representing and appraising the quality of a project on the present market by taking development risks and prospects into account. In addition to real estate valuation, a second piece of essential information is also generated. While an achievable price for the property at a certain date can be determined by means of the market valuation, the “R&R” also provides an indication of the future development of the property in comparison to similar objects.
the first signs of an upturn
Dr. iur. Alexander Benedetti, MRICS, CRE, is Secretary General
of the Italian Institute of Real Estate Appraisal – IsIVI – in Milan and owner of the Benedetti Real Estate Service.
In the past six years, the Italian real estate market has been characterised by stagnation. However, since the beginning of 2014 signs of an improving development have been showing.
In 2013 there were approximately 905,000 transactions on the Italian real estate market, which measured on one stick equates to approximately 64,835,000 homes, broken down as
follows: 87.5 percent residential property with pertinence, 1 percent office units, 4.4 percent business, 1.1 percent industrial and handcraft real estate, 6 percent special purpose and other properties. However, transactions traffic in 2013 declined by 9 percent compared to the year 2012, whereby the office real estate sector, with a minus of 11 percent, was hit hardest by this negative trend.
In general, real estate value has fallen by about 18 percent since 2008, the only exceptions being residential and commercial real estate in high-quality and strategic and central locations, which can be described as very resilient to the crisis. It seems the end of the bottom-out point of the crisis has slowly but surely been reached. For the years 2014 and 2015, market experts and statistics institutes are reckoning on price declines in residential, office and commercial properties ranging from between 2.5 and 4 percent and expect price increases from 0.9 to 1.6 percent for the year 2016.
As it happens, we can already see a slight upward trend in the initial data concerning the year 2014, which mainly reflects the increasing number of transactions of residential and commercial real estate. In the first trimester, the residential real estate sector increased by 4.1 percent and the retail sector by 4.7 percent compared to the previous year. These are the first signs that show that the strong negative trend which has characterised the Italian real estate market over the last six years has come to an end and that an upwards trend is returning to the market.
The real estate market is, in itself, a reflection of the macro-economic environment in which a country finds itself over a certain number of years. Since 2008, Italy’s gross domestic product has fallen by about 8.8 percent. According to Eurostat, a further decrease of 0.2 percent is expected for the second trimester of 2014. In this sense, the Italian economy, having endured a period of deep recession, is following the trend of the two other major euro countries: Germany and France, who have also been rated with a GDP growth of between -0.2 percent and 0 percent for the second trimester in 2014 according to Eurostat.
Compared with other countries in the euro zone, taking into account the growth potential, Italy offers interesting investment opportunities given the security and earnings potential. Even in the years of crisis, Italy’s indirect real estate investments were very popular. This is mainly due to the presence of market participants with public participation. For the first time ever, Italian real estate fund assets exceeded €50bn in the first trimester of 2014. The number of active real estate funds has risen in the last year by seven to a total of 365.
In the first six months of the year, several foreign investors were already active again, especially in the area of commercial real estate. For example, Carrefour has just invested in a total of seven real estate portfolios, Blackstone has acquired three shopping malls, Allianz and ING submitted an offer (at the time of writing this article) for the purchase of the Fiumara shopping centres in Genoa, which includes retail space of about 25,000 sqm, and another 15,000 sqm of leisure real estate space.
Recently, a very interesting property was advertised for sale as part of the “Omicron Plus Immobiliare” real estate fund, which can certainly be regarded as a “trophy asset” of Milan’s real estate market.
The property in question is the “Palazzo Broggi” in Piazza Cordusio, the historical seat of Unicredit, only a few minutes walk from the Duomo. The building was built in early 20th century and has historical spaces with outstanding quality and a size of approximately 50,000 sqm. The existing lease guarantees stable cash flows for the next twelve years. The position of the building offers the possibility of modifying its dedicated purpose and thus represents a unique quality investment recovery opportunity in one of the most interesting and unusual locations of the fashion capital, Milan.
Italy is most certainly ready to say goodbye to the recession years, but the crisis cannot yet be described as overcome. The important reforms of political, fiscal and administrative law needed for a definitive boost to the economy are still pending.
Due to the six years of ongoing crisis, the real estate sector offers an eclectic variety of investment opportunities with excellent earning potential that can be classified as long-term and are considerably safer than those in other countries in the euro zone. From an economic perspective as well as from legal and tax perspectives, the market remains very complex, and somewhat confusing.
Now, as in the past, an excellent knowledge of the market and a cooperation with a reliable local partner remains a prerequisite for successful real estate investment in Italy.
is one of the most exemplary & extraordinary
in the world
and it became famous worldwide due to a film about it. The most important infrastructure of a city is also the most “effective” and most “unnoticed”. These two adjectives usually apply to city water infrastructure. Rich countries take clean drinking water and a functioning sewage system for granted. According to a study by the UNDP (United Nations Development Programme), water supply and sanitation is considered as one of the key challenges of the future for big cities in addition to transport.
Not only is the health of a population dependent on water supply and sewerage, water supply and sewerage are also crucial for economic development.
Vienna was one of the first cities with water and sewer, and its history dates back to the first century A.D. when the Romans built the first modern-style canal system for their military encampment in Vindobona.
Since then, the Austrian capital has been a pioneer in the field of this important “invisible” infrastructure. In the meantime, Vienna has developed one of the most modern canal systems in the world with an entire canal network length of 2,400 kilometres, of which 1,700 kilometres are walkable and around 700 kilometres of pipe channels. This equates to the distance from Vienna to Cairo, if one were to lay all the Vienna sewer system pipes end to end. Added to this is a further 6,300 kilometres of piping from residential waste water systems.
All waste water, approximately 220 million cubic metres per year, is carried to the main sewage treatment plant which is located in Simmering, the deepest point in Vienna, and is a wholly-owned subsidiary of the City of Vienna.
However, it was a long time in coming, from the Middle Ages Vienna was a typical European city whereby not only household waste but the waste of many trade craft guilds of that time landed either on the street or in the nearest stream. The malodorous remnants were only swept away into the nearby Danube during floods or high water.
The consequences were regular epidemics and plagues.
It wasn’t until the 18th century that Vienna took over as leader in Europe in this field for the first time. In 1739, Vienna was the only city that was completely canalised within the city walls. In 1850, Vienna possessed a well-functioning canal system and was again a European pioneer, as other major cities, such as Paris and London, didn’t begin construction of a regulated canal network until the mid-1850s.
It wasn’t even an issue in Berlin until 1873, by which time Vienna was already developing a comprehensive water supply via its mountain spring pipeline.
While the water supply was guaranteed, thanks to this incredible technical achievement, the ever progressing connections to the Viennese households for drinking water and sewage caused the amount of wastewater to rapidly increase with it. As this created an enormous odour problem, in addition to hygiene issues, especially at high tide, further measures were urgently required.
The development and continuous improvement of the canals were important principles for the urban municipal administration right up to the outbreak of the First World War. In the 20s and 30s of the last century, the expansion of the canal system slowed due to the generally poor economic situation. The Second World War left massive damage, and it took until 1950 to repair the damage that the estimated 1,800 direct bomb hits had caused. As of 1950, the Vienna sewer network started to grow again and was complemented by the construction of an efficient wastewater treatment plant.
Today, 99 percent of Viennese households are connected to the public sewer system, which is an international all-time high. With that Vienna resumes a pioneering role: innovative projects in the city lead experts from all over the world to come to Vienna to orientate themselves in the field of sewage disposal and water protection systems.
In 1948 the Vienna sewer system achieved world fame when a British film crew filmed the “The Third Man”. In Vienna’s post-war period, many allied secret agents made frequent use of the wide reaching canals under the divided city. The film starring Orson Welles, with the legendary final chase through the Viennese sewers, was set against this background. Those inspired by “The Third Man” movie can explore the sprawling and impressive sewer system in the footsteps of the protagonist Harry Lime. (www.drittemanntour.at).
An Interesting Subject for Valuation:
Fascinating real estate and valuation issues are connected with the canal systems of a large city. In the past, the MRG Group has addressed this subject a few times on a relatively large scale. On the one hand, it involves determining the value of the properties in use and their various parts, and secondly, the adequate market rents, which are to be paid for this use. Usually intrinsic plots of land or portions of the plots are used for the running of pipes, the various pumping stations and, finally, the entire system. For linings, corresponding trenches in various sizes are needed, which are mostly on extrinsic land.
In recent years, the MRG Group has proved itself to be highly competent in the appraisal of canal systems and also for electrical and gas lines, for which a similar state of affairs apply. These lines are also partly public or private property and as such the value of the plots of land has to be determined in order to ascertain the applicable rents or other usage charges that result from it.
People & Real Estate
He is one of the original pioneers, but actually he is THE pioneer, because Ernst Vejdovszky was the first director of the first Austrian real estate public limited company.
In 1986, the Sparkassen Immobilienanlagen AG was an idea that originated between colleagues “in passing”. This corporation was implemented and put to work in a few weeks: “We were sure that a real estate company for investors had to be interesting.” They were, but only to a certain extent, as at that time it was not common to invest in real estate in Austria in this way. In the initial raising of capital, the “enormous” sum of 100 million shillings (€7m) was achieved and it took a lot of convincing to place this sum accordingly. “100 million shillings was a noble task, since we were actually entering unchartered territory,” said Vejdovszky in hindsight, but it yielded success and thus the next capital increase was one year later already. The Executive Board of the S IMMO AG has been operating in the real estate industry for nearly 30 years, has seen and also
acquired many properties in many countries, but the founding of the Sparkassen Immobilien AG is still associated with a great many memories and strong emotions for him.
For 15 years he was also engaged in a second job as CEO of Immobilien AG, his main job being CEO of Immorent. During this period, Ernst Vejdovszky finished his HTL study as a construction engineer and went on to study business computer science. “After two years on the scientific side at the Institute for Advanced Studies, I realized I was not a structural engineer, not an IT technician and not a scientist but an economist.”
That was also the reason why he started his career in a bank in 1982.
In 2000, the portfolio value already amounted to 70 million euros at which point Vejdovszky joined the S IMMO AG and today manages a property portfolio with a value of almost two billion euros. The properties are located throughout Europe. “At the beginning,” says Vejdovszky, “we invested in apartment buildings in Vienna and when we went into the distance it was a property in Graz.” It was at the time of the turn of the millennium when the Austrian real estate industry invented itself though not only in its own country but it also discovered the CEE/SEE region. “It was clear since 2000: the world has changed and we went to the neighbouring countries.” One had to learn to how deal not only with new countries but also with different sums: “About the year 2000, a director in the Erste Bank at that time had an authorisation limit of 20 million shillings (€1.4m) – today’s dimensions are completely different and that was a very radical change.” Exactly how radical is shown in this example: When S IMMO AG acquired a property in Hungary for 200 million, it was topic of conversation throughout the Bank.
“Although it was not 200 million forints, as most believed, but 200 million Deutsche Mark (about €100m), thus a multiple thereof.”
“When the majority of your decisions are the right ones, this will be reflected in the economic result.”
It was a boom that gripped the world of real estate in Central and Eastern Europe, and in retrospect and censoriously Vejdovszky said: “We were all caught up in a collective exaggerated optimism. One should have known that the boom wouldn’t go on forever, but no one could escape the trend.” However, for Vejdovszky the CEE/SEE region remains one of the most important and promising. “Central Europe will return. The basic idea of investing in this region was correct – the speed was too fast. As we are dealing with cyclical time spans one has to calculate in terms of two generations ahead.”
Despite the enthusiasm in the industry, the Chairman of S IMMO AG remained cautious and did not solely pursue the strategy of investing in the new states, but invested half of the assets in a country for which he and his team were mildly ridiculed: Germany. “The decision to go to Germany was ‘tolerated’ as almost everyone was of the opinion that the greatest prospects and yields were in Central and Eastern Europe.” Today, when the S IMMO AG sells some of its properties, which were acquired in “tolerated” Germany, it’s for twice the price and these are also his favourite types of real estate, Ernst Vejdovszky remarks jokingly. Namely, those that are economically profitable.
However, it only works “if you have the appropriate foresight, make timely purchases, and the property is well managed and sold accordingly”. Therefore, architecture is a key factor for him, admittedly not for the sake of the architecture but for its economic success.
“A nice functional property with good architecture is easier to rent out and commercialise. Therefore, art is important in construction.”
Speaking of success: “There is no one who runs a commercial enterprise and only has success. However, in the long run, it is important that you have more successes than failures, and that’s the big challenge. When the majority of your decisions are the right ones, this will be reflected in the economic result.”
His greatest success? Not part of his agenda, as he says, “I have had a lot of success and I hope I will continue to do so and also continue to have more successes than failures.” Such things one can only say if one has been in the real estate business for a very long time.
The job, and especially its environment, is important to him, because after all, he said, “We spend 70 percent of our waking hours in our working environment and therefore it is important that it is pleasurable. Though there is also a private space to which the family very strongly belongs and
it is actually more important than success in business.”
“Accounting Police” and its Auditing Activities
Comment by Mag. Manuela Ponesch-Urbanek, Tax Consultant, Auditor and Partner at TPA Horwath
On 1 July 2013 federal law came into force concerning the establishment of a test method for financial reporting by companies whose securities (equity and/or debt instruments) are admitted to trading on a regulated market in Austria. This thereby affects mainly listed companies, which are in the public eye, such as banks and insurance companies. Around 140 companies in Austria are affected by this new law. As of January 2014, the OePR, the newly established audit authority, began its planning phase for the monitoring of consolidated financial statements and half-yearly financial reports as of 31. 12. 2013.
In contrast to an annual audit only essential and specific accounting issues are under scrutiny in the “Enforcement Audit”. The OePR (Audit Authority) will be active either in the form of an “Indication-based Audit” in the case of concrete evidence of a violation or with “random checks” according to an inspection schedule which will be drawn up by the FMA (Austrian Financial Services Authority). Audits of the total annual financial accounts and comprehensive decisions regarding their quality are not covered by OePR’s field of operation in this case.
In the interest of the public in proper financial reporting the audit includes the most recently established annual consolidated financial statements including management reports, the half-yearly financial report and the other prescribed information in accordance with the Stock Exchange Act. The enforcement audits of listed companies should strengthen investor confidence and achieve an increase in the quality of accounting. The introduction of enforcement is therefore an important stimulus for the Austrian capital market.
In terms of content the audit priorities laid down by the FMA are largely in accordance with those prescribed and published by ESMA (European Security and Market Authority). The focal points have only added to the consolidated annual report based on national regulations.
The FMA has determined and published the following auditing activities of publicly traded companies whose fiscal year ended December 31st 2013 or later which are subject to “Enforcement”:
+ Depreciation of non-financial assets
+ Post-employment benefits
+ Fair value evaluations and disclosures
+ Information on accounting methods, judgements and estimates
+ Valuation and disclosure of financial instruments
+ Consolidated management report
As this act is still very new there are currently no reviews available. The first audits were carried out as of April 2014 and therefore initial results can be expected as of autumn of this year.
A glance over the USA
The U.S. Real Estate Market’s Strengthening. Competitive Pressures Increasing, Too.
Over the past 24 to 30 months, real estate investment activity in the United States has advanced from a stage of great caution to a recognition that opportunities have become relatively favorable as more markets emerge from the downturn. So-called “gateway cities” initially dominated capital flows and multifamily assets captured disproportionately high shares of total transaction flow. These selections reflected both a flight to quality and a flight to safety. Competitive pressure increased as both debt and equity capital sought a limited supply of top-regarded product.
Institutional investors, money managers, REITS, and real estate operating companies have the perspective of being on both sides of the market – being buyers and sellers of assets as they continually fine-tune their portfolios. Recent conversations with these national and international players confirm that as acquisition lists broaden to encompass all property types and increasing numbers of secondary and even tertiary markets, the bid-ask spread is narrowing. Consequently, deals are being accomplished more efficiently. It is likely that the transaction pace will accelerate because of this, and that overall volume in 2014 will substantially exceed the $355 billion measured by Real Capital Analytics in 2013.
In the prime markets, bidding wars are common. The challenge is to maintain buyer discipline and to avoid overly generous assumptions. When sellers are getting more than they expect, chances are good that markets are becoming too frothy. Interestingly, it seems that sellers’ market conditions are starting to prevail for top-flight retail assets in secondary markets – a sign that investors believe the return of the consumer may finally be at hand as the labor markets improve. Specialty property types like student housing, medical offices, and self-storage facilities are now seen as providing enhanced yield with acceptable underwriting fundamentals.
Although cap rates have returned to pre-crisis levels in many markets, they do not necessarily represent the same risks as in 2004 to 2007. Cap rates reflect the weighting of returns to debt and to equity. Most observers have focused on the “cap rate spreads” and (rightly) have observed that either those spreads will compress or cap rates will rise as the Fed withdraws its extraordinary stimulus from the economy. However, there has not been as much attention to the impact of de-levering on cap rates. With sub-70% loan-to-values today, as opposed to 80%+ LTVs a decade ago, the overall risk of default and distress is significantly lower today.
Where some concern might be raised is in the return of CMBS volume, about $80 billion in 2013 and, in the estimation of Tom Fink CRE, of Trepp, is likely to grow to over $100 billion in 2014. It is not the volume itself that is problematic, but the review of credit quality and the depth of experience in those structuring the issuances. The last thing U.S. real estate needs is debt that is not only cheap but poorly underwritten. Yet most of the fundamental problems in the U.S. rating agency system for structured real estate finance have not yet been fixed. Right now, few sophisticated investors would rely on high ratings from Moody’s or Standard & Poor’s as a green light to accept a deal as being appropriately evaluated for real estate risk. Individual due diligence, performed independently of any agency rating, is clearly understood as a fiduciary responsibility which the investors themselves must undertake and be accountable for.
Hugh F. Kelly, PhD, CRE, is the 2014 Chair of the Counselors of Real Estate, the prestigious international professional association. He has 36 years of experience as a real estate consultant and economist, and is the principal of Hugh Kelly Real Estate Economics. Hugh is Clinical Professor of Real Estate at New York University/Schack Institute’s Masters of Science in Real Estate program, and has taught at NYU for 30 years.
Interview with Gernot Strasser
The Austrian Federal Forests (ÖBf) carries the responsibility for the Naturland Austria like no other company.
Interview with Gernot Strasser, Head of Real Estate, Tourism and Water at the ÖBf.
With which tasks is the ÖBf AG entrusted?
Around 15 percent of forests and about 10 percent of the national territory are entrusted to the Federal Forestry for supervision and management. Conservation laws apply to about half of the ÖBf land. A variety of culturally and historically valuable buildings are found in abundance among these natural jewels. The core business of the Federal Forestry is forestry itself. In more recent years the ÖBf has branched out into areas such as property, services and renewable energy. The Austrian Federal Forests are also Austria’s largest waterway operators and manage 74 of the larger Austrian lakes including popular swimming lakes such as Lake Attersee, Lake Wörthersee and Lake Millstätter See. Furthermore, the ÖBf is the guardian of important water reserves, national park areas and glaciers.
What are these areas made up of?
Austrian Federal Forests supervise and manage an area of around 855,000 hectares in Austria. 511,000 hectares are forest (just under a third of these are under protection). The territory stretches from the Arlberg Mountains to the Danube floodplains and includes all types of landscapes and ecosystems from high-mountain forests and glaciers via mountain pastures, wetlands and meadows to lakes, rivers and marshes.
Furthermore the ÖBf has made areas available in the form of 3 national parks: the Donau-Auen National Park, Tyrolean Limestone Alps and Upper Tauern near Salzburg. The ÖBf is the largest landowner of the Kalkalpen (Limestone Alps) National Park and the Danube Auen, where they are integrated in the management via a private National Park operation. In total, ÖBf dedicates about 52,000 hectares of its natural areas as national parks.
What is the basic strategic orientation of the ÖBf?
The overriding principle for the Federal Forestry is sustainability; this means that only so much is taken from nature as can be replaced. In a broader context this means that the protection of nature and the environment is on equal footing to that of societal demands and the achievement of economic success. The natural areas, which are summarized as twelve Forestry and two National Park operations are not only functioning ecosystems with an environment rich in wildlife and fauna but also unique recreation areas for people. A vital role is played by the forest especially where it protects settlements and infrastructure from the destructive forces of nature.
Which tasks comprise the economic mainstay of “Real Estate”?
With approximately 4,200 buildings the ÖBf manages one of the largest real estate portfolios in Austria. The range of services includes the rental of buildings, leasing of land, the granting of building permits for residential and commercial use, purchase and sale of land and buildings, and the utilization of areas especially for the tourism and leisure industry (e. g. hiking, riding or mountain bike trails). An operating performance of approx. €38m can be achieved by the real estate division. Since its foundation in 1997, the operating performance of the Real Estate Division has tripled. Real estate operations have become one of the most important business areas alongside the core business of forestry/timber. Today, more than 16 percent of total operating revenue is generated by this area.
Will the portfolio only be managed or will it also be utilized?
The Federal Forests not only manages but above all it also cultivates. As a rule objects and properties are rented out, leased or assigned under construction law and thus lead to commercial added value.
Is there a pre-selection of what is to be sold and what is not?
The purchase and sale of land is clearly regulated. The basis is the so-called “asset maintenance obligation” which is defined in Federal Forestry Law: every euro that is generated by the sale of land must be invested back into the land again. Also in land transactions, the principle of sustainability applies: in the buying and selling of land or buildings, the balance between nature conservation, societal concerns and economic objectives takes precedence. Under no circumstances may areas of special significance for Austria, for example, glaciers, mountains and lakes, as well as areas in national parks or areas with natural or cultural monuments be sold.
Areas are acquired that are ecologically very valuable, have a particular significance for the population or are economically well utilisable (e. g. forest areas adjacent to the Federal Forestry areas). Areas in peripheral or scattered sites or areas that are difficult to manage or may serve to improve regional infrastructure may be sold.
How is it influenced by the demand for building permission?
The demand for areas with building permission remains high and continued to rise during the past fiscal year of 2013. However, with continued rising land prices permission to build, both in the private and commercial sector, is a capital-friendly alternative whether it be for the construction of homes or apartment buildings, particularly in peri-urban areas and wherever residential areas (and building zones) are scarce. A variety of objects are being built under the construction legislation, from classic single-family homes to multiple dwelling units (non-profit residential agencies) to commercial objects such as gas stations, supermarkets and warehouses.
Where can I inquire if I am interested in land belonging to ÖBf AG?
Current offers are published and posted on the Federal Forestry website: www.bundesforste.at /immobilien.
The Real Estate agencies are also happy to assist you in finding the desired object. A list of points of contact can be found on the website under www.bundesforste.at under Übersichtskarte>Immobilien (overview map>real-estate).
What is the Federal Forestry’s position regarding historic buildings?
Naturally sustainable: The Federal Forestry occasionally acquires culturally and historically valuable buildings and preserves access for the public, as with Schloss Eckartsau, now head-quarters of the Öbf National Park Operations in the Donau-Auen National Park or Schloss Lamberg in Styria. The Federal Forestry performs careful ongoing renovation work and has been awarded cultural heritage status for posterity.
Real Estate Investment & Tax
in Austria, Central and South Eastern Europe
The tax rules applicable to real estate investments within the European Union differ widely in certain areas. If real estate investments are well structured or well planned in advance absolutely essential tax benefits can be achieved.
Investment in or the acquisition of real estate in Central and Southeast Europe continues to be of great economic importance. In addition to the economic situation in the respective regional markets tax requirements also influence any investment decision. Primarily the focus, in this context, is on the taxation of income generated by the properties. In addition, however, real estate financing and other real estate-related taxes such as the real estate or property transfer tax need to be taken into consideration.
Corporate Income Tax
If real estate is acquired and held by corporations (e.g. limited liability companies or similar foreign companies) any resulting income is subject to corporation tax in the respective country. Corporate tax rates in Central and Southeast Europe sometimes differ considerably even though, for the most part, these states are members of the European Union. Corporate tax rates fluctuate between 10 and 25 percent. Austrian corporations are taxed at the highest corporate tax rate (25 percent).
It should be noted that in some Central and Southeast European countries (e.g. Bulgaria) not only corporations are subject to corporation tax but also private companies, which is not the case in Austria. Due to partnerships being treated differently tax benefits may arise, especially for Austrian investors, thus a detailed consideration of the tax structuring of real estate investment can therefore be worthwhile.
The taxation of individuals on income from property investment can also differ greatly. In some countries this income is subject to a flat tax rate (e.g. Hungary), in other countries, a so-called progressive income tax rate applies (i.e. the higher the income the higher the tax rate).
It should be noted that since the spring of 2012 gains from the sale of private or company property in Austria by natural persons are subject to a special tax rate of 25 percent (property tax). However, this estate tax applies neither to commercial real estate dealers nor to businesses that focus on the transfer and sale of land, in these cases the profits are taxed at the “normal” income tax rate, i.e. up to 50 percent. As in Austria, Romania also imposes a special tax on property sales by natural persons. However, the applicable tax rates are relatively moderate and range between 2 and 5 percent.
Financing by Companies
Real estate investments are seldom (exclusively) self-financed, external financing is employed to a considerable extent. With such real estate financing it should however be noted that in many countries of Central and Southeast Europe the tax deductibility of interest on borrowings is limited accordingly should the relation between debt and equity exceed a certain ratio. The critical ratio of debt to equity in these cases lies mostly at either 4:1 or 3:1.
Albeit that, from the perspective of the Austrian tax authorities, a certain equity to assets ratio should be present there are currently no legal limits (in the above sense) dictating the point at which the deductibility of interest on borrowings is restricted in Austria.
Real Estate Transactions
In the case of acquisition or disposal of real estate an asset deal (i.e. transfer of the property itself) or a share deal (i.e. transfer of shares in a company with real estate assets) may be advantageous from a tax perspective. The judge which of the two variants is more advantageous depends largely on the specific conditions and the parties involved. A separate assessment for tax optimization will be necessary in any case.
As well as realising income tax benefits the possibility of a land transfer tax being levied can be prevented under certain circumstances. In the countries listed above the real estate transfer tax generally lies between 2 and 5 percent (varying from country to country). In Romania and Slovakia, for example, although no land transfer tax is levied there is, however, a type of property tax to be paid on certain real estate in no small degree.
Cross-border Real Estate Investments
For cross-border real estate investment (i.e. investor and property are located in different countries) it should be noted that with regards to any double taxation agreement in general the right of taxation on the real estate profits is assigned to that country where the real estate is located.
In the case of the disposal of shares in so-called real estate companies (i.e. the assets of the company consist mainly of real estate assets) the tax jurisdiction can be assigned as the country in which the shareholder is resident or the country in which the real estate company is resident depending on the rules of the applicable double taxation agreement.
Karin Fuhrmann is a tax consultant at TPA Horwath and specializes in real estate, residential building schemes, investing and financing models as well as corporate restructuring and the structuring of transactions.
TPA Horwath is one of Austria’s leading tax consultancy firms and is active in ten other countries in Central and Southeast Europe besides Austria. Since the founding of the company more than 30 years ago consulting in the area of real estate has become one of the special competencies of TPA Horwath.
Albania 10% resp. 15%
Hungary 10% resp. 19%
Czech Republic 19%
Albania 0 - 23%
Croatia 0 - 40%
Austria 0 - 50%
Poland 0 - 32%
Czech Republic 15 % (plus 7%)
Serbia 10 - 20% (plus 10% - 15%)
Slovakia 19% resp. 25%
Slovenia 0 - 50%
Austrian Developers in St. Petersburg
In actual fact a logistics centre was planned for the St. Petersburg airport which ultimately resulted in an exceptional business centre at this economic hub.
Naturally, Moscow has been the focus of interest of foreign project developers since the early 90s. The Russian capital was lacking of all types of property. However, there were also some enterprising developers who had a look around at the other interesting cities in the country.
Thus, about 15 years ago, a subsidiary of the Austrian Warimpex secured land for a logistics centre directly next to the St. Petersburg Airport which is the second largest city in Russia and the fourth largest in Europe. “About eight years ago then the idea for hotel and office buildings was born and after the drafting of concepts and plans, as well as the signing of a letter of intent, the project was ready for implementation,” explains Georg Folian, Deputy CEO of Warimpex. In order to implement these plans the Avielen OAO SPV was established and in November 2007 the Austrian real estate company CA Immo AG and subsequently the UBM became involved. At this time, the project volume was estimated at nearly €400m. All three companies contributed their respective experience and know-how and “thanks to sensible planning and due to the quality of the building, which is largely thanks to the engineers at UBM, suddenly demand was very high,” said Folian today.
Leading Group of Russian Investment Locations
The location was well chosen as St. Petersburg is not only the northernmost megacity of the world, it has also developed in recent years as an economic hub. It belongs, in many respects, to the leading group of Russian investment locations in which many large international companies are involved, such as Wrigley, Gillette, Rothmans, Unilever, Japan Tobacco, Coca-Cola, Ford, Siemens, Toyota and more. The interest of foreign investors has steadily increased and the area around the airport is one of the fastest growing economic regions of St. Petersburg. Culturally, the city has much to offer: the historical city centre with 2,300 palaces, magnificent buildings and castles is a UNESCO World Heritage Site. Worldwide St. Petersburg is surpassed only by Venice in this respect. The AIRPORT CITY is the first premium class business centre in the region and a major infrastructure project. In particular, the good infrastructure, the availability of highly qualified labour, local tax breaks and, last but not least, the proximity to the large Russian market are fundamental motives for the settlement of many international companies in the St. Petersburg area. The utilisation mix of hotels and offices at St. Petersburg offers good synergies and makes the site unique in the region. Franz Jurkowitsch, CEO of Warimpex: “Such a large construction project is of course a challenge – especially when it comes to dealing with building permits, red tape and Russian regulations. The effort has, however, been well worthwhile.”
The AIRPORTCITY Project
In addition to a four-star Crowne Plaza Hotel, with 294 rooms and generous conference rooms, three modern office buildings have arisen with a total lettable area of 31,000 square metres. After the initial building phase the two towers “Jupiter 1” and “Jupiter 2”, with an area of 16,000 square metres, have already opened and are currently one hundred percent leased to Gazprom. Shortly after the Crowne Plaza Hotel and the Jupiter-Business Centre were put into operation ZAO Avielen AG received two accolades from the Commercial Real Estate Awards for the best multi-purpose project and the best developers in the region. The third tower: “Zeppelin” (15,000 square metres), which comprises the second phase, is currently at the skeleton stage. “A letter of intent has already been signed with reputable tenants so that completion will be sought in the near future. In addition, the sale of an individual part of the CITY AIRPORT currently under negotiation, however “the sale of the entire project at once is not envisaged. That would blow the dimensions of most funds, also from a volume perspective.” The fact that the individual projects of the AIRPORT CITY are particularly interesting to investors also has a legal background: while in Russia construction plots are usually only awarded on a 49 year lease, “as construction progressed well we were able to acquire ownership of the land”, said Folian.
There is no shortage of plans for the future of the premises as, depending on demand, both CA Immo and UBM plan for further expansion; approximately 16,000 square metres of gross floor area immediately and a yet another building once building permission has been granted. A total of approximately 140,000 square metres of gross floor area are potentially available at this location. Jurkowitsch: “The project confirms our long-term strategy of investing in the Russian growth market and the location of St. Petersburg.”
Comment by Gregor Drexler, Head of Asset Management CA Immo
How much sustainability do tenants want?
Megatrends affect all aspects of human life. They change and penetrate forms of civilization, technology and social value systems and have a half-life of at least 50 years. One particular mega trend, which has been keeping the real estate industry intensively occupied for many years now is sustainability. Studies show it to have the biggest influence on competitiveness in the real estate sector and that it also has a high growth potential, especially in asset and property management. Sustainability is a key growth driver for the industry. Standards are being developed, certifications are booming and it has become all the rage for new constructions, where it is mainly implemented, thereby confirming and securing the competitiveness and marketability of the property. We measure the energy consumption and CO2 footprints, make sure of a resource-saving and recyclable construction and management and provide a “humane and comfortable” environment. But what exactly are the requirements of our tenants when it comes to sustainability?
“Which attributes do you consider when measuring the sustainability of your office space/building?” – We asked our 700 existing office tenants this question in the course of an international survey. The result: decisive sustainability factors are easy access by public transport and running and energy costs as low as possible. High space efficiency and good room atmosphere for the employees were also highly rated (see chart). All these criteria were decisive for the general tenancy decision, whereby location and accessibility, with 89 and 68 percent respectively, were of higher priority.
These results raise two main points. Firstly, sustainability must come at no additional cost to the tenant (e. g. via a more expensive method of construction or costly certification) though must, in contrast, reduce the cost of renting over its useful life (lower energy costs, greater space efficiency). Secondly, we must ask ourselves the critical question: How much technology does a property really need? Or: How much technology can a property take in order to function in a sustainable way? This area of conflict between comfort, mechanization, resource-conserving use and finally also practical accessibility/usability and cost to the tenant will be one of our core tasks when dealing with the sustainability megatrend.
People & Real Estate
Tradition & Innovation
Born in South Tyrol, Otmar Michaeler grew up in his parents’ guest house and thus learnt the essentials of the hotel and the hospitality industry at an early age. Then, “I saw how the business developed into a guesthouse and consequently into a hotel. Furthermore, I was allowed to be involved in the business very early on as an employee.” An essential lesson which his father passed onto him: “One has to take responsibility, but one must also entrust it to others, if one doesn’t one will have to do everything oneself.” A motto that proved very useful for his future career.
During his business administration studies in Innsbruck he realised how much more one could do with the hotel industry. “The field of tourism encompasses so many possibilities, the necessary basics of which we in the hotel industry wanted to expand on. We define ourselves as a 360° tourism developer which engages in every aspect of the hotel industry from the planning and construction of hotels, residences, serviced apartments and mixed-use real estate to the operational management and sales and marketing of the same.” During his studies a fellow student put him in touch with the South Tyrolean hotelier brothers Andreas and Erich Falkensteiner. Being from South Tyrol the names of hoteliers were known to each but until then Michaeler and the Falkensteiners had not come directly into contact with one another. From that point on however it was clear to the three of them “that we will do something together sometime”.
After studying, Michaeler worked with Dr. James Edinger whom he met at a seminar. During his time at Tourismusberatung GmbH he became better acquainted with leisure hotels and he also realised that there were further alternatives to hotels. After two years with the consulting company he founded his first joint venture, Michaeler & Partners, with Andreas and Erich Falkensteiner on May 1, 1995.
“The beginning was very exciting,” said Michaeler almost 20 years later. “The chosen timing was ideal. It was a good time in the consultancy industry.” From this basis today's corporate project development and hotel management was subsequently developed.
“We operate hotels; we develop, build and advise. These three core competencies are as firmly anchored as ever,” said Michaeler and it fills him with pride, “that we have managed to build up a consultancy company that still endures today. I no longer lead, rather the employees do and this is a sign that the company is not individual-orientated but can exist independently.” And he knows what he’s talking about as he has seen many competitors come and go over the course of his career.
The next big step followed two years after its founding. Michaeler and his partners recognized that their presence in Vienna was an essential factor for the expansion and growth of the business. On the 15th of December 1997 they took over the management of the Alba Palace in the Margaretenstrasse and ran it as a Falkensteiner Hotel Palace and subsequently bought it. However, the acquisition was a bumpy ride, as Michaeler attested; a South Tyrolean company preparing to invest in the capital aroused some suspicion. We had to put a lot of work into convincing people that we actually had the appropriate experience,” said Michaeler, but eventually they found a reliable partner in the Hypo Tirol. After purchasing, the hotel was renovated over the years and then sold again four years ago due to the new Falkensteiner Hotel Wien Margareten which opened last September right on the Margaretengürtel. This introduction into the leisure hotel market was followed shortly thereafter by the Robinson Club at Katschberg in Carinthia. “It was a bankruptcy case and we were confident that we could manage the club.” Two years later the Funimation Club at Katschberg was also bought and is now one of the most successful family clubs in the Alps.
2001 saw the internationalisation of the Eastern European region. First was Croatia then the Czech Republic and Slovakia. In 2012 the company opened its first hotel in Serbia.
As the company advanced a restructuring took shape in the form of a holding company that unites all the company divisions under one roof. The FMTG – Falkensteiner Michaeler Tourism Group was founded and moved its headquarters to Vienna. To expand into Austria from South Tyrol is already a big step abroad but “we have never regretted moving our headquarters to Vienna seven years ago”, even if Otmar Michaeler is the only original crew member still active in Vienna. “Even the CEO himself spends the weekends, as far as is professionally possible, with his family near Bruneck. For us the family is tradition. We want to live the way we were brought up and raised. We live very down to earth lives as we always have done.” To him this tradition combined with innovation is the essence of the company. Tradition and innovation are guidelines for our activities. If you rest, you rust. Revolution must always prevail and tradition as a guideline brings everything back on track.”
As a developer and builder priorities are clearly set out says Michaeler: “Of course we sell our properties but only following a certain phase of maturity.” Three to five years are necessary until a sustainable track record is achieved. This is even more important for him as the sold hotels continue to be managed by the FMTG under a lease or management contract.
With the synergies which arise from the business and the decade-long networks Michaeler wants to continue to develop himself as a local player in the existing markets in the coming years and he still sees enough room in the other European markets for his group: “By building up our ‘Falkensteiner Hotels & Residences’ brand we have the opportunity to develop something new. The signs also point towards planned growth in the future.”
Architecture & Projects
He is one of the great, not only in the U.S. real estate scene, but also worldwide: Larry Silverstein. His name is inseparably connected with the history of the World Trade Center and Ground Zero in the middle of Manhattan. As part of a meeting of the Counselors of Real Estate (CRE) in New York (we reported on the real estate professionals meeting in the last issue of MRGlobal) the industrious developer told “his” story of this historic place before the invited guests.
But first a brief retrospection: The World Trade Center, abbreviated WTC, was a building complex consisting of seven buildings in New York City. The two most famous buildings of the complex in Lower Manhattan, the southern tip of New York's Manhattan district, were the two capacious 110 story twin towers, which were officially opened in 1973. With a height of 417 meters they were the tallest building in New York and a symbol of the city. They remain the tallest although they were destroyed in 2001 by a terrorist attack. Now this icon returns to the city and responsible for it, to a large extent, is Larry Silverstein.
It took seven years after the „turning of the first sod“ for the new World Trade ONE, in the heart of Manhattan, to reach its full height of 541.3 metres or 1,776 feet, which is a reference to the year of the American Declaration of Independence. The new World Trade Center is now officially the tallest building in the Western hemisphere. Worldwide just two other buildings tower over the new/old landmark of the Big Apple: the Burj Khalifa with 829 metres in the United Arab Emirates and the Royal Clock Tower with 601 metres in Saudi Arabia. The official opening is planned for 2014. Four years ago the city changed the name from Freedom Tower to the plain mail address of “One WTC” but for the citizens of New York it continues to be the Freedom Tower. It is the core of six new skyscrapers and a memorial to the victims of the attacks.
The development was preceded by a number of disputes and quarrels as Ground Zero, as the area was named after the attacks, unleashed violent emotions in all parties and citizens. It caused quite a stir for Silverstein himself: He became the lightning rod for the grief, rage and helplessness of America and the scapegoat for the authorities’ failure. The entire Ground Zero is indeed owned by the New York Port Authority, but was leased to Silverstein Properties in 2001 for 99 years. In his lecture Silverstein said he had been interested in the twin towers for a long time. In the spring of 1987 he had realized his biggest and most ambitious project: a skyscraper named 7 World Trade Center, just outside of the current Ground Zero, which would subsequently turn out to be an advantage. The real estate tycoon was then longer an unknown quantity anymore as already some of the most prominent landmarks of New York belonged to him or had belonged to him, such as the Historic Columbia Pictures Building on Fifth Avenue, which he sold to Coca Cola in 1983 for $57.6 million at a 400 percent profit. He was rightly pleased 25 years ago with the success of the 7 World Trade Center, but he turned his interest to a completely different tower, or rather towers: “Would it not be incredible,” said Silverstein, “if I would someday own the Twin Towers?” They stood over his skyscraper, were the property of the Port Authority and the centre-piece of the World Trade Center.
Although Silverstein had settled many major deals in recent years the Twin Towers were missing in his collection. The Port Authority had no interest in selling the two symbols at the time though decided to privatize the management of the entire World Trade Center in 1998. “Together with Westfield America, one of the world's biggest shopping mall operators, we offered $3.2 billion,” recalled Silverstein (who contributed $14 million out of his own pocket). However the offer was not sufficient as the consortium was outbid by $50 million by Vornado Real Estate Investment Group. Nevertheless, Silverstein made it to his tower as Vornado got cold feet and thus the shrewd real estate tycoon secured “a 99 year lease”. It was the largest real estate transaction in U.S. history, but perhaps the most pointless, because six weeks later were the two towers in ruins and the following ten years were the most difficult in Silverstein’s life. “It was a total horror,” said Silverstein to the guests of the CRE meetings. “There I was at the lowest point of my career. After the destruction of the two towers, I was faced with the decision: rebuild or exit. Though actually he had “no real choice, because due to the lease I was obliged to rebuild my life’s work again“. But time was short, because even without the office towers he had to pay just over $100 million per year to the Port Authority according to a clause in the lease contract. What was previously covered by rental income now flowed out of his own pocket. Then followed insurance procedures (which ultimately had to pay $4.7 billion), arguments between and with the authorities regarding the design and financing of the new buildings and slurs from the media and population, the general sentiment being that this project will fail, said Silverstein. The New Yorker 7 WTC was also so badly damaged in the attacks that they had to demolish it and finally erected the new 7 WTC first. The construction was therefore quick and easy as this tower lay outside of ground zero. Interestingly, it was precisely the tower that he had already acquired in 1987. In the dispute over the rest of the area, he ended up giving up the lease rights for the “Freedom Tower”, the Port Authority took over construction, and instead built three other office buildings at the World Trade Center: the towers 2, 3 and 4 World Trade Center. “If we are lucky, we’ll be finished in 2016,” Silverstein said to his audience and says at the end of his presentation, “I am grateful that I can experience it all over again.”
Larry A. Silverstein is the President and CEO of Silverstein Properties, Inc., a Manhattan-based real estate development and investment firm that has developed, owned and managed 35 million square feet of office, residential and retail space. The firm currently has $10 billion worth of development activity in the pipeline. In July 2001, Mr Silverstein completed the largest real estate transaction in New York history when he signed a 99-year lease on the 10.6 million square feet World Trade Center for $3.25 billion. He owns and manages some of the most successful and high-profile commercial and residential properties in New York City, including 120 Broadway, 120 Wall Street, 529 Fifth Avenue, 570 Seventh Avenue, 575 Lexington Avenue and 1177 Avenue of the Americas.
Special Features of the Planet Earth
What do the Greek Meteora Monasteries, the Easter Islands, the Nikko Shrines and Temples in Japan and Vienna’s inner-city have in common? They are all invaluable to the people – they have been granted World Heritage Site status. UNESCO awards the title of World Heritage (World Cultural Heritage and World Natural Heritage) to sites that are of international importance due to their uniqueness, authenticity and integrity and are proposed for the title by the states in which they are located. The title is based on the World Heritage Convention of 1972 and ratified by over 189 countries.
In Austria the UNESCO Agreement to came into force on March 18th 1993 and currently has nine World Cultural Heritage sites (see box), at present the UNESCO World Heritage List includes 981 monuments in 160 countries. Of these, 759 are listed as cultural monuments and 193 as natural monuments, another 29 monuments are managed as both cultural and natural heritage. From state to state the distribution is also very different, a good example being Australia with 19 World Heritage sites though only three built by human hands: the Sydney Opera House, the Royal Exhibition Building and Carlton Gardens in Melbourne and the historic Fremantle Prison camp.
Each country may only submit one application annually and in June 2013 further World Heritage sites were added: among others; the Kassel Mountain Park „William Heights“ as Germany’s 38th Cultural and Natural site as well as Japan’s highest mountain; Mount Fuji, Mount Etna in Sicily, the Golestan Palace in Tehran as former seat of the Persian Kings and the Royal Capital of Kaesong in North Korea; also new to the list is the old town of Levuka in Fiji Islands, a whaling station in the Canadian Rad Bay, the town of Agadez in Niger with its 15th and 16th Century adobe buildings or the rice terraces in China’s Yunnan Province. Here rice farmers have formed one of the most extraordinary cultural landscapes on earth. For over a millennium the Hani, one of 25 minorities in the region, wrested their rice terraces from the mountain land and provided them with a sophisticated irrigation system at a height of up to 1,500 meters. This technical masterpiece has generated one of the most breath-taking architectural landscapes on earth: huge fantastically bizarre sculptures out of earth and water. The terraces were named the “Ladders to Heaven” by the Hani.
World cultural heritage sites made by man are not always and forever carved in stone, so to speak. The Zollverein was an active coal mine in Essen from 1847 to 1986. Today it is an industrial monument and together with the immediately adjacent Zollverein Coking Plant has belonged to the World Cultural Heritage of UNESCO since 2001. A new urban neighbourhood and office district now stands where miners once worked. The Zollverein Foundation was largely renovated and listed in 1965, and thus the unique existing buildings on the mine and coking plant grounds now offer various rental spaces for offices, studios, workshops, restaurants and shops. Around 72,000 sqm of new construction will also soon be erected. In addition, however, the coking plant area is also a recreational and cultural centre with industrial monuments and museums. Of course, everything is developed in close cooperation with the competent body of the UNESCO World Heritage Site as one needs to hold on the title of “World Heritage” for financial reasons. Around 1.5 million visitors per year come to the Zollverein Mine.
The UNESCO itself does not possess the power to impose sanctions for violations. Many exceptional objects produced by nature or which have been created over thousands of years by human hands have since been lost, often due to the forces of nature though more often due to the destructive ambitions of certain people robbing future generations of a rich nature or a unique cultural monument. Thus, for example, the destruction of the Buddhas of Bamiyan (although they were not listed at the time as a World Heritage Site) couldn’t be prevented by UNESCO nor could it protect the Arabian Oryx Wildlife Reserve being reduced by 90 percent in favour of natural gas and oil production. Admittedly, the wildlife sanctuary was removed from the World Heritage List in 2007.
In line with the 32nd General Assembly of UNSECO in 2003 the Agreement for the Safeguarding of Intangible Cultural Heritage was concluded. So far, 151 countries have ratified the agreement. A cultural form of expression is identified as an intangible cultural heritage which is directly borne of human knowledge and skill and is passed on from generation to generation and continuously re-created and modified. Practices, representations, expressions, knowledge and skills that communities, groups and, in some cases, individuals recognise as part of their cultural heritage count as intangible cultural heritage. Therefore there are a number of silly associations in Germany which now want to have the Fasching Carnival awarded World Heritage status. Those involved in the Carnival on the Rhine are convinced that it is a significant part of local culture and is therefore worthy of representation. Whether these cultures and traditions will be received and promoted as part of the heritage of mankind will be decided at an international level probably sometime towards the end of 2016.
“Any damage to cultural property, regardless of what nation it belongs, means damage to the cultural heritage of all mankind as every nation makes a contribution to world culture.”
Investment & Market
Farook Mahmood - India’s Urban Awakening
What are the conditions under which a foreign investor is permitted to acquire real estate?
Mahmood: A foreign national cannot acquire property in India on his own. He can, however, set up a joint-venture model along with a resident Indian and buy the property. This special purpose vehicle, as it is called, acquires the property and then the partners including the foreign national can specify their shares. The system applies to the whole country and there are no broad guidelines regarding permissions needed applicable to specific States.
Also a foreign national can apply to the Reserve Bank of India to buy a home with special permission which is generally granted to citizens from Europe, UK, USA, Australia and New Zealand. The permission is granted with clauses pertaining to repatriation of funds and applicable capital gains tax. Local laws pertaining to stamp duty and registration of development of properties vary from state to state.
What level of legal security do investors have?
Mahmood: The government of India does not guarantee business transactions. Due diligence is of prime importance here and transparency there is not unlike Europe.
How would you describe the general political situation in India?
Mahmood: There is a lot of uncertainty around the general elections scheduled for 2014. This is leading to many foreign institutional investors staying away. The opening up of foreign direct investments to multi-brand retail has not evoked any response thanks to the political uncertainty. We hope it will clear up in 2014. The policy paralysis has been the bane of the economy in the recent years.
Are hotel investments an option?
Mahmood: The hospitality sector is opening up significantly across the commercial centres of India. All State capitals are hotspots for this sector. Business hotels in the big cities are reporting good occupancy rates thanks to the special economic zones and industrial belts drawing business visitors. There industry’s growth in the future depends on the global economy and the resulting growth in the IT sector here. Also, the hospitality sector depends on foreign travelers and this will grow with some revival in the global economy.
Investment & Market
We write the year of 1989. East/West is history and a complete reallocation of Europe begins. With it new markets and opportunities open up for many domestic companies. Even before the “turnaround” some of them were active in Central and Eastern Europe, but not until now has the market potential begun to develop properly as, in formative years, one has to tackle numerous problems.
Development in the CEE/SEE countries took place in waves: first, Hungary, Slovenia and the Czech Republic came onto the radar of investors, followed by the more distant countries. An unparalleled boom was the result, which should have caught everything that was neglected over the previous 50 to 60 years: economically, ideologically, socially and real estate orientated. What we in Western Europe were able to take decades to achieve had to be done in CEE/SEE in the shortest time possible even though these countries had very complex historical and political developments behind them. Thus, partially, the dawn of a new era coincided with war.
The 90s were also the beginning of globalization and most of the Eastern European countries were ideologically, academically and above all financially and materially completely overwhelmed. Thus, however, arose the chance to support these countries with know-how and financial assistance. Germany was busy with its own reunion but also with the development of other countries. Austria, of course, began to take advantage of the development and business opportunities in the CEE and SEE countries. Due to the common history with many countries, domestic companies had it much easier and played a central role in the incipient development. So did other countries though the majority of the “consultants/sellers”, especially those from the United States, had not dealt with these countries’ national idiosyncrasies nor their economic status and had neither knowledge nor understanding for these different cultures. An important part of the success of Austrian companies was definitely that they had excellent historical knowledge of the country and its people and also knew how to use it to our best advantage.
Even in the 25 years that have elapsed since the opening, it has not been possible to bridge the huge ideological and economic disparities between East and West. If one were to compare the current situation in the CEE/SEE region with Western Europe we would be in 1970. In truth there are some regions, compared to our development, who would find themselves in the 50s. The CEE/SEE countries have exhibited a tremendous performance, particularly economically, right up to the crisis in 2008 and accompanied it with the euphoria of change and liberty.
Unfortunately, with the euphoria came an enormous overproduction of areas that were unnecessary in the concluded form. The developer assumed a linear approach and expected that the economy knew only one way: up. There were errors in the products, in their volumes and choice of location. Croatia’s purchasing power is currently about €4,500/capita per year which equates to about 23 percent compared to the Austrian level and yet around 16 shopping centres still exist in the Croatian capital Zagreb. This high number is a sign of the blind faith in a perpetual ascent. This is also true in part though the rise has currently slowed a bit as cyclical movements have been exacerbated by the financial crisis. There is no longer any question of a stop. For in the CEE/SEE countries a variety of real estate is still needed. A drive out from the cities to the surrounding areas is enough to realize this. So there is still much to do before the people of these regions can partake in the prosperity in which we find ourselves today and a lot of it is to do with real estate.
Maybe it’s not necessarily a shopping centre but people are in great need of living space, work space, leisure facilities, buildings for education and above all infrastructure. These daunting challenges won’t be solved overnight. In addition to the aspiring countries, such as China, India and some African states, certain CEE/SEE countries will most certainly be among the most promising regions of the next three to five decades. So it must be the aim of foreign companies operating in CEE/SEE to further develop this region and view it as a major growth opportunity.
A country is representative of the potential of the region: Poland is now regarded by investors as a core investment destination and rightly so. Poland has provided a positive economic performance in recent years and that in a time of uncertainty and a weakening economy throughout Europe. The country has nearly 40 million inhabitants and therefore creates a corresponding economic growth out of itself which actually shows what options are concealed in the region. The Ukraine also has similar potential, though here the political situation currently makes development progress difficult, this is also due to antiquated structures that the country cannot easily shake off.
For the next few decades CEE/SEE will be a great opportunity for all experienced national and international (real estate) companies and what’s really incredible is that this market is right on our doorstep.
Valuation Investement Finance
An insider on the status quo and the opportunities on the Russian real estate market
How does the Russian real estate market look like at the moment?
Romanenko: The crisis has affected all spheres of national economy: serious problems appeared in the real sector, financial and social spheres. By early 2009 the Russian economy had entered industrial recession, which had been accompanied by the devaluation of the Russian Ruble, rising unemployment and the suspension of investment programs. Since late 2008, when the crisis broke out, developers faced with the lack of money and “froze” the construction projects, which only began to revive in early 2010. Now the pace of construction in Moscow region is already close to the precrisis, in regions that process is slower, especially in the Urals, where most of the construction projects are still suspended. As a result of 2011 statistics are expected to show the growth of housing construction by approximately 12 – 15 %.
What position does Moscow have on the market at the moment?
Romanenko: Among all segments of commercial real estate an overwhelming number of sales transactions made with completed office buildings, were located in Moscow – it is about 75 %. According to our estimates, in 2010 the volume of transactions of purchase and sale of commercial real estate totaled approximately $ 4.4 billion, while in 2009 this figure was at $ 2.2 billion. A distinctive feature of 2010 from the previous year can be called a marked increase in the number and size of investment acquisitions, with less marked increase in the volume of transactions involving the acquisition of buildings to suit your needs. The increase demand for ready-made highquality commercial real estate has led to reduction of supply of such objects in Moscow. In addition, there will be an even greater shift of investors’ attention from Moscow market – due to the small supply of projects with attractive returns – to the markets of other major Russian cities and especially St. Petersburg or the cities where various events will take place, like Sochi with the Winter Olympic Games in 2014.
How does the market in St. Petersburg look like?
Romanenko: In 2010, the city's builders have put into operation 2,656,500 square meters of housing - almost the same as in 2009. Demand volume was approximately 1.8 – 1.9 million square meters, in 2009 it was 1.5 million sqm. Thus, the volume of unsold housing is not reducing. Total residential area in the new buildings in St. Petersburg is 6.9 million sqm; this is roughly equivalent to the figures from previous years. In 2010, in St. Petersburg 570 new projects were submitted for examination. It is almost two times less than the year before. In 2010, 70 % of construction companies have already thawed their projects after the crisis, but the effect will manifest itself in the results of 2011 and the builders will come to pre-crisis levels of 1-1.2 thousand projects.
What is the reason that there are mainly national investors active on the Russian real estate market?
Romanenko: In 2010, the amount of foreign direct investments (FDI) to Russia reached 41, 2 billion U.S. dollars. Activity by foreign investors was sluggish in the last two years and their involvement in transactions was fragmentary. The end of 2010 and start of 2011 saw foreign players change their tactics from passive monitoring to action. More than 10% of transactions in the first half of 2011 involved foreign capital. Among the foreign buyers of commercial real estate I can separately mention Asian companies. The rapidly developing economies of this region give rise to excess liquidity, which is not always possible to invest in their own country.
What are the opportunities, chances and risks for foreign investors and developers?
Romanenko: The crisis in attracting FDI to Russia does not mean that the country has no chances for success. It has good chances. Russia is Europe’s last large market, which has significant potential in terms of not only natural resources but also has qualified personnel. New alignment of political forces on the global stage is being formed, and national interests of Russia are more taken into account. Europe’s interest in the long-term supplies of Russian gas and oil can be converted into investments into these sectors, as well as become a subject of bargaining for foreign investments in other key sectors.
Which real estate segments offer the most potential, in your opinion?
Romanenko: Offices and retail remain the most attractive commercial real estate segments, while hotels and warehouses are, on the whole, of less interest to investors.
Is Russia the real estate market of the future?
Romanenko: Yes, under certain conditions. First, we need to create a critical mass of supporters of economy modernization – private property owners. Second, to implement measures for improving the investment climate in Russia some external support is needed. For Russia, such external support may be the entry into the WTO and the OECD. These organizations help to defend the supremacy of law in the interests of domestic and foreign investors. In addition, an external support to improve the investment climate in Russia will be the strengthening of the Russian Ruble and getting the Ruble the status of international reserve currency, as well as the establishment of the modern financial center in Moscow.
What has most attracted your attention on the market during the past 18 months?
Romanenko: In January 2011, at a forum in Davos, President Dmitry Medvedev announced the establishment of a sovereign fund to "share the risk with foreign investors through joint investments in the modernization of our economy". In May, the Russian State Duma adopted amendments to the budget, which calls for allocating 62.2 billion rubles to create such a fund. On June 1, 2011 Russian private equity fund was created. It is assumed that for five years, the foundation will receive from the government $ 10 billion to over ten years to raise $ 50-90 billion in associated investments. All of this gives confidence for further improving the investment climate in Russia and promote the interest of foreign investors.
People & Real Estate
There is probably no one in Austria who identifies with a district, or where a district reflects the idea of one man, as much as Michael Griesmayr with VIERTEL ZWEI. After studying business in Graz, the Styrian from Bruck an der Mur went to Vienna to the present Raiffeisen Bank International AG. “I'm really grateful for these four years,” says Griesmayr retrospectively, “I got a solid economic understanding of what the key factors for successful real estate projects are and for what is important for the financing. After the RBI he became self-employed as it had already become clear during his business administration degree “that I instinctively prefer to be an entrepreneur than an employee”. After a short period in a company that dealt with tax-beneficial residential projects and later developed blocks of flats and investment apartments came Griesmayr’s first major feature: Together with private investors, he developed “The Eagle and The Ant” office project which came on market in 2001. “Everybody said we couldn’t use that name though within a few months everybody knew our office building.” The project worked and was sold to the German Commerz Real Estate Investment Company upon completion.
After this success, further investment apartments and the successful Greenpoint7 Project in Budapest he went with his team to look for suitable land for new projects and found it in the second district next to the Vienna Exhibition Centre (Messe Wien). “Many said, office real estate only functions in a cluster, apart from the Messe Wien there was nothing there in 2002, not even the extended U2. But we felt the place was perfect.” In 2004 the land was purchased and then followed a unique success story. What generally characterizes Griesmayr is his persistent pursuance of ideas that he believes in. When OMV committed itself to locating their headquarters at VIERTEL ZWEI also outsiders realized the potential of the site, as indeed did the University of Economics which is an immediate neighbour as of this year. A new district was born, which the IC Project Development team, under Michael Griesmayr, has turned into a brand: “Our philosophy is to develop specific real estate and this includes the development of a brand as added value. From feedback from our customers we have also ascertained that living and working in such a unique atmosphere gives people a good feeling.” He actually moved himself and his company into the VIERTEL ZWEI, before the site was developed. An old brick building from 1917 was expanded into headquarters which gave the nice feeling of being able to work in your own neighbourhood, which fills him with pride but also with humility: “When you develop a large site, you need to have a bit of luck for everything to work so well in total.”
Meanwhile, he has stretched his businesses to include the Value One Holding AG, which he chairs. However, one thing has remained the same: “The fact that we enjoy and take pleasure in our work has remained unchanged. And that we do things that all the associates in our business group can be proud of. Griesmayr insists that all employees within the company have their share of the huge success of course and thus he changed the management structure. He started as a sole proprietor, the group is now set up so that the well-selected management are comprised of long-time associates who have contributed to building the group and represent the respective companies. “We try to find entrepreneurial-minded personalities who live the philosophy of developing something special.” His philosophy is to establish people and colleagues to develop this philosophy further. “For any business you need colleagues who are willing to support the soul of the company and to become a part of it and develop it, because only with continuous innovation we can be successful in the long term. We only do projects that we stand behind 100 percent. “Finding the right colleagues is not easy,” he candidly admits but it seems his firm has managed to do it. Collaboration within the group is important and the overall result has a special significance: “Everyone should benefit from each other.” Even if the four divisions of Value One Holding AG, namely the IC Project Development, as real estate developer, V2FM, as facility management, MILESTONE, as operators of student apartments, and SOLAR INVEST, as a developer for renewable energy, were to consolidate in order to lovingly maintain the built-up quality in the long term. He sees this as a small company and does not want a bigger one. His motto: “Pick a niche and have the ambition to be the best there.”
More ideas will follow and also new businesses. One of them is “MILESTONE”, a free-financed innovative housing concept for students. Initially in Vienna, an expansion roll-out concept for Europe is planned. “We are convinced that student housing is an interesting asset class for safety-conscious investors who no longer achieve the desired returns in the housing market,” says Griesmayr about the vision of a recognized and successful brand in Europe. However, VIERTEL ZWEI is not yet completed. With the purchase of the land in 2004, Griesmayr actually also acquired an option over the entire Krieau. “I knew that if we create something great on this site, which I assume we have, then if we are allowed to build further, I also want to decide in what form.” In 2011 two parts of the option were taken and there are now intense discussions regarding the form of the further development of the project. It is clear that in the new mix much more space is intended for housing projects and that the Trap Racing Club, with its special flair, shall remain. “We want to make the area livelier.” The launch is scheduled for mid-2015 and eventually some 100,000 square metres of office, residential and commercial premises will be available here. “One always has to evolve and, of course, we are dealing with the concept of sustainability and energy efficiency.” In addition to the technical, energy and sustainability issues, he and his team also define what “sustainable” means to them, “people who work and live here in the future should enjoy coming here and stay and thus the location has to be attractive in the long term. To us this is also sustainability.”
Griesmayr and his team have had two customers in all their projects. “We do not build for us, the assets that we build as a developer are those that we believe are sensible but in the end we build property with personality for tenants and investors.”
Nevertheless, he also spends money on assets if he is of the opinion that it does the location good, he and his team consider the freedom to decide to spend more money on something not only sensible but also quite essential. As such, in VIERTEL ZWEI, he can live out his art hobby. A sculpture park is planned for the lake area and the U2 support columns will be embellished by graffiti artists.
Valuation Investment Finance
How do you assess the current situation of the real estate market and real estate business in the United States?
Despite continued stress in the forsale housing market the economy is definitively recovering. The manufacturing sector has been steadily improving over the last few years, 2011 year end retail sales levels increased significantly over 2010 levels, job growth has resumed albeit at lower than desired levels and, most recently construction activity although also at low levels has begun to pick up in certain regions around the country. Consumer and business confidence is slowly resuming which is leading to space take up (positive absorption) among most property types in many of the larger U.S. metro areas. A very accommodative monetary policy (low interest rates) is certainly contributing to the economic recovery and a thawing of the real estate capital markets. Investment sales activity for the first nine months of 2011 was up nearly 100 % over the same period in 2010 which in turn was up nearly 100 % from 2009. Despite the significant percentage increases over the last three years overall sales activity in 2011 was still less than half of what occurred during the 2007 peak period.
Could you name any specific regions in the U.S. which look very promising with regards to the future market development?
Generally speaking, there remains too much commercial space in the U.S. There are exceptions of course, notably the rental apartment sector which, due in large part to a significant downward shift in home ownership rates, is experiencing low vacancy rates and increasing rents. The U.S. population continues to increase and that is also contributing to the increased demand. Apartment vacancy rates are the lowest in 10 years and as a result rents and property values have increased in some regions to the level where new development is justified. Apartment development is currently underway in the Mid-Atlantic, Northeast, Texas, Central California and the Pacific Northwest areas. Logistical and manufacturing buildings are also being developed in the Mid-Atlantic areas near important transportation routes.
“Investment sales activity for the first nine months of 2011 was up nearly 100% over the same period in 2010.”
Which sector of the real estate business has, in your opinion, the best chances for development in the coming years?
Logistical centers and multi-family rental properties are likely to be regularly developed over the next few years.
Do you observe a paradigm change with regards to sustainability in the USA?
Interest among commercial real estate developers and users in sustainable properties has gradually increased over the last 15 years, so I am not certain I can call it a paradigm change. That being said it is very rare today that a building of any property type would be constructed without designing it to include many sustainable materials and features. Some users and investors may be willing to pay more for sustainable properties but as important is the reduction in operating costs that are attractive to developers.
Is the subject matter ecology a topic in the U.S. real estate business?
Not explicitly but certainly implicitly. For more than 20 years many national, state and local governmental agencies have required that new development pass a satisfactory environmental review. The environmental review is very much focused on the impacts of development on the local ecology (wetlands, plants, waterways and erosion control).
Could you please give us a brief overview of CRE and the European chapter?
The Counselors of Real Estate (CRE®) is comprised of leaders in the real estate advisory industry. A CRE® provides intelligent, unbiased real estate advice to his/her client or employer. TheCRE® credential is awarded only to those individuals who are invited by their peers into the membership of The Counselors of Real Estate. Founded in the U.S. in 1953, The Counselors organization
now serves 1,100 members worldwide.
“Interest among commercial real estate developers and users in sustainable properties has gradually increased over the last 15 years.”
CREs are linked to one another by their commitment to integrity, competence, community, trust and service. CREs value their access that their membership provides to a worldwide network of trusted real estate experts. We are pleased to announce that a chapter of the 24 CREs based in Europe will be formed this summer to provide them with easy access to the collective knowledge and network of the group.
What most attracted your attention on the market during the past 18 months?
Certainly the very low interest rates have caught the attention of all U.S. investors. It has led to much lower capitalization rates than what would have been expected given the state of the economy and the markets. The impact of the low rates have enabled many owners (and lenders) to hold onto their leveraged (perhaps overleveraged) properties and as a result disappointed many investors hoping to find bargain purchases by limiting the supply of distressed properties in the sale market.
Could we kindly ask you to give a brief statement about yourself?
I am a principal and chief operating officer of BPG Properties, Ltd., a private equity real estate fund manager which operates in more than 25 states throughout the country. The firm’s $4 billion portfolio is comprised of extensive holdings in office, industrial, multi-family and retail properties. Ist discretionary investors include many of the nation‘s largest public and corporate pension funds, endowments and foundations. I possess more than 30 years of experience in many aspects of the U.S. investment real estate industry and have enjoyed being a member of the Counselors of Real Estate since 1991.
What are the intentions of U.S. investors regarding investments on the European market and in the CEE/SEE Region?
While there is not currently a high volume of U.S. equity directed to the European market there is some interest, particularly among U.S. pension funds. Those investors are attracted to the contrarian opportunities presented as a result of pressure on some European property owners, due to the current Eurozone volatility, to deleverage their holdings. There is increased interest for European holdings by U.S. investors particularly in the preferred equity or mezzanine debt space.
Are any countries particularly in focus?
Much like in the U.S. the geographic preference is primarily focused in major cities such as London, Paris, Berlin and Munich. Other countries in Europe attracting the attention of U.S. investors include the Czech Republic, Poland and some of the Nordic countries.
Market & Cities
The economic crisis of the past few years has bothered the Polish capital so little, it’s as if it was on another continent. Now Poland and its capital city is one of the core markets for investors and current situation reflects this assessment. Even if the growth rates are now low, the Polish economy still runs excellently and is very stable. Compared with Eastern Europe, Poland is the most attractive country not only due to economic performance but also political stability and legal certainty.
The office property market also came through the crisis well though there is some catching up to do. “As a precaution, investors have postponed many office developments from 2008 to 2010, there will now be a plethora of new projects on the market in the coming years,” said Charles Bier, CEO of UBM. “Warsaw is virtually being flooded with office space,” says Martin Sabelko, Managing Director CEE CBRE Global Investors, in a more drastic tone. Currently about 450,000 m2 of new office space is under development in Warsaw, a third of which is already pre-let. Nevertheless, at 10 percent the Polish capital, along with St. Petersburg, has one of the lowest vacancy rates of all capital cities in the CEE region. Prime rent holds steady at around 27 euros per square metre. In general, an increase in cost-awareness is determinable among users.
Business parks and suburbs are in good demand; expensive city-centre locations are in demand for representation purposes only. Although the massive expansion of office space is only half-way through, the vacancy rate continues to rise, both in first class and in B-locations. Bier also sees an advantage in the numerous new buildings: “The many new developments are a good sign, after all, this willingness to invest means that the international community believes in the market.”
One sees that also in the investments, as the top yield for offices currently lies at 6.15 percent. These are the lowest yields in CEE which is a sign that the town is in big demand. There was a total of 4.5 billion euros in investment funds in CEE commercial real estate in the first half of the year, the lion’s share of 2.9 billion euros circulated to Russia and one billion to Poland. While investors in Russia are mainly local, the Warsaw market thrives on its internationalism and an estimated investment sum of around 2.5 billion euros is forecast for the year.
This sum also includes the retail and hotel markets. “When it comes to core products rents and incomes have proved to be very stable during the crisis”, says Sabelko. “Therefore, the demand for prime retail properties in recent years has been strong, and the prices for such properties are fairly high.” As purchasing power steadily increases, retail premises have further potential, and investments in retail spaces for core products offer an attractive alternative in secondary or even tertiary cities with a population of over 60,000. In Warsaw, even the supply of retail space is sufficient. However, there is another challenge for Warsaw retail space: More than 40 percent of all Polish shopping centres over 10,000 m2 are older than ten years, about 70 objects of which were built in the 1990s. Very few of them have been rebuilt, although we know that good commercial real estate changes every five years on average. Many of these objects only marginally meet the needs of today's consumers. Despite these shortcomings, many of the old objects have an important advantage: They are on the right location from the trade point of view. To convert these retail locations into more attractive shopping centres and thereby increase their value is sensible for traders and investors. A typical example is the “Dom Mody Klif”: The very first shopping centre in Warsaw, which had become quite aged, has been redesigned and can now, with almost 17,800 square metres, compete superbly against the big competitors.
With regard to the hotel sector, currently there is a trend towards “constantly positive occupancy rates and room prices and the demand for good real estate deals is high”, explains Franz Jurkowitsch, Warimpex CEO, followed immediately by an example. “Managed together with UBM we are in the final phase of the sale of the Inter-Continental Hotel which is the largest hotel deal in Poland in late 2012.“ And also for our Le Palais office building development project in the former Warsaw Ghetto, we were able to sign a letter of intent. “Good projects can be realised, even if saturation is apparent in the 4 and 5 star segment. The low-budget sector will, however, have good growth rates over the next few years. All of these pleasing developments show that the real estate market in Warsaw is steadily gaining quality and is a worthwhile investment.
Think the future
Since 2008 we have been in a time which is widely referred to as a crisis, but I am convinced that this is not a crisis in the real sense, because we live in a world where the word crisis is already “semantically” incorrect.
Rather, it is a new epoch that will subsequently bring with it a change in world order. We are only at the beginning of it and it is assumed that we have only the first years of this new era behind us and we still have even bigger changes to face. This notion is supported by science and research as well as art and culture.
Over the last 100 years, it has been assumed that each new generation takes over the world in a better condition than the previous one. The trend towards increased prosperity is cooling, in some countries quite massively, and the young people of today are faced with a different situation: they will inherit a large load of debt and a host of problems.
We are in a transition phase that will drag on for several decades and the motto is: “The path is the goal.” We don’t know what the goal is yet, but we do know the basic tasks or basic challenges that we face and that right now we have to work towards a new world order and prepare ourselves for the future.
A change of this magnitude will not stop at real estate and will subsequently also cause change in this field. Therefore, in (risk) assessment, special attention must be paid to these developments as they will have a significant impact on it over the next few years. Thus I consider it sensible to incorporate these thoughts and points into property valuation as real estate, which in factuality cannot simply be moved from one place to the other, is particularly susceptible to change processes.
The real estate industry is a key factor in economic events. Almost 50 percent of the world’s national wealth is comprised of real estate assets. Due to the developments of the last 20 to 25 years, the real estate industry is, unfortunately, heading in the same direction as the financial industry. Properties have gradually become “part of the game” though this entanglement seems to be solving itself again and more and more properties are becoming what they are supposed to be: solid value – in a changing environment.
One of the biggest challenges for the real estate industry, though also one of the greatest opportunities, will be the projected population growth. Currently, we have 7.2 billion people on Earth, by 2050 there will be 9.5 to 10 billion. These people need housing, employment and facilities for education, further education and leisure. In the broadest sense these are all connected with real estate. That means that property itself will have to adapt to changing conditions and also new forms of property need to be developed. Even now the trend towards urbanization continues to be strong and by 2030 at least 60 percent of the people on Earth will be living in cities or urban agglomerations. Metropolises will become megacities; urban planning and development will be needed to implement new ideas. A key factor here will be supplying the population with food. How much of this will be possible from the outside has yet to be proven and if new systems can’t be designed to feed the population from within the cities using shorter distribution channels. Vertical farming, meaning buildings in which vertical space is used for agricultural purposes, is quite a serious alternative.
In addition to a growing population, in the coming years the subject of “migration” will have to be dealt with very differently than it has been to date. The reasons for leaving one’s own country are many. As long as these problems are not resolved in their countries of origin this will be an issue for Europe and in some cases, as media reports indicate, a massive one. We cannot afford to ignore this development.
Furthermore, in this part of the world, families and households are experiencing changes. In Austria we currently have around 1.3 million single households, approximately 170,000 single parents which merge with a large grey area of patchwork families. The old structures begin to dissolve more and more and this leads to a new image of living and far-reaching changes.
The technical change in our world of work is only the beginning with no end in sight to that effect. The mobile workstation is already a reality and will gain even more importance in the coming years. Small offices, in combination with residential work spaces, place completely new demands on real estate. It is expected that there will be a return to industrial jobs. This doesn’t mean factories, rather a type of intelligent industry, a new era of “chimney-free industry”. As before, where certain crafts became industries in neighbourhoods, this will be again in the near future though in creative and technical fields such as the computer or design sectors, where one works towards a specific objective.
Thus, the demand for traditional office space mixes with the need for extraordinary spaces of which there are just a few to thousands in a city. The path to mixed-use properties is, in fact, predefined and office buildings will soon look very different in the future.
Whatever the future turns out to be, it is both a challenge and an opportunity for real estate and it is down to a “risk & rating” evaluation to assess it correctly.
People & Real Estate
Making an Impression
As head of the ÖBB real estate Herbert Logar is responsible for about 26,000 properties and more than 5,000 buildings. He learned his job from scratch, if one can say so, and in his career before joining ÖBB real estate he acquainted himself with virtually all facets of the real estate industry – from the inside.
Born in Villach, Carinthia, he went on to Graz, where he studied industrial and mechanical engineering at the TU. This blend of technology and business was only available in the Styrian capital and Logar decided early on that he would rather be a generalist than a specialist: “I always wanted to know about many sectors.” The path to the real estate industry came to him “by chance”, though for him, as he says, “it was already clear from the outset that I certainly won’t be beginning and ending at the drawing board”.
Determined, he relocated to the United States with his wife after his studies. At the time Logar thought to himself, “If I don’t leave Austria as a young man, I probably never will.” He worked for Daniel Swarovski U.S. Ltd in Providence, the capital of Rhode Island, for almost six years. Then the family, which in the meantime had grown to five, moved back to Austria. As an aficionado of American philosophy, he joined Honeywell Austria and was subsequently responsible for the Building Utility Operations Division for the DACH markets. From Honeywell he moved to VA Tech Elin EBG where he was responsible for Eastern Europe in addition to the domestic markets. Following Elin EBG came the jump to the Federal Real Estate Company (BIG). The competencies were clearly defined: “Christoph Stadlhuber was responsible for realisation and development, I for planning and building.” In 2003, under the leadership of then BIG boss Hartwig Chromy, they wrapped up the then incredible €145 million deal – the sale of the BIG apartment portfolio. “We really learned a lot about how the federal government structures such processes and what is required by way of transparency up to verifiability for such large transactions.” During his time at BIG there was one project that is particularly stuck in his memory: the adaptation and modernization of the Palais Epstein, built by Theophil Hansen. “It was a wonderful job,” Logar recalls. “Due to the turbulent history of the palace there was so much old memorabilia, so many points of interest and so much heritage in the house which we have preserved for posterity. Fusing a listed building with modern architecture and bringing both together under one roof and using young architects, was a big challenge and task.” For good measure it’s well-documented because a book has been written about Logar’s favourite property regarding the history of the palace and its renovation. As he is a fan of old houses (“an old house with modern utilisation has its own flair”) he also lives in one himself. An old converted vintner building, much of the renovation work he did himself.
He followed his appointment at BIG with another professional challenge, namely the move to Bank Austria Real Invest. “This phase was a transition, moreover a mutation, from experienced building owners to the representatives of investors, including all the economic and legal conditions that trust assets bring with it.” He learned the trade from the perspective of the investors and was finally taking steps towards what he always wanted to be like: a generalist. Something else he learned: At the time of crisis Real Invest invested approximately €500 million in real estate in one year and in this year it is estimated that the fund achieved total revenue of 70 to 80 percent of the entire market for the asset classes in which he invested. “At this stage you have to have a certain sense of proportion, even if holding the whip hand you have to handle it with care,” said Logar. “My former colleague Gerhard Dreyer always said, power is only strength borrowed from the office.”
A sentence that had a lasting effect on him and continues to be his credo, because in the meantime Logar, as ÖBB Real Estate Chief for Vienna and numerous other cities, is responsible for the realisation of the disused ÖBB real estate assets; as such he represents one of the largest inner-city property owners in the federal capital. “The power that the volumes which are available to the ÖBB wield naturally has a certain influence though it is important to keep both feet on the ground and, in the heat of the moment, it is essential to achieve the optimum for one’s company and that above all one views this responsibility with a certain amount of humility.” He recalls that in the process of his diverse professional career he has already seen “a lot of managers and enterprises come and go”. He greatly appreciates that the real estate sector has again become grounded and down to earth following the boom period up to 2007/08, “I notice the increased encouragement of investors and confidence that is being placed in the industry again. Once again one is investing more in stone than in paper.” For someone who works closely with investors this is a very important factor.
To be able to develop and build a city was a “very lovely task, though many factors come into play here and at the end of the day one is just a cog in a very large wheel. Of course, one would be glad if one could leave a footprint behind, but on the other hand, we are part of the whole. One cannot overstate that.”
As was already clear to Herbert Logar during his university days, wherever his path leads this generalist will not end up at the drawing board. On the contrary: he sets the standard.
Urban & social structures
The incumbent City Councillor for Vienna Housing; Michael Ludwig grew up in a council house in Floridsdorf in Vienna and is still connected to his district. He still lives there. It is the "mix of urban, green, lots of space and still be able to enjoy the big city" that keeps him in Floridsdorf. “Also the best Heurigen in Vienna are just around the corner, such as in Stammersdorf, Strebersdorf or Großjedlersdorf”. The 21st district has a strong structural change behind it. From a district formerly dominated by industry to a residential area with a good quality of life, infrastructure and local amenities.
In his time as a course and project manager in adult education and as a senior teacher at a Viennese college of further education he gave lectures towards the end of the 80's lectures on the development of the settlement structure in Floridsdorf, "but at that time I never thought that I would influence this development quite so intensely”. In the meantime the gentle urban renewal also allows Floridsdorf flourish further and Ludwig sees here, as in all other urban areas, where this revitalization has been implemented, "it does not make sense just to renovate individual houses rather whole streets and also at the same time to improve local amenities and infrastructure”.
The City of Vienna is exemplary in its chosen path and with particular pride the City Councillor for Housing for prepared for international recognition: for its policy of "soft urban renewal” the City of Vienna received the most prestigious award of the United Nations in the field of housing: The "UN Habitat Scroll of Honour 2010" (UNO-world Organization for Human Settlements Programme). The "Scroll of Honour" prize in the category "Housing and Urban Renewal", which has been awarded annually since 1989, was the first that UN-Habitat had ever given for a comprehensive urban redevelopment program. The UN-Habitat stated uniqueness, outstanding sustainability and social orientation as justification for awarding the "Scroll of Honour" to the city of Vienna. "Soft urban renewal, as we understand it is associated with a strong social dimension", said City Councillor for Housing Ludwig: "I believe that we are recognized worldwide as having a pioneering role in subsidized housing". Every week individuals or delegations come from all over the world to be inspired by the thoughts and ideas of the Danube metropolis. "Above all, the subsidized housing arouses great interest" and this will also be carried over abroad, an exhibition introduced the "Vienna Idea" from Venice starting via Berlin, Belgrade, Sofia, Ankara to as far away as China and New York. "The housing in Vienna in this form is a historical development and we stand on the shoulders of our predecessors," said Ludwig: "And it's important to me that my successor can continue building. We are part of a chain”.
What he finds impressive in cities is "not the landmarks that are important for the marketing of cities, it is the places where people feel comfortable that fascinate me”. Here he draws on ideas and inspiration for his own work. For him it is important to know what a location is composed of, such as architecture, settlement policy and social infrastructure "and of course there are many more parameters which need to be considered. That's the exciting thing about accommodation. It is not just a technical matter, but a living organism“. Just as an organism changes so too are the parts of a district constantly changing: "A quarter does not remain as it is and in twenty years will function very differently to the way it does now”. Ludwig sees this as a challenge and an opportunity. It is also exciting for him to see how the council house in which he grew up functioned then now. The most striking difference is mobility, fluctuation is higher and "interpersonal relationships have become more flexible. The extended family is no longer the popular way of life but still people want contact with each other. It is therefore important that the generations live with each other rather than next to each other”.
Therefore, various types of housing are important for the City Councillor for Housing and new ways of living together within a housing project will be tested and different types of residential space and models for the different groups of people will be developed. "An extended family has not only had advantages. The concept of living closely together in an apartment association has been glorified lately but it is probably the reason why young people move out. Vienna has to cope with the quantitative challenge of meeting housing needs due to the large of influx of population, "but we also want to shape the future with new forms of dwellings and models". Therefore it is an interesting aspect for him to see which projects prevail at the architectural building competitions for housing within the defined framework of economy, ecology, architectural quality, and social sustainability.
Through all these issues the development of a city itself is especially exciting for Michael Ludwig. Vienna has grown historically over centuries. There are very different examples in China, where cities with high willingness to invest in a very short time have grown large. "Designing a city from scratch offers many advantages but also many challenges, especially social ones”. Other cities offer the incumbent City Councillor for Housing experiences and ideas from which one can learn "but I wouldn’t live in any other city than Vienna."
Politics & Investment
The Association of Cities is an important association for Austrian cities and
municipalities. Delegates of the Association of Cities officially meet once a year.
The year, the 66th meeting of the Association of Cities, the General Meeting of the Federation of Austrian Cities, will take place in the city of Innsbruck. In addition, this year is the 70th anniversary of the Association of Cities which was founded after the World War II.
“The 70th anniversary of the re-establishment of the Federation of Austrian Cities is an opportunity to become aware of the important role of cities during the reconstruction phase of the Republic of Austria”, says Thomas Weninger, Secretary General of the Federation of Austrian Cities.
More Than 100 Years
The association was actually established on the 24th of September 1915 and in those days membership was voluntary. This is still true today and the importance of the cities and municipalities which are members of this institution is shown by the fact that, in addition to Vienna and the provincial capitals, practically all municipalities with over 10,000 inhabitants are
voluntary members of the association. The smallest member municipality has about 1,000 inhabitants. The idea behind the association was, and is, to give Austria’s cities a common voice. The Austrian Federation of Cities has represented the interests of its members since 1915 and represents them politically and publicly.
Thus, the Federation of Cities acts as municipal advocate for a total of 248 cities and larger municipalities. It is an interlocutor for the government at the federal and provincial level and is explicitly mentioned in the Austrian constitution.
In addition, the Federation of Cities is a weighty negotiator in the Fiscal Federal Equalization which governs the financial relations between the
federation, provinces and municipalities.
Cities Arose Historically
What is often confused, is the fact that a city must be “large” or “measured” according to their inhabitants. In general, the term “city” says something about the size of a municipality, but not necessarily as the name usually has an historical background. So the City of Rattenberg in Tyrol has only 401 inhabitants, while the Market Town of Lustenau has 20,834 inhabitants. For this reason, members of the Federation of Cities are not exclusively cities but also larger municipalities.
Elections and Exchange of Ideas
As a General Assembly, the Association of Cities itself plays an important role and meets once a year. Over these three days, the president and the members of the governing bodies (management board and steering committee) are elected. The participants are representatives from the member
communities, whereby larger communities have more delegates.
However, during the official meetings the general political line will also be decided on and it also serves as an opportunity for members to exchange ideas and experience and enables networking between
the members. Furthermore, each meeting has a specific
theme whereby, alongside discussions, detailed information
concerning politically important issues is provided
by working groups. This year’s motto is: “Changing City Climate – Designing Coexistence.”
Politics & Markets
Quite how a separation from Europe functions we do not yet know. The big question on everybody’s lips is: Will it be an amicable separation or a War of the Roses?
We all recall the moment when, in the summer of 2015, the news seeped through the media that David Cameron, the British Prime Minister, had brought forward the date of a UK referendum to decide whether Britain should remain in the European Union to the middle of 2016. Previously, the government in London had solely stated that any such referendum would not take place before the end of 2017.
In the meantime, June the 23rd has been set as the date thereof and it’s moving ever closer. The closer the date gets, the more dynamic this issue is becoming and, accordingly, the bigger and weightier the word “Brexit” seems to be growing.
Main Issue in the Media
The debate over England’s exit from the European Union has developed into an essential part of every television broadcast on the island. Currently, the British media are concerning themselves with hardly anything else other than Brexit speculations. In line with Britain’s fondness for betting, the bookmakers are now taking odds on the possible outcome of the Brexit referendum. The trend: Initially, the bookmaker’s odds suggested a victory for the pro-Europeans; however, the tide has turned: Shortly before the referendum on remaining in the EU, the majority now appears to be swaying towards being in favour of a separation of Britain from the EU.
Positive or Negative?
The experts disagree about what exactly the consequences of the decision will be. Some are predicting that a vote to leave will be immensely detrimental to Britain whilst others predict that it will be immensely advantageous. Ultimately, the same applies to property, or rather the property prices. Whether it will have a negative or positive influence on property prices in London is still under discussion by the
experts. The issue is so complex and comes with so many uncertainties and far-reaching consequences that it is impossible to estimate.
A New Price Structure
Exactly what an exit would mean for the London property market is still unclear. Will the prices go up, or will they go down? There are arguments for both scenarios: In the case of an exit, property prices in London could go down, however, it’s not expected to happen overnight and nor is the British capital city’s current pricing structure expected to immediately destabilise. Instead, one can reckon with a gradual reduction. The 30-40 percent deterioration, as predicted by some experts, would take a number of years to take effect. To some extent, this is due to Britain’s contract with the EU which dictates that it maintains the current status quo for a further two years,
during which, new contracts between England and the EU, and many other non-EU countries, will be hammered out.
Other opinions suggest that a Brexit will not influence property prices in the middle and long-term at all. The argument: An exit weakens the EU as a whole and this could trigger further countries currently in the EU to consider doing the same. Thus, the already beleaguered Euro will continue to lose value which, in turn, will benefit the British Pound. Thereby,
London real estate could become even more expensive for European countries.
The Market is Slowing Itself Down
Whether up or down, international investors are
uneasy about the issue, though a slow-down of the London property market is certainly discernible. In recent months, a number of big property deals which, in principle, were considered “done deals” have been retracted, with others having been postponed, with a possible Brexit being given as the reason therefor.
There will be no great activity on the market until the vote is concluded. Should Britain decide to remain, the backlog in investment could discharge itself
before the end of summer possibly making the third quarter one of the strongest the London market has ever seen. Paradoxically, the aftermath of an exit will not have such serious implications in the short-term, as Britain will then have to consider how to position itself in a “new” Europe.
As regards who will profit from a Brexit; possibly a number of European cities. For one, the sums that have flooded into the British capital in recent years will instead be invested in mainland Europe. Furthermore, it can be assumed that the numerous companies which have settled in London will start looking around for a suitable headquarters in the EU. For a sustainable company location in the EU, financial
institutions in particular and, in the immediate aftermath, global corporations, need stable economic, legal and social framework conditions and also the appropriate local conditions.
In this context, Paris and Berlin hold very good cards though the German capital carries further advantages. Berlin is the capital of the strongest economy in the EU and there’s substantial room for growth within the city limits. Enough space to provide large corporations with the appropriate office and,
of course, living space as well.
Furthermore, another big plus for Berlin is its proximity to Frankfurt. Numerous German and international financial corporations, as well as their subsidiaries such as branches of the Deutsche Bank, are currently located in London. In the event of a Brexit, a larger proportion of this activity would be brought back to the EU and Frankfurt, as Europe’s second financial location, is likely to profit from it.
Opportunity for a lot of Cities
Many European cities see the exit of the English
as an enormous opportunity for their own business locations. Should the majority of the companies
currently resident in London relocate just a part of their workforce to other EU cities, we will be looking at a multitude of outstanding professionals coming on to the job market who are in great demand internationally.
KR Prof. Dr. h.c. Alfons Metzger, FRICS, CRE
is owner of the Metzger Real Estate Group
and has been active as an independent
appraiser in the national and international real estate industry for 45 years. Over the course of
his life, he has founded a number of organisations such as RICS Austria and the European Chapter
of CRE. His main activities focus on the development of valuation standards and norms for
implementation on a national and
People & Real Estate
Having studied “Regional Policy and Planning” at Vienna’s Technical University, Christoph Stadlhuber’s thesis – a touristic cycle-path concept for the Austrian federal state of Burgenland – paved the way for his career in politics. After graduation, he was involved in the establishment of the Institute for Traffic Engineering and Accident Statistics of the Austrian Road Safety Board in Eisenstadt and eventually took over the management thereof. “In 1997 I had the chance to take up a position in the Ministry of Economics and Labour, under the then Minister:
Martin Bartenstein, primarily as a consultant and later as cabinet chief.” Right from the beginning he was involved in the sale of real estate owned by the Republic of Austria to the Bundesimmobiliengesellschaft (BIG), which the company had been managing since 1992. With the retirement of Gerhard Buresch, who was the CEO of BIG, Stadlhuber was promoted to BIG’s 2nd Managing Director alongside Hartwig Chromy.
Transferring 5,000 properties and 800 employees into a private sector model was a huge challenge, whereby the management of the properties was only one of his areas of responsibility. The other was the employees: “It took a great deal of persuasion power to implement an enterprising commercial structure, and I must say, the prevailing image which the general public has of the government administration is incorrect. There are a lot of dedicated people contributing to developing new ideas and they have to be taken into consideration in order for them to continue with their intellectual input.” In his role as Managing Director of BIG, Stadlhuber made two critical changes: Firstly, the abolition of the company hierarchy and secondly, the appointment women to management positions.
“It only functions as a team. One can only achieve success as a team. We have a lot of young, dynamic employees and it’s the teamwork which makes it fun.”
One of his greatest challenges at BIG was the construction of the new University of Economics (WU), which consists of five buildings and one campus. “What was special about this joint-project between the WU and BIG was that the budget was undershot and the time schedule was maintained, despite the project being a massive complex. Large projects have to be well-planned right from the beginning.” At the time of the “topping-out” ceremony he was still at BIG, though by the time the campus was fully-completed he had already taken on the position of Managing Director of SIGNA.
His time at BIG was characterised by “organisation, structure and management” and after eight years of government-related operations he increasingly desired to be “closer involved in the projects” as, ultimately, architecture had always interested him: “Though not on a small-scale. I didn’t want to plan window axis, I wanted to be operative on a larger scale”. Prior to switching to SIGNA, many of his professional activities were connected to the construction and structuring of companies and “my intention was to go into the private sector. I wanted to realise projects and no longer wanted to work in organisational management. There wasn’t and isn’t a better company for me than the SIGNA Group.
What is special about his job is the “working with people” aspect, and thus whether he would rather work in a team or alone was never a question for Stadlhuber: “It only functions as a team. One can only achieve success as a team. We have a lot of young, dynamic employees and it’s the teamwork which makes it fun.” The other part of the work is the pleasure in visible results, which always takes a bit of time concerning property: “Not within days or weeks but visible and sustainable”. Of course, pride also has a role to play here, not only in the realisation of individual projects, “but rather in contributing to the design and further development of a city”, for which “fantasy and perseverance” are both necessary which is exactly what Stadlhuber appreciates about SIGNA: “When one conceives a vision, one then has to pour it into a concept and pursue it consistently”. There’s something else he holds dear: “Speed of decision. Hardly anyone makes decisions as quickly as us.” For him, decisions concerning the real estate industry are not based purely on calculation and computation; instead they are a mix “of intelligence and instinct.”
“Making changes and creating something new” are a special challenge for Christoph Stadlhuber, “solely managing inventory is not my thing.” He’s found his most exciting projects in SIGNA’s Prime Selection: “These are existing properties in a historic setting, in the best inner-city locations which are due to undergo a complete conversion. A current case in point being the property in the “Golden Quarter” whereby two former bank headquarters were developed into a luxury hotel to include high-end retail space plus luxury residential apartments. “It’s also exciting to revive such classic
Vienna neighbourhoods with these kinds of realignments. And thus we’re back to regional planning.”
“It’s also exciting to revive such classic Vienna neighbourhoods with these kinds of realignments. And thus we’re back to regional planning.”
Projects of this ilk, such as the “Alte Akademie” currently underway in Munich, require not only a technical knowledge of property but also a lot of sensitivity when it comes to dealing with the appropriate city policy makers. This is where the CEO is able to out his political experience to good use: “At the end of the day, these types of projects are not only about factual and professional reasoning. Equally important is the cooperation between the administration, the community, the politicians and cultural heritage preservation, in order to achieve an outstanding result for all those involved. So of course it’s an advantage that I’m able to orientate myself through these worlds.”
People & Real Estate
Prof. Alfons Metzger met Khalaf Ahmad Al Habtoor for a personal interview at the Ritz-Carlton in Budapest to exchange information and explore the possibilities of cooperating in the future.Khalaf Ahmad Al Habtoor is considered to be one of the richest men in the world. He is known in Austria for purchasing the Hotel Imperial.
At the age of 17 he began employment with a construction company and turned freelance in 1970 when he founded his own company. As the United Arab Emirates grew, so did the Al Habtoor Group. Today, his family-run enterprise employs 40,000 people in wide variety of business sectors.
Could you give us a brief overview of the Al Habtoor Group?
Al Habtoor: We focus on several main areas: We have our project development company for residential and commercial property.Habtoor Hotels has numerous hotels in Dubai, and also in Vienna, Budapest, London, Beirut, as well as in the USA, in its portfolio. Al Habtoor Motors is one of the leading car dealerships in the United Arab Emirates with Mitsubishi, Bentley, McLaren and Bugatti. Among others, our publishing house publishes “Al Shindagah”, which is one of the most well-known and prestigious magazines in the Middle-East. In addition, we also run two “Emirates International School” facilities which, for me, are of the utmost concern as I consider education for the young of great importance.
One of your biggest projects is the Al Habtoor City.
Al Habtoor: The Al Habtoor City is a landmark in the heart of Dubai, right next-door to the financial centre on the Sheikh Zayed Road. As there are no further buildings in the vicinity, one has a wonderful view over Dubai and the Arabian Gulf. There are three hotels: St. Regis, The Westin and the W Hotel, which are managed by Starwood and three towers which house luxury apartments and exclusive penthouses.
There is also a unique water theatre, of which there are only three such spectacles in the whole world, one of them being in Las Vegas. There are many further special features of the Al Habtoor City though the list is too long to go into right now.
Did you ever imagine in your youth that Dubai would develop into this unbelievable metropolis, and that you would play such a major role in its development?
Al Habtoor: As a young man I wanted to do everything that would provide my family a good life. I had luck. I was at the right place at the right time and made use of the opportunities which were open to me.
But you’re proud of what you have achieved.
Al Habtoor: 100 Percent. Work comes first. If one sleeps all day, one will achieve nothing. One cannot earn money in ones sleep. My organization is very large, and it’s my duty to provide work for my employees.
You have bought the Hotel Imperial in Vienna for your group.
Al Habtoor: In contrast to my other hotels, I didn’t buy the Hotel Imperial in order to earn money. The Imperial is more of a trophy. Some people buy themselves paintings; I bought myself a unique hotel. It is excellently located directly opposite the State Opera, and it’s like it’s twin. I am very proud to have acquired this twin. In acquiring the Hotel Imperial I now have another reason to visit this wonderful city more often.
Do you have further plans in Vienna?
Al Habtoor: I have no concrete plans, though should investment opportunities in the hotel and office property sectors arise then I will surely be taking a look at these projects.
Is CEE a topic of interest for you?
Al Habtoor: Yes of course, CEE is very interesting, Slovakia and the Czech Republic above all. I also believe that Albania has unbelievable potential. Particularly concerning the residential sector. This is a country that really fascinates me.
Would you be looking to just purchase or also develop projects?
Al Habtoor: I have been involved in the real estate business for nearly 50 years now and developed enough projects. Planning and developing is a very wonderful thing though it carries with it a lot of worries and headaches. In addition, I’m one of those people who would rather have everything done yesterday. Outside of my own country, I only want to be active as an investor and not involved in project development. Any projects which I buy into, I don’t want to have to worry about them personally, instead I will be handing them over to the management.
But things are different in Dubai.
Al Habtoor: Dubai is my home! We currently have three big projects: Al Habtoor City, a Polo Resort & Club and the Dubai Metropolitan Hotel.
Where do you see differences between business dealings in the Orient and Europe and how do you adjust to them?
Al Habtoor: In my view, there is no difference. The mechanism is the same. However, what is important is that it’s the right people who you are doing business with.
You support a great many social projects. Could that be attributed to your personal history?
Al Habtoor: During my childhood, we lived a very modest life but a very happy one. My father was always there for me and it’s important to listen to our elders in order to learn from them. This is also a kind of education. If God gives you something, then you should also share it with others who need it. I have a strong belief in God. I thank him for everything, every day, when I wake up. Without God, I wouldn’t be here.
Which thoughts do you want to pass on?
Al Habtoor: We shouldn’t just accept what we have. Instead, we should always try to make more out of it and try to lead a better life. This applies to every one of us and I think that’s what defines us as people.
Thank you for the interview.
Khalaf Ahmad Al Habtoor is a prominent and highly respected citizen of the United Arab Emirates. A self-made man, he is Chairman of the Al Habtoor Group – one of the most successful conglomerates in the Gulf.