Lenders key faith in Polish prime real estate

Two financing deals totalling EUR 200 mln during July underscore how the traditionally conservative and risk-averse Polish real estate lending market remains relatively buoyant, at least relative to many of its European peers.

The largest transaction involved Germany’s pbb Deutsche Pfandbriefbank and Unicredit Bank Austria jointly underwriting a EUR 148 mln senior facility to refinance an office, logistics and retail portfolio across Central and Eastern Europe.

The 196,000 m² portfolio comprised 12 assets, with a focus on office buildings in Poland and the Czech Republic: six office buildings located in Warsaw, Katowice and Prague, as well as four logistics assets and two retail properties.

In the second transaction, Bank Pekao - a Warsaw-based bank 59% owned by Italy’s Unicredit Bank - provided a PLN 324 mln (EUR 77 mln) facility to Polish property company Capital Park Group for the construction of the Eurocentrum office complex in the Polish capital.

Deals such as these indicate that there is healthy lending capacity for prime real estates in Poland. Several other large deals are pending but the jury is still out on how the knock-on fall-out from the Eurozone crisis will influence lending in the second half of 2012.

‘We haven’t really felt a major pinch (in lending) here in Poland,’ Tony Pinnell, a Warsaw-based director of property finance at Colliers International told PropertyEU. ‘Major developers and investors say financing deals are taking longer and costing a bit more, but in the context of what we are seeing in Western Europe the situation could be described as okay.’

Nevertheless there is a slight slowdown in lending expected in Poland during the second half of 2012. ‘We will have to see where that goes,’ Pinnell said.

‘In terms of demand from lenders we continue to see liquidity in the prime commercial real estate but it is a question of pricing. Among the lenders we see that their cost of funds have gone up generally, partly because they are facing internal competition with the parent banks choosing where to allocate funds across geographies,’ he said.

A survey conducted by Colliers late last year among 45 lenders to Polish real estate indicated €5 bn of senior financing was provided to core, non-core and development property in 2011. Many of the banks are subsidiaries of non-Polish banks or German banks such as pbb Deutsche Pfandbriefbank, Aareal and Eurohypo.

Asked for a forecast for 2012, 46% of the survey respondents said they expected lending volumes to remain at the 2011 level, and 21% expected more business would be transacted, with 33% saying volumes would likely be lower.

Half the respondents indicated a maximum loan-to-value of 70%, though the general view, Pinnell said, was that LTVs on new and refinanced loans would be lower in 2012.

Pinnell estimates that there are half a dozen financiers active in the Polish market who can lend in excess of EUR 100 mln per transaction. But they are not openly advertising the fact, and each one may have a unique credit policy and sector preference.

The majority of banks are compelled to work in syndicates as the weighed average for individual loans which stood at EUR 50 mln at the end of 2011 has dropped. Banks are also abandoning secondary assets in favour of the security of prime.

That said, distress seemed to be limited in the Polish market. ‘There have been cases of distressed properties but it doesn’t appear to be a phenomenon,’ Pinnell said.

Overall, Poland’s ‘saving grace’ - when judged against other CEE and Western European countries - has been the strength of its domestic economy. This leaves Poland less exposed to its trading parties’ internal problem. In addition, Poland has a healthy import-export relationship with Germany, Europe’s largest economy.

But there are signs of a slowdown, albeit limited, which could effect commercial property. Pinnell: ‘Retailers and occupiers are taking longer to decide about their occupancy commitments and the lenders want the answer before providing funding. It is a sort of a knock on effect.’