Trophy hunting in Poland

The €370 million senior loan provided in August to refinance the landmark Warsaw Spire office complex illustrates that German banks are determined to lend in Poland, despite market challenges.

Politics in Poland are a destabilising factor for the country’s real estate market. The policies of the populist Law and Justice party government, which slapped domestic lenders with a Banking Tax Act last February, prompted Poland’s central bank to voice concerns about financial stability.

During Q2 2017, commercial property investment transactions in Poland decreased by 33 percent to just over €1 billion, according to Savills. The latest RICS Commercial Property Monitor shows that investors’ sentiment in the country has dropped to minus 1 in Q2, from a positive 19 in Q1.

Meanwhile, the structure of the office market in Warsaw keeps evolving. The largest office projects currently under construction in the Polish capital are HB Reavis’s Varso Place, a mixed-use scheme of 140,000 square metres; Ghelamco’s Warsaw Hub, with 75,000 square metres; and the Mennica Legacy Tower, totalling 63,800 square metres and developed by Mennica Polska and Golub & Company.

A higher supply of offices in the city could represent a challenge for developers to find new tenants, and for banks to finance sufficiently let buildings, Martin Erbe, head of international real estate finance continental Europe at Helaba, tells Real Estate Capital.

“Despite the challenging office market in Warsaw, we wanted to finance the Spire because it is an outstanding, iconic building, in an excellent location, done by Ghelamco, a very experienced developer,” Erbe says.

In a club deal, Helaba, Berlin Hyp and pbb Deutsche Pfandbriefbank jointly underwrote the €370 million debt facility for the complex of three buildings, which totals 115,000 square metres of gross leasable area. The office complex is owned by the European property fund of Ghelamco, which launched in 2016.

“We clubbed with other banks due to the volume of the deal, it’s one of our biggest financing deals so far this year,” Erbe said, adding that Helaba keeps active in Poland, where the bank is “always open to finance good properties”.

Helaba, which acted as facility and security agent for the transaction, has been active in Poland for more than 10 years, while Berlin Hyp and pbb see the country as one of its foreign target markets, in a bid to maintain geographically diversified loan books.

“With a traditionally conservative approach to CRE lending, German banks remain focused on Polish trophy assets,” a market source says.

Margins for CRE senior lending in Poland are in the order of 180 basis points to 240bps, which is considerably higher than Germany. “Poland, however, also represents higher risks: it’s a smaller market, less transparent and with more political instability,” the source adds.

In Poland, lenders put the greatest emphasis on the location and the quality of the asset when analysing real estate financing, says Mira Kantor-Pikus, head of strategic advisory, capital markets at the Polish branch of Cushman & Wakefield.

“Increasingly, lenders consider the financial status and covenants of the borrower to be even more important than an underlying asset,” she says, adding that the debt market in Poland looks stable with lenders remaining positive for 2017.