Bratislava-based developer HB Reavis is leaving its mark in the capital cities of CEE with a new generation of offices. It now aims to do the same in London, says CEO Pavel Trenka.
The site where HB Reavis has started construction of what will become the tallest tower in Warsaw looks forlorn on a cool day in late August. The CEE developer may be marketing Varso Place as a new iconic landmark for the Polish capital, but at this stage of its development, what stand out are the dreary multi-storey Communist-era housing blocks built by the state in the 1960s and 1970s which will not be demolished any time soon.
But this first impression is deceptive. The site may have been derelict for more than seven decades, but there can be no doubt about its prime location. The highest and biggest project, not only in the Polish capital but also of all Central and Eastern Europe, will arise in the next two years on a site adjacent to Warsaw’s central railway station and around the corner from Unibail-Rodamco’s flagship Polish mall Zlote Tarasy. In early September, HB Reavis announced it had obtained a WELL Building Standard-certificate for the development, making it the first in Central Europe to boast a WELL pre-certificate.
Slovak billionaire
Varso Place is the most ambitious development to date in the Slovakian company’s pipeline. But it is by no means the only one. In its home base Bratislava, the developer is working on Twin City which it claims is part of the biggest regeneration project in Central Europe. And in Budapest, construction work has begun on Agora Budapest, a mixed-use complex comprising 136,000 m2 of modern office and retail spaces.
The mastermind behind these grand plans is Slovak billionaire Ivan Chrenko, a media-shy entrepreneur who made his fortune following the fall of Communism after launching a business in hi-fi speaker sets. In 1995, he became a partner in predecessor company AB Reavis which changed its name to HB Reavis a few months later. After opening its first four business centres in Bratislava between 1997 and 1999, the Slovakian developer subsequently embarked on a retail project and in November 2001 Aupark Shopping Centre opened its doors.
Five years later, the developer sold a 50% stake in the mall for €75 mln to Dutch listed retail specialist Rodamco which, a year later, merged with its larger French peer Unibail to become Unibail-Rodamco. The remaining 50% stake was sold to what is now Europe’s largest listed real estate company for €151 mln in 2011.
While Chrenko continues to drive the company’s international expansion as the key strategist and group chairman, the man in charge of the day-to-day running of the business is CEO Pavel Trenka. The first Aupark centre in Bratislava acted as a springboard for the group’s international expansion, he says during an interview at the company’s Slovakian headquarters following a press tour of Twin City in Bratislava and Varso Place in Warsaw a day earlier. He explains that the company subsequently reinvested the proceeds into new developments including the adjacent Aupark Tower and transplanted the Aupark mall concept to cities elsewhere in the country and more recently into the Czech Republic where it established a branch in 2007. The developer now also has an office in Hungary, Croatia and, since 2013, in London.
‘The sale of Aupark to Unibail-Rodamco helped us step up to a new level,’ Trenka says.
Timeless architecture
One of the key drivers behind the developer’s bold expansion in CEE is Chrenko’s lofty ambition to give his home base and other cities that formerly fell under the Soviet regime examples of timeless and elegant architecture that will age gracefully and give local residents a sense that they are catching up with the West. But the company’s most audacious move to date is possibly its acquisition earlier this year of Elizabeth House, also known as One Waterloo, on London’s Southbank for a figure rumoured to be in excess of £250 mln (€295 mln) from London & Regional and Chelsfield.
It is not the company’s first development in London. This autumn the developer officially opened 33 Central in the City of London, which provides 21,000 m2 of Grade A office space over nine floors and which was sold last year to Wells Fargo, the third largest bank in the US by assets, in one of the first deals to go through in the wake of the EU referendum vote. HB Reavis acquired the site in late 2013 and commenced construction in mid-2014. Elsewhere in London, HB Reavis is working on 20 Farringdon Street, a prime development in London’s Midtown, where it is due to deliver a new 12-storey office building totalling 75,000 sq ft (7,000 m2) in the course of 2018.
Critics have said that HB Reavis acquired Elizabeth House at the top of the market, but Trenka insists the 88,000 m2 site is a good investment. ‘On a cost per square metre basis, we believe the price is right. We have a long-term hold strategy and are shifting our focus towards large-scale schemes. This development is helping us scale up the platform and provide the right balance of services and facilities in London. We also want to achieve the right scale to support these schemes and offer the right mix of flexible space.’
Trenka concedes that the company is aiming high with its goal to make it in the UK and notes that the move has not gone unnoticed in architectural circles. Indeed, a growing number of the UK’s leading firms including Foster & Partners, Benoy, Make, John Robertson and Allford, Hall, Monaghan, Morris (AHMM) are now working on HB Reavis projects, both at home and abroad.
The developer’s entry into the UK may seem prestigious to some, but Trenka claims that is not the case for him personally. The former McKinsey accountant and banker is pragmatic: ‘London is a good market to be in and Elizabeth House is extremely well located. The site fits our existing strategy. We believe in the strong fundamentals of the London market. It’s all about finding the right timing and we don’t believe this is the wrong timing!’
Brexit uncertainty
The looming Brexit is a key concern and has added a layer of uncertainty, Trenka concurs. ‘The question is how this will affect the relationship with the European Union. But we believe in the fundamentals. We have the ambition to build up a significant portfolio in London.’
One of the key reasons for entering the UK market in 2013 was to diversify the portfolio. In five years’ time, HB Reavis aims to generate roughly 20-30% of its business in the UK, but Trenka declines to comment on concrete goals. ‘We don’t have specific targets. We’d prefer not to comment given all the uncertainties in the UK. The focus is on the business and the fundamentals and hopefully the market will recognise that.’
A higher dependence on the UK will, however, add currency risk to the business and this already gave the company ‘a bit of a bumpy ride’ in 2016 when it saw net profit more than halve to €107 mln from a year earlier, due to a devaluation of the UK portfolio related to the depreciation of pound sterling. Trenka: ‘We are watching the development of the British pound very carefully and are constantly monitoring whether we should invest now or wait with developments that are in the pipeline. But for now, we’re in a growth phase in London. We’re reinvesting our profits, not repatriating them, so currency effects don’t really affect the business. When the London business is generating additional profits and we have to repatriate them, that will change the ballgame.’
While the lights remain green for the UK, the company’s ambitions to expand in Turkey have been parked for the time being due to recent political developments in the country and its uneasy relationship with the European Union. ‘We are keeping the team there but are in wait-and-see mode.’ That said, there is a significant lack of A-class offices in the country, Trenka points out. ‘We are looking for opportunities for our clients in the build-to-suit sector.’
Workplace advisory service
In addition to its sizeable pipeline in all the countries in which it is active, HB Reavis has taken steps to expand into Germany where it opened a franchise in Berlin in 2016 to take advantage of the city’s growing popularity as a high-tech hub. The company’s ambitions do not end there. As part of its ‘Being a trendsetter pillar’ Vision for 2019, in 2016 it launched its first Origameo advisory service for tailor-made workspace solutions and completed the first three end-to-end projects for its new office buildings in Warsaw. And, earlier this year, it launched HubHub in Bratislava and Warsaw, a co-working platform that it plans to roll out in all of its office developments across CEE as well as London in due course.
Trenka claims the Slovakian developer is one of the first in CEE to roll out such an initiative which aims to emulate the success of giants such as WeWork and The Office Group which US private equity giant Blackstone acquired for £500 mln earlier this year. ‘We want to get ahead of the game,’ he explains. ‘We want to create enough scale with this business to serve start-ups as well as scale-ups and traditional clients in all our buildings. We want to support them with facilities like sports and leisure spaces, via value-add management and services like car sharing, concierge and dedicated applications to create a better user experience.’
With a massive development pipeline of €5.7 bn and new initiatives like Origameo and HubHub, HB Reavis is gearing up to more than double its activities in 2017 compared to just two years ago. In that context, the current real estate market in CEE in particular is favourable, Trenka says. ‘The real estate fundamentals are still good, although a lot of people believe we’re already at the tipping point.’ It is hard to call the current cycle, he adds. ‘I wouldn’t say we are at the top of the cycle now, but we had a clearer view of the cycle in 2011. We thought a downturn was coming at the end of 2016 or early 2017, but we are now in the third quarter and everything seems to be going well. There’s still a strong appetite for corporate bonds and interest rates remain very low. The current cycle may well go on for another two years.’
Every market in CEE is in a different phase of the real estate cycle, he notes. ‘Warsaw may be reaching the top of the cycle, but Bratislava, Budapest and Prague are still at the bottom. Opinions on Berlin are divided: some people think it’s already at the top of the cycle, others think it still has a long way to go.’
That said, Trenka concedes it is possible that some projects like Elizabeth House in London may take longer to develop and that would inevitably delay the return on equity. ‘At the earliest, we would hope that development of that project would take five years, but I think seven years is more realistic.’
Not surprisingly given its strong expansion, HB Reavis has seen the number of staff rise dramatically in recent years with an increase of 24% in 2016 alone to over 650. The company has a long-term strategy to hold its developments, or in any case to retain the asset management and reinvest the equity. In fact, in addition to rolling out new projects, it is also in the process of boosting its investment management arm and scaling up its fund management team. As a result, staff numbers continue to grow with several new employees joining the company on a monthly basis. Recruiting and training new staff and integrating the teams is a huge task, Trenka concedes with a grimace. ‘We are growing very fast, that is definitely a challenge.’
PERSONAL PROFILE
Pavel Trenka joined HB Reavis in 2007 and has been responsible for the group’s overall strategy and international expansion ever since. He previously worked as an associate partner with McKinsey & Company and as an investment banker at IB Bank Austria. Pavel is a graduate of The University of Rochester’s Simon Business School in New York, US. The company’s co-founder, Slovak billionaire Ivan Chrenko, served as CEO of the HB Reavis Group from 1994 to October 2013 and is now group chairman.
COMPANY PROFILE
Headquartered in Bratislava, HB Reavis is rapidly becoming one of the best-known developers in Central and Eastern Europe and is also making a name for itself in the UK. Co-founded in the mid-1990s by Slovak billionaire Ivan Chrenko, who remains group chairman, HB Reavis is primarily active in offices and retail developments with a pipeline valued at €5.7 bn. Its standing assets totalled just under €1 bn in September 2017.
