AGNIESZKA JACHOWICZ_x000D_
MANAGING DIRECTOR _x000D_
BZWBK BANK PROPERTY FUND _x000D_
Would you describe the credit crunch as a serious matter for the property industry? In what way? Is it more or less serious than you expected three months ago? _x000D_
Yes, the credit situation is serious enough to talk about its influence on the property industry. I don’t think that in Central and Eastern European markets it is more serious. Actually, when the whole problem first came to light, it looked very bad as nobody knew its full extent. Now we know that not all the players on the markets are equally affected. Definitely not all the banks are in danger and not all the European markets suffer to the same extent. _x000D_
In what practical ways, if at all, are you seeing the effect of the credit crunch in your work? _x000D_
The first sign is increasing margins by the banks. This, in addition to increased interest rents, is resulting in more expensive and slower financing as banks are also much more careful and diligent. In my opinion, it will lead to a slowdown in property transactions. Higher costs of financing have an impact on returns on the investment which will lead to lower price expectations of the purchasers. This may result in some vendors pulling their products off the markets while others will have to accept slightly lower prices. _x000D_
What will its impact on 2008 be for you? What will it be on the property industry as a whole? _x000D_
As we are not a very aggressive player in terms of leveraging, we do not expect that we will have problems in securing finance. I expect that in the first quarter of 2008 there will be less product on the market. I believe that as banks are now less keen to finance speculative developments, in particular in the residential sector, there may be fewer bidders for land, and the prices will not show an increasing trend any more. Actually, we’re hoping that investors end up being winners as there may besome good deals on the markets as well._x000D_
Is there anything you think governments and/or central banks should be doing? _x000D_
I don’t see much that our government or the central banks in the region could do, as the problem refers mainly to international banks._x000D_
What will the impact be on yields? Will August 2007 eventually be seen as the moment when CEE European property yields stopped falling? _x000D_
I believe that yields have already stopped falling and that the most aggressive transactions are now behind us. In the short-term, meaning the next six months, I would expect a slight decrease in yields._x000D_
_x000D_
MANAGING DIRECTOR, CENTRAL EUROPE_x000D_
JONES LANG LASALLE WARSAW_x000D_
Would you describe the credit crunch as a serious matter for the property industry? In what way? Is it more or less serious than you expected three months ago? _x000D_
The credit crunch has certainly had a serious impact on the property industry. Shares in property-related companies have been hit hard probably an overreaction and due to the uncertainty created in the financial markets this has led to a major slowdown in investment transactions. The highly leveraged players have gone, and the core institutional investors are being much more cautious and adopting a wait and see attitude before making new acquisitions._x000D_
In what practical ways, if at all, are you seeing the effect of the credit crunch in your work? _x000D_
We are seeing a repricing of assets and a slowdown of deals. The repricing was inevitable and will not have a major impact on the prime end of the market, but secondary real estate will be hit pretty hard. However, this would have been justified before the credit crunch. The fundamentals for real estate in CE are still very strong healthy occupier demand, strong GDP growth, increasing rents, continued FDI so the impact on Central Europe won’t be as bad as in the more mature European markets. In fact, we could even see an increase in activity in 2008._x000D_
What will its impact on 2008 be for you? What will it be on the property industry as a whole? _x000D_
The worst position for a real estate adviser is when the markets are static. We can generate revenue in both a rising and falling market but not when the markets sit on the fence. As a company, we’re still optimistic for Central Europe in 2008, and we’re forecasting further growth in all sectors._x000D_
Is there anything you think governments and/or central banks should be doing? _x000D_
When lenders start aggressively competing against each other and cutting margins, relaxing their lending criteria and providing loans to people who can afford to repay them, then it’s only a matter of time before there’s a meltdown property prices can’t rise forever. In addition, as financial instruments become ever more complicated and are more and more difficult to value, then again this will eventually lead to major problems. I believe there should be more legislation in place and regulations enforced on lending practice._x000D_
What will the impact be on yields? Will August 2007 eventually be seen as the moment when CEE European property yields stopped falling? _x000D_
Yields will soften, particularly for secondary assets. However, with rental growth forecast across all sectors, then capital values may not be so adversely affected. You can’t look at yields in isolation to benchmark the state of the market. _x000D_
_x000D_
JAROSLAW WNUK_x000D_
SENIOR ASSOCIATE, INVESTMENT AND DEVELOPMENT_x000D_
KING STURGE WARSAW_x000D_
Would you describe the credit crunch as a serious matter for the property industry? In what way? Is it more or less serious than you expected three months ago? _x000D_
The credit crunch has affected the property industry most significantly in investment areas. I see some minor influence on the development market and very little, if any, influence on the leasing market. The investment market has slowed down a bit due to a reluctance by commercial banks to lend money on the terms which they did in the past. We see banks being very cautious these days, which affects the approach of investors and funds._x000D_
In what practical ways, if at all, are you seeing the effect of the credit crunch in your work? _x000D_
Investors are facing some difficulties in obtaining satisfactory financing. Some banks are trying to find ways to withdraw from transactions they committed to, or they are revising term sheets. It affects the profitability on a transaction for investors, who are now coming back more often to the vendor to renegotiate the deal. A few transactions have fallen through recently because of the above-mentioned circumstances._x000D_
What will its impact on 2008 be for you? What will it be on the property industry as a whole?_x000D_
It might happen that we will be less busy at the beginning of the year, however, there is a considerable group of investors who use external financing at the level of 50 to 60 percent of the transaction volume, and these funds will be the preferred clients for commercial banks which would like to stay cautious for a while. The market will develop, presumably at a bit slower pace, but the show must go on._x000D_
Is there anything you think governments and/or central banks should be doing?_x000D_
Governments and central banks are not very interested in the commercial part of the market. Looking at the residential market, commercial banks have already started increasing profit margins and interest rates to keep the healthy balance between granted credits and received deposits._x000D_
What will the impact be on yields? Will August 2007 eventually be seen as the moment when CEE European property yields stopped falling?_x000D_
In general, yields were stable throughout 2007. I would differentiate between prime properties and secondary properties; the former will remain stable as there is a demand for high-quality product, while the latter might be affected as banks will be less interested in putting money into more risky properties. This will result in a small revaluation of this type of property._x000D_
_x000D_
MALCOLM R. MORGAN_x000D_
MANAGING DIRECTOR_x000D_
DEGI_x000D_
Would you describe the credit crunch as a serious matter for the property industry? In what way? Is it more or less serious than you expected three months ago? _x000D_
We face a credit crisis and not a property crisis, especially not for the commercial property sector. According to our real estate research, the property market fundamentals for commercial real estate are sound. Therefore pricing levels in principle will remain more or less at current levels. That means that property investors are only affected when it comes to their debt financing opportunities and conditions. Generally speaking, the financial markets discovered quite a few subprime credit risks, and the credit crunch will accompany markets a bit longer than expected._x000D_
In what practical ways, if at all, are you seeing the effect of the credit crunch in your work? _x000D_
For DEGI, we see a very positive effect, as competition for high-quality properties has been considerably reduced as highly-leveraged buyers have drawn down most of their acquisition plans. As a consequence, as more of an equity financing player, DEGI has better opportunities to make good investments._x000D_
What will its impact on 2008 be for you? What will it be on the property industry as a whole?_x000D_
Due to the temporary and partial exit of leveraged buyers, we will definitively have a larger choice of properties around the globe. Our debt financing situation as an open-ended fund provider has been very stable since this summer, if not improved._x000D_
Is there anything you think governments and/or central banks should be doing?_x000D_
It was good that the central banks injected some liquidity to prevent a deterioration of the perception of crisis and to keep the interbank credit markets going. The roots of this subprime credit crisis lie in the fact that it has nothing to do with central banks and governments, but with the risky policy of some banks in assigning home loans in the US._x000D_
What will the impact be on yields? Will August 2007 eventually be seen as the moment when CEE European property yields stopped falling?_x000D_
DEGI’s buy-side property research expects the yield compression trend to come to an end in 2008. This should also be the case for most of the CEE markets. Property fundamentals will be the most important factor for pricing, now more than ever._x000D_
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PÉTER SZÁMELY_x000D_
CHIEF OF REPRESENTATIVE OFFICE_x000D_
EUROHYPO BUDAPEST_x000D_
Would you describe the credit crunch as a serious matter for the property industry? In what way? Is it more or less serious than you expected three months ago? _x000D_
It’s difficult to judge, but it seems the wave of the credit crunch has arrived on the shores of Hungary. There are some investment transactions going on, and these transactions are supposed to be completed by the end of the year. And we’re monitoring these transactions because they tell us how the market is reacting at the moment. Eurohypo is already affected, because we are across Europe; and we know that this is coming, so we’re already preparing ourselves for this. _x000D_
In what practical ways, if at all, are you seeing the effect of the credit crunch in your work? _x000D_
We do see it, because we have fewer transactions. There is less interest for investment transactions than there was, say, six months ago. For example, if a building came to the market six months ago, there were 15 potential buyers. Now there are five, and usually three of the five pull out because of the lack of financing. We see that something is coming, we are preparing ourselves for it, but we don’t know how serious it will be. Hungary is a small country, so it cannot insulate itself from this at all. _x000D_
What will its impact on 2008 be for you? What will it be on the property industry as a whole? _x000D_
I think 2008 we will see more of the effects. Usually, I’m optimistic, but I’m not very optimistic for 2008. _x000D_
Is there anything you think governments and/or central banks should be doing? _x000D_
I don’t know what the government can do, because the [Hungarian] government has its own task. It’s a very complex question. Our national currency is the forint, and real estate transactions are mainly carried out in euros. So I don’t think the National Bank can do anything. The central government can do all sorts of things, like taking care of the macro-economic government, or how attractive Hungary will be for foreign direct investments. I think the European Central Bank has already maintained the interest rates, meaning it hasn’t increased them, which is good. I think the expectation before this credit crunch was that the base rate of the euro will go up, but we have stable margins. But now you have just the opposite. The European Central Bank reduced the base rate and margins went up. _x000D_
What will the impact be on yields? Will August 2007 eventually be seen as the moment when CEE European property yields stopped falling? _x000D_
That’s a good question. We all want to know this. If prices go down, it will only be evident if there are actually vendors on the market who want to sell for those prices. Inevitably, vendors or potential vendors will decide to keep the properties, so it won’t be obvious that prices have fallen, so it’s very tricky. But if you look at the number of transactions, it may be far smaller than last year or the beginning of this year. _x000D_
_x000D_
DOUGLAS NOBLE_x000D_
DIRECTOR_x000D_
ORCO PROPERTY GROUP WARSAW _x000D_
Would you describe the credit crunch as a serious matter for the property industry? In what way? Is it more or less serious than you expected three months ago? _x000D_
It is of course a very important matter which we must monitor. The effects of the credit crunch have influenced changes in the CEE property industry, particularly of course the behavior of banks and their appetite for risk. Following the recently-announced results of some of the main players in the banking sector, and the subsequent dismissal of high-level banking executives, it would seem that the matter is more serious than first anticipated. At the same time, we should beware not to be carried away on the wave of concern, which now seems to exist in the marketplace. We should monitor and adapt ourselves according to the effects of the credit crunch, and not panic. _x000D_
In what practical ways, if at all, are you seeing the effect of the credit crunch in your work? _x000D_
As a development company, we already see the financiers of real estate developments taking more time to carefully identify and consider risk. Local financing approvals now take more time as the due diligence process is extended, particularly where the approval is sought from one of the leading international banks who require approvals issued abroad. _x000D_
What will its impact on 2008 be for you? What will it be on the property industry as a whole? _x000D_
We don’t concern ourselves with respect to debt financing of our projects the banks will take more care, but we are confident that our track record, financial strength, long-term vision and reputation for quality product will ensure that the banks will finance us, rather than our smaller, inexperienced competitors. We are closely monitoring how banks are treating private customers who require mortgages as residential developers, we are reliant on the good availability of financing for our potential clients in order to sell our products. _x000D_
_x000D_
FELIX V. EVTUSHENKOV_x000D_
PRESIDENT_x000D_
SISTEMA-HALS_x000D_
Would you describe the credit crunch as a serious matter for the property industry? In what way? Is it more or less serious than you expected three months ago? _x000D_
Certainly the credit crisis is affecting Russia as well, and although the efforts made by the Russian government have smoothed the negative effect, one can observe a certain increase in the cost of financing. The unavailability of money and the deterioration of conditions have resulted in increasing equity participation in project financing and a reconsideration of some investment programs. _x000D_
In what practical ways, if at all, are you seeing the effect of the credit crunch in your work? _x000D_
Sistema-Hals has a good track record as a trusted, rated borrower and as such has not been adversely affected by the crisis. Moreover, with risk-averse investors looking for more secure investments, Sistema-Hals is seen as an attractive proposition. Nevertheless, we do see the negative trend in the credit terms and conditions that many banks are offering, which simply means we have to put more effort into attracting financing at acceptable terms._x000D_
What will its impact on 2008 be for you? What will it be on the property industry as a whole? _x000D_
Overall, we expect less leverage for our projects in 2008, and higher rates, which is likely to result in minor increases in project budgets. We expect that the number of development projects will decrease, or at least that developers will postpone the execution of less attractive projects._x000D_
Is there anything you think governments and/or central banks should be doing? _x000D_
Governments and central banks have already undertaken certain steps to facilitate interbank borrowing and availability of money to support liquidity. _x000D_
What will the impact be on yields? Will August 2007 eventually be seen as the moment when CE European property yields stopped falling? _x000D_
We can’t point to CEE as a whole, as the trend in Russia differs. Within Russia, despite some increase in the cost of financing, the growth of cost for real estate across every segment offsets the increase of the percentage. _x000D_
_x000D_
MATTHEW GILPIN_x000D_
CHIEF EXECUTIVE_x000D_
EMAC CUPITAL_x000D_
Would you describe the credit crunch as a serious matter for the property industry? In what way? Is it more or less serious than you expected three months ago? _x000D_
Yes, it is serious, because confidence has been dented in continued growth, and debt can be harder to obtain. However, it’s less serious than expected three months ago. Deals are still happening, and we see investors with liquidity [who are] happy to invest._x000D_
In what practical ways, if at all, are you seeing the effect of the credit crunch in your work? _x000D_
In raising our latest fund, we found that short-term fears of a property correction amongst some investors meant they didn’t participate, but we have also seen a great deal of excitement amongst some investors seeking cheaper assets who see this as a clear opportunity. Most interestingly, we have seen investors moving to emerging markets as a defensive play fed up with Western European markets’ low expected returns. In the UK, in particular, there is diminished investor confidence that debt will be available for emerging markets such as Central and Eastern Europe, but there’s plenty of appetite regionally (Austrians, Greeks, Russians, etc.) and from the Middle East._x000D_
What will its impact on 2008 be for you? What will it be on the property industry as a whole? <
