Wednesday, August 17, 2022

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The real estate market leader about new challenges for the entire sector

Adam Białas talks to Michał Sapota, president of Heritage Real Estate Investments, about the key challenges that are ahead of the market.

Heritage Real Estate Investments is one of the largest players on the residential real estate market in Poland. The company is not a classic developer, but a type of modern investment fund that is active in various business fields, hence its portfolio includes a prefabrication factory, developing the investment market in the real estate sector, HRE Investments, as well as the country’s leading analytical team HRE Think Tank. The gross value of assets managed by this independent holding company operating as a private equity fund already exceeds EUR 1.67 billion  (PLN 8.3 billion) and is growing.

The innovative approach to the real estate sector is not a coincidence, but the result of extensive market experience. The head of Heritage Real Estate Investments is Michał Sapota, who had previously built another giant in the development sector from scratch. Two years later, he returned to the game, and in a big way, as Forbes Polska magazine described – “with a plan to build 10,000 apartments per year.”

The key to the current success was a different approach to building housing. Most companies in this industry put aside capital for years and every year increase their production capacity by several percent, not being able to build 1,000 apartments a year from scratch, unlike HRE Investments. The company’s structure also provided new operational possibilities, allowing for a quick response to market needs.

According to the National Bank of Poland, the value of flats on the Polish market increased by 13.5% in the year and in total amounts to almost PLN 5 trillion. Eurostat data place Poland among the European countries with the highest share of the primary market in the total value of real estate sold. The biggest obstacles to development companies in Poland include the aforementioned lack of investment land, slow administrative processes lasting for years, extending the investment cycle up to 7 years, and rising prices of building materials and labor. The last factor strongly stimulates the development of prefabrication and modular solutions.

Currently, the most important topic is the war in Ukraine. How do you rate the situation?

It is an unlawful, thoughtless and senseless Russian aggression against Ukraine. This is our war, just not in our area. As estimated by the United Nations, up to five million people may flee the country. Mostly mothers with young children who had to suddenly leave their homes before the hell of war. Their husbands fight bravely in the war. Many foreigners work in the construction sector, so the war affects some investments in Poland due to the sudden outflow of Ukrainian workers who have to defend their homeland. This deserves special respect and solidarity. Heritage Real Estate Investments immediately undertook a number of assistance activities, from shipping the most necessary items to preparing a long-term assistance strategy. We certainly will not leave our friends in need. The situation our friends have found themselves in requires specific and decisive action. We extend a helping hand to our neighbors in solidarity. We decided to provide financial support, realizing that this is a drop in the ocean of needs. Europe is not yet aware of the enormity of the pain, suffering and the scale of the devastation. Such enormous solidarity and unification of our peoples is positive. I hope that Ukraine will join the structures of the European Union and NATO as soon as possible.

The construction industry is a measure of the health of a strong economy. Without a doubt, the words “war”, “crisis”, “inflation” and “challenge” will remain the most popular of this year. Exactly a hundred years ago the world was recovering from the worst Spanish flu epidemic in history and in the next decade the worst economic crisis in the history of capitalism took place. Virtually all countries and sectors of the economy were hit and that led to the outbreak of World War II. How do you assess the prospects for this sector in Poland?

In the last decade, the real estate market, both commercial and residential, has gone through a phase of rapid growth. Poland has one of the lowest housing availability rates in Europe, with an estimated 2 million shortages, and one of the lowest average number of rooms per person. Last year, almost 235,000 of new houses and flats was commissioned in Poland. This is the highest result in over 4 decades. It is important to stimulate growth, e.g. by funds from the EU budget for 2021-2027, as well as from the Reconstruction Fund, and this is a total of PLN 770 billion. The situation is very dynamic and multi-factorial. Nobody can estimate the scale of the increase in costs and the decrease in the availability of construction workers yet. We have different scenarios prepared. I think that the situation requires the development of new solutions that will quickly give permanent shelter to the refugees and at the same time allow for the reconstruction of a war-torn country as soon as possible. This will be the biggest challenge of the next decade and we must be ready for it.

In the current situation, we need strong leaders, including business leaders, who will ensure that companies continue to provide jobs and generate budget revenues. After looking at your portfolio several times, you were the first to see what others have not seen. Where do you see the field for activity in the current situation and what are its most important directions?

As I said before, it is important to prepare a few flexible variants. Surely everyone should fully commit to helping Ukraine, there is no time to wait! Two years ago, due to the outbreak of the Covid 19 pandemic, we canceled our presence at MIPIM, our sector’s most important event in Cannes, held in mid-March. Our plan was to present new models of cooperation and the possibility of their implementation in other markets. We will work together to develop this sector, offering investors attractive and diversified real estate-based products. For example, the continued lack of REITs in Poland entails considerable restrictions for potential investors. This business model, which has been working in the United States, United Kingdom and Germany for many years, won’t exist in Poland for a long time. The main problem is the legislative background. It is a pity, because this is a great opportunity to invest in real estate without the need for large savings. This year we decided that we would go to Cannes to support also Ukraine and that the business world, outside of our country, would remember and join in offering much needed aid and charity campaigns. Colleagues from other companies from all over Europe can also help in many ways!

Adam Białas
Adam Białas
construction and real estate market expert, manager and advisor in many projects with over 20 years of experience, business journalist. He also covers financials, (M&A, IPO-WSE, development and financing, Private Equity / VC funds), IT, HoReCa, MICE, digitization, e-commerce and gaming. For many years, he has been cooperating with the leading media in Poland and abroad, with the most important organizations in the sector and international chambers of commerce. Globetrotter, culture and art lover.
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