H1 2014 INVESTMENT: Big-ticket CEE office deals spread beyond Poland

Romania and the Czech Republic saw two very large office deals during the first half of 2014, indicating investment in the sector is spreading beyond Poland to the rest of Central and Eastern Europe.

The stalled Romanian market flared back to life largely due to large investments carried out by Greek billionaire real estate investor and developer Ioannis Papalekas and his London-listed company Globalworth.

ROMANIAN REVIVAL
As a result Romania's H1 investment volume rose to around €430 mln, more than the total invested in the country's real estate sector during 2013, according to JLL. Only €125 mln of deals took place in H1 2013.

Globalworth listed in July 2013 to tap into investment opportunities in the SEE and CEE regions. The first port of call has been Romania where Papalekas had previously developed a number of assets that form the initial portfolio for the listed vehicle.

In the largest H1 deal in Romania, Globalworth closed the acquisition of the BOB & BOC office complex in Bucharest, plus 446 residential and 25 retail units in the Underground Towers scheme, for a total €210 mln. BOB and BOC were acquired for €42 mln and €110 mln respectively.

In another deal, Globalworth purchased the Tower Center International (TCI) office complex for €58 mln. TCI comprises 24,700 m2 over 26 floors above ground and is the second-tallest building in Bucharest.

Globalworth has an appetite for a lot more. In March the company started raising €200 mln to repay debt and for new investments. CEO Papalekas put up €25 mln, with US-based investors York Capital Management and Oak Hill Advisors committing €95 mln.

During August Globalworth acquired Timisoara Airport Park in a transaction valued at €35 mln - the largest logistics investment deal in Romania post-2008.

JLL said in a commentary that more deals by a range of investors are expected in Romania this year. 'Besides an increase in investment volumes, it is also becoming clear that diversity on the buy-side is increasing, reflecting a sharp growth in market liquidity. For the remainder of 2014, it is expected that a number of additional transactions involving new buyers will materialise as several projects are currently under due diligence.'

Increasing willingness among banks to provide debt will support higher investor demand, JLL said.

CZECH REPUBLIC
Another billionaire was behind the largest office transaction in the Czech Republic during the first half of 2014. The PPF Group - controlled by Czech businessman Petr Kellner who is estimated to be worth over $10 bn - bought City Tower, the highest skyscraper in Prague. It is believed the investment volume came to €130 mln.

Other notable office deals include Tristan Capital Partners acquiring Praha City Centre for €50 mln and Czech fund ZFP Investments buying Florenc Office Center in Prague from Deka Immobilien for €34 mln.

JLL said that the H1 volume of €713 mln was up 20% on the same period last year. Increased investor activity and liquidity could propel the full-year result to the 2011 level of €2 bn or even that of 2007 when trading reached €2.9 bn, the broker said.

The largest Czech office investment ever took place last year when Starwood Capital acquired The Park, a Class A office complex in the Czech capital Prague, from Aberdeen Asset Management. The terms of the transaction were not disclosed, but PropertyEU understands the investment volume was around €300 mln.

POLAND
Nevertheless, Poland retained its leading position in CEE office investment (€600 mln) with a total volume for all sectors of €1.1 bn during the first six months of the year. All but one of the seven largest office transactions were carried out by cross-border investors, with German fund managers behind three of the deals.

Fund manager Deutsche Asset and Wealth Management, part of Deutsche Bank, claimed almost half of the total Polish office volume through its €300 mln acquisition of the Rondo 1 office tower in central Warsaw. The 40-storey building was sold through BlackRock’s Europe Property Fund II, formerly MGPA Europe Fund II, in April this year.

US-listed REIT WP Carey was behind another €100 mln-plus office deal in the Polish capital at the start of the year. Kimberley, a special purpose vehicle controlled by the US investor, acquired the four-building Lipowy Office Park in Warsaw for about €108 mln. The 40,000 m2 property - let entirely to Bank Pekao - was completed in 2009 and was owned by Europolis, which was taken over by CA Immo in early 2011.

Deka Immobilien, the property fund management arm of Germany's Deka Bank, paid €94 mln for the Atrium 1 office development, which was completed by Skanska in the first quarter of 2014. Situated in the centre of Warsaw, Atrium 1 offers 18,000 m2 of leasable office space and the key tenant is Bank Zachodni WBK of the Santander Group. Skanska claims Atrium 1 is the most sustainable office building in Poland and has already been LEED pre-certified to the highest Platinum level.

OUTSIDE WARSAW
Smaller ticket sizes traded outside Warsaw. In Krakow, Polish investor Griffin Group, which is backed by international capital, acquired the Centrum Biurowe Lubicz from Peakside Capital for €50 mln, while Bluehouse Capital, a CEE and SEE private equity investor, purchased the Euromarket Office Center for about €17 mln.

Investec GLL Global Special Opportunities Real Estate Fund completed the acquisition of Skanska's Green Day development in Wroclaw for €44 mln. Green Day is fully leased and was Skanska's third office investment in Wroclaw, following the Green Towers complex and Grunwaldzki Center.

In another Wroclaw deal, first announced in late 2013, Spanish investor Azora Group acquired the Aquarius II office complex from Warsaw-listed developer Echo Investment for €23 mln.

See the September Deal Watch subscriber-only publication for lists of the top CEE and European transactions during H1 2014