CEE offices proving resilient to hybrid working, says CPI’s CFO

The shift to hybrid working has impacted Central and Eastern European office occupancy less than in Western European markets, according to David Greenbaum, the chief financial officer of CEE-focused CPI Property Group – a factor he says helped it refinance its office portfolio.

Greenbaum told Real Estate Capital Europe that short commute times, better public transport networks and a smaller investment market in business districts of cities such as Warsaw and Prague, relative to cities like London, helped the company secure a €288 million office loan at a time when lenders are generally nervous about the sector.

“People are back in the office in Eastern Europe in much greater numbers than you’re seeing in other places. We are not experiencing the same kind of vacancy that you might see in Canary Wharf, for instance,” he said. “That is not to say there hasn’t been an impact on our office portfolio [from hybrid working] but nothing that causes great concern.”

The office loan, for three of CPI’s office properties in Warsaw, was a five-year facility provided by German property lender Aareal Bank.

The loan financed the 1998-built Warsaw Financial Centre, a 32-floor skyscraper in the Polish capital’s central business district, and Eurocentrum – the largest green-certified office complex in Warsaw, as well as Equator IV, also in the city. The assets are part of CPI’s €2.6 billion property portfolio in Poland – a country that accounts for 13 percent of its portfolio.

In March, Aareal said it was reducing its lending in the office sector after yield-on-debt from its office loans decreased from 7.6 percent to 6.9 percent in 2022. The bank said while there was value to be found in these assets it was “important to be selective”.

“Aareal was able to provide the loan at a margin of 220 basis points and loan-to-value of 50 percent,” said Greenbaum. “These are some of our best properties and they are very well-occupied.”

He added that several investment banks remain interested in lending in Warsaw. “They see what’s going on the office market.”

The occupancy rate across the company’s office portfolio was 89 percent for the first quarter of 2023, having declined to 89.9 percent in 2022 from 91.9 percent the previous year. However, occupancy at the Warsaw Financial Centre is higher, at 93.7 percent, while Eurocentrum is at 94 percent – both properties are among CPI’s top 10 income-generating assets.

Greenbaum says the company, which was founded in the Czech Republic in 1991 by self-made billionaire Radovan Vitek, attributes its success with lenders to having spent a long time “demonstrating that a company from Prague can be just as good as any of the other major names anywhere else in Europe”.

He added: “This was particularly the case when we started borrowing from the international bond markets. So we’ve had a lot of experience explaining to people why real estate in our region is different.

“There is this idea that these markets are riskier because they are emerging but, our dynamics are better. Since covid, we’ve demonstrated how well we run the portfolio. We collected all of our rent during the pandemic.”

Financial package

The company – which has a property portfolio of €20 billion of assets in markets including the Czech Republic, Germany, Austria, Poland, Romania and Hungary – announced Aareal’s financing as part of a package comprising several loans totalling €500 million, on 26 July.

Austrian lender Raiffeisen Bank International issued the company with two loans of €58 million each for residential assets in the Czech Republic and retail in Slovakia, while Prague-headquartered lender CSOB provided €85 million of capital for retail and logistics, also in the Czech Republic.

Greenbaum said of lending appetite for retail that a smaller investment market in the region meant lenders were not “as stressed”.

He explained: “The retail sector in the Czech Republic has only been around for 20 years. There hasn’t been a lot of construction. Unlike in markets like the UK, there isn’t a high street in every town.”

The loans, each arranged with different banks than the incumbent lenders, were secured to help repay €1.6 billion of bridge loans due in May 2023 – debt taken on to fund CPI’s €3.4 billion purchase of Austrian property companies Immofinanz and S IMMO in 2022.

CPI also turned to the capital markets to raise capital. Two days after announcing its bank financing, the company announced a €75 million five-year green bond for its subsidiary S IMMO.

Announcing the news, Herwig Teufelsdorfer, member of the management Board of S IMMO, said the green bond issue was “another step in S IMMO’s long track record of successful bond issues” and was anchored primarily by investors from the Eastern European region.