In times where the market trends are unpredictable and difficult to estimate, CIJ talks to Jaroslav Mida, Head of Investments at Mint Investments, about investment strategies and the role technology, ESG and EPC play in the modern investment environment.
With regards to ways of identifying promising real estate investment opportunities, Mida told CIJ that, although the main component to look at is âlocation, location, locationâ, the strategy depends on the clientsâ risk appetite.
He stated that, for clients with higher risk appetite, at Mint, âwe really do like a value-added component, where we identify an opportunity, specifically [for] commercial properties, in the past shopping centres and nowadays offices, and really do not worry about getting our hands dirtyâ, meaning that the company is not afraid to invest to improve a property. He mentioned the International Business Center, where Mint invested over âŹ5 Million, Avenir Business Park almost âŹ4 Million, and PalĂĄc Schiller, where they invested more than âŹ3 Million, both properties in Prague which were in âa technologically worse shapeâ, as well as investments where the occupancy/tenancy mix was not ideal in the beginning. âWe are known for the fact that we enjoy acquiring property where the occupancy is lower, so that we really can show our expertise and the internal thinking can get the occupancy higher, which raises the value of the property in the long termâ.
He later added that, to balance risk and reward and be confident that they can deliver the return which is expected by their most aggressive investors, the key is having a good plan and strategy, meaning âa realistic assumption in terms of leasing, in terms of the investment cost, in terms of the timing, so that the investors really know what to expect.â
For clients with a lower risk appetite, who expect a more stable cash flow from the beginning of the acquisition and over the long term, Mida said that they âfocus on a good location, good tenancy mix, long lease and the technological quality of the buildingâ. He also mentioned that a good strategy is to look at the financial parameters, like capital value per square meter, and aim for a lower acquisition value, to obtain a good margin compared to the competition. âIf we can purchase a property for less than what it would have been constructing again from zero then we are in a really good position to realize the upsideâ.
When it comes to developments, given the high landlord prices on the current market, Mida mentioned taking the path of added value again, by purchasing land which is not yet permitted: âwe get a little bit better acquisition price and then put our work, our know-how, our knowledge into the into the property or into the land plots to permit it and then we can realize the upside there at the end of the day, when we either sell it as permitted land or develop it ourselvesâ.
Mida confirmed that Mint Investments, as a long-term investor, never looks at an acquisition as a short-term investment, but rather plans for at least five years as a holding period for offices, rental units, and even 10 years plus for development. âWe believe we are always in a good position if we are not time pressured. I think some investors might want to time-pressure us, but we try to really put focus on the fact that if we stay flexible in the time window, we can really get things done.â Admitting that some projects can end up getting finished earlier than expected, he stressed that development, in particular, is a time-consuming, special discipline: âYou plan with some reserve for a certain amount of time, five to seven years. With our development, you do not have the 100% control that you might have. We believe we have better control over offices and shopping centres, where you know you have to lease out. You have to put in the effort, put in the work, invest. You can plan it accordingly.â
Continuing these ideas about the special nature of investing in development and ways to mitigate risk in this field, Mida said: âGiven its uncertainty, we do not invest external money into that. Itâs always our own money.â Other risk mitigating factors mentioned were choosing not to purchase permitted land, because of its price, and within our residential rental fund always relying on âthe large, stableâ players on the development market, like Metrostav, FINEP or Trigema.
Mida mentioned flexibility and adaptability as the key factors which helped Mint cope with downturns or corrections on the market: âWe do not have a rigid corporate structure. We can make decisions quickly based on the information we receive and, importantly, we can really change the strategy if necessary.â As an example, he talked about two developments, Alfa Residence, in the neighbourhood of StodĆŻlky, Prague, and Metropolis, in Bratislava, for which the company changed strategies very quickly due to the COVID pandemic. âWe were in the final phases of negotiations with two to three parties who were interested to purchase the permitted land plots, and then the COVID hit. That brought a lot of uncertainty, a lot of unknowns and both deals fell through. (âŠ) We decided that if we canât sell it now, then weâll do the hard work and weâll do the development. So basically, within days, we completely changed a strategy, discussed with the JV partner, and started approaching the general contractors and the banks to get the financing, to get the tender offers for construction. (âŠ) At the end of the day, we expect to have even larger profit from that.â
When asked about key aspects to be considered when it comes to exit strategies, the Head of Investments chose timing as the most important factor. âWe really do follow how the market is behaving. And if we feel that the property is ready and really hits the important point, (âŠ) we go to the market. We do not hold on to the property just for the sake of holding on or for the sake of having asset under management.â He also mentioned a constant effort to gather information from agents and other investors to obtain critical data about the appetite and sentiment of the market. In the end, he mentioned flexibility again as being essential for the right decisions in the right time.
The last aspect discussed during the interview was ESG. Mida confirmed that it is becoming more and more important to consider all aspects related to ESG and EPC and added that Mint has an internal technical team dedicated to such aspects. âWe basically created [an] ESG acquisition [due diligence] policy within our company. If the property is certain years old, so at least five plus, we are carrying out a special DD immediately at acquisition. Whereas the DD is focusing more on the technology, on the ESG aspect, on the energy efficiency, (âŠ) how to improve such certification, how much money itâs going to cost to get to such certification.â Once again, he emphasized not being worried about investing in projects which take money and time to bring to a certain level but highlighted the importance of a correct assessment of âall the strengths and weaknesses of each property technology-wise, so then we can plan accordingly directly at acquisition, so that our business plan is as precise as it could be.â
Later, Mida added that, regarding ESG, his company saw the trend coming a couple of years ago and thus âparticipated at that time in the GRESB Real Estate Assessments, as a first Czech real estate company.â He stated that Mint improved every year in this assessment,. He then added that âa really big success for us was that we managed to obtain 100% data gathering. That means that from every single building, we collect 100% of the annual data, ranking amongst the best. For all the media, all the utilities.â Especially for older assets, he mentioned that the company has been conducting detailed energy performance certification studies which show how efficient the individual assets are, an aspect which most banks look at in the current environment. âWe plan to basically finish up the EPC studies this year. And our first goal is to get all the assets at least to the C-level, which we consider is a total baseline where all properties need to be pushed, especially the commercial ones, the offices. (âŠ) And from then on, we can assess whether to push for the level B, which, of course, includes higher and higher investments.â
Interview: ©CIJ EUROPE/RPMG s.r.o
Photo: Mint Investments
