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1992-2012

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VOL. 20, NUMBER 21 NOV 05, 2012 – NOV 15, 2012

Budapest Business Journal

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BLOG I O F R E G A E D N B A C K

It is possible to live on blogging, although it requires conscious efforts and professional excellence. The key to success is building a well-founded business model with the right revenue sources. PAGE 10

Mixed signs on the market The years after the crisis have brought significant changes to the office market. Deteriorating sources of financing, growing vacancy rate and decreasing rental fees all lead to remarkable market consolidation.  13

SPECIAL REPORT

Skeletons outside the closet The real estate industry traditionally focuses on minimizing risks, but at times, things go inevitably wrong. Our list of infamous property development blunders illustrates the scar bad business decisions can leave on the city’s face.  20-21

Q&A

Know your customer! Péter Szentirmay, Hungarian Credit Management Institution  07

Q&A

Our chief weapon is flexibility Gábor Székely, Appeninn Holding

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Hungary slips to 54th place in Doing Business ranking Know your customer!

04 07

Aiming for an ‘A’ Altera management aims to turn the crisis into new opportunities. Q: Why did you choose such a turbulent time to float Altera’s shares on a bourse with a continuously falling turnover? A: When we made that decision last year, we had the feeling that this is exactly the right moment for listing, as the crisis has opened many previously closed doors for us. We believe that there are instruments which are deemed lower risk and offer higher yields, such as the relatively secure corporate bonds. As to why we have chosen the Budapest Stock Exchange, because of its proximity, regulations, and personal contacts. In my view, the BSE in its current state is not suitable for floating bigger firms as liquidity is low, and foreign investors are leaving while Hungarian institutional investors and local private investors cannot generate sufficient demand. However, it could provide a great market entry for smaller companies worth a few billion forints. Q: Does this mean that you are considering a foreign listing later? A: We certainly do not rule out a foreign listing in a few years’ time. Q: In view of the E-Star story, Hungarian investors might not be too keen on corporate bonds, which is one of your asset classes. A: Seeing a weak lion does not mean the all the lions are weak. The crisis combined with certain government measures causes problems all over the world. However, the corporate bond market is a huge one with a large number of instruments, and although we focus on regional securities, we think globally. While we would have picked U.S.

government securities versus U.S. corporate bonds before the crisis, this choice is not so obvious any more. The securities of a company, like Microsoft or Nestlé, which are independent from the U.S. economy as they are present in many other countries, might be more stable than U.S. government securities and offer higher yields at the same time. Nevertheless, we have not invested in E-Star bonds at all. We always do our homework by analyzing stability of the issuer of the bond we invest in to reduce risks. Q: In the case of E-Star, not many analysts recognized the risks embedded in the company’s operations. Did you? A: I am not saying that we are cleverer than other investors, but we are certainly more flexible. Let me give you an example. No matter what, a mutual fund, which is targeted at Hungarian assets, has to invest in local bonds and stocks, even if the fund manager sees higher risks in a particular security, and has no other choice than investing in it, because of diversification limitations. This is due to the specific rules on investment funds and the limited range of products in the Hungarian market. That is why several other institutional investors are stuck now with E-Star bonds and stocks. Because of the different legal form, we do not have this kind of pressure on us. We can behave like a simple bank deposit in one moment, and like a U.S. or Chinese equity fund, or a Central European bond fund, or even the combination of all those in the next. These changes can be done very quickly. While our hands are not tied in that respect, we have strict asset allocation rules determining, for instance, the minimum size of issuers of those whose instruments we invest in, which is at HUF 50 billion. In

BACKGROUND

CURRICULUM VITAE Economist, founder and chairman of Altera, Barnabás Szabó was among the top ten of the WorldTopInvestor trading competition in 2010. He has more than ten years of experience in the financial sector. Before setting up his own financial businesses, he worked at insurance companies Union and Axa. As Altera’s chairman of the board, his primary responsibilities are strategic and operational management. His secondary responsibility is to verify the implementation of the investment strategy.

addition, Altera invests only up to 2% of the company’s own funds in stocks issued by a single issuer. In the case of bonds, this proportion is a little higher. While a portfolio manager at an investment fund has to follow 200-300 securities in 30 or 40 portfo-

lios, we can focus on our single portfolio, which consists of about 10-20 securities. Another problem with investment funds is that they have to avoid panic by retail investors, which could result in massive withdrawals from the fund, at any costs. Therefore, portfolio managers are highly risk averse in order to minimize losses. As we issue stocks rather than investment certificates, we do not have to worry about potential withdrawals, which could adversely affect the implementation of our investment strategy. Q: How do you compete with the currently very popular absolute return funds? A: Our strategy is similar to those of absolute return funds in some ways, but both our legal model and our story are different. An investment fund has to comply with the Capital Markets’ Act and the regulations on investment funds as well as with strict allocation limits. While the fixed annual fee of such funds is

around 2-3%, ours is expected to be approximately 1%. In addition, while portfolio managers are employees of the company they work for with a fixed monthly salary and maybe a year-end bonus, we are the owners of Altera without any salary, so if we do not make returns, we do not get any payment either. In my view, most absolute return funds are not transparent enough. A client of ours described a well-known Hungarian absolute return fund as a ‘black box’. These funds are often strongly depending on the decisions of one single portfolio manager. In turn, our investment strategy is highly transparent; we always explain what we buy, when and why. I believe that there is room for investment companies like ours both in the Hungarian and the Central European market. In the United States, there are dozens of public investment firms like ours including that of Warren Buffet. The construction is the same, the billionaire’s salary is only $100,000 a year, as most

Investment company Altera, established in January 2012, is about to list its shares on the Budapest Stock Exchange pending the approval of financial authority PSzÁF. This is not just another technical listing but a real IPO, where the board hopes to raise shareholders’ equity to over HUF 2 billion. Three or four years after the IPO, the company aims to apply for category ‘A’ listing at the BSE and to have its shares included in the bourse’s blue chip BUX basket. The company’s investment strategy, the so-called Altera hybrid model, combines various asset categories, such as corporate bonds, growth stocks, high dividend yield stocks and bonus certificates. Altera keeps its cost levels low by not paying salaries and allowances to management. Instead, they are compensated by a netprofit success-based fee mechanism.

of his wealth comes from his Berkshire Hathaway stock. Q: There is already another investment company in the BSE, Plotinus, which was listed on the BSE in February 2011. A: The main differences between the two companies lie in their respective investment strategies and size. While Plotinus’ shareholders’ equity is at more than HUF 700 billion, we target more than HUF 2 bln after the IPO and we aim to increase that to €100 million (HUF 28.1 bln) over the next five to six years. GL


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QUOTE OF THE WEEK

But it was worth it! We did it! The economy is solid, the crisis is over. NATIONAL ECONOMY MINISTER GYÖRGY MATOLCSY AT A MEETING WITH AMCHAM HUNGARY REPRESENTATIVES

NEWS FOR THESE PAGES IS TAKEN FROM THE BUDAPEST BUSINESS JOURNAL’S DAILY BRIEFING, HUNGARY A.M.

Opposition protests as new regulation introduces voting pre-registration

Photo: Tamás Kovács/MTI

MPs of liberal LMP threw thousands of blue tickets on the heads of Fidesz MPs on October 29, as the two-thirds majority have greenlit an amendment to the Hungarian Constitution that ties the right to participate in the general elections to a pre-registration process. LMP representatives demonstrated against the decision referring to the 1947 “blue ticket” elections, where the communist party (MKP) swept the board by manipulating the lists of registered voters and other fraudulent tactics. The 1947 elections were among the last strategic steps towards the dictatorship of the communist party that ended in 1989.

ECONOMY CENTRAL BANK CUTS RATES FURTHER TO 6.25% The National Bank of Hungary’s Monetary Council decided on Tuesday to cut the central bank’s key base rate by 25bp to 6.25%, effective October 31. The rate reduction was the third 25bp cut in a row. Before the cuts, the base rate was unchanged at 7.00% between December 2011 and August 2012. The move came as little surprise to analysts who thought it likely the Council’s external members would again outvote the MNB governor and his deputies. The four external members voted for cutting the base rate at the previous two rate-setting meeting while MNB governor András Simor and his two deputies voted to keep the rate on hold. Speaking at a press conference after the meeting, Simor said the council voted on two options: one to keep the rate on hold and the other to cut it by 25bp. After a debate, the latter proposal was supported by a “narrow majority”, he said.

GKI LOWERS GROWTH FORECAST FOR 2013

HUNGARY TO TAKE OVER CREDIT FROM DEBT-LADEN MUNICIPALITIES

Economic research company GKI expects the Hungarian economy to stagnate in 2013 after a 1.5% decline this year, lowering its GDP growth forecast from 0.8% due to recently announced austerity measures. GKI said the government’s latest fiscal adjustment package, which includes tax hikes, and particularly the postponement of the scheduled halving of the special bank levy, greatly deteriorates the business climate. The adverse effects of the adjustments on lending and demand more than offset the positive impact of a recent job protection action plan that will make employment of specified employee groups cheaper, the researchers said. According to GKI, inflation is expected to accelerate to 5.5% as an annual average, slightly down from 5.9% this year. Real wages could fall 1.5% and consumption is expected to decline 1%. GKI expects investments to decline further, at a pace of 2%. Employment is also expected to shrink further in the business sector.

Hungary’s central government will take over HUF 612 billion of local council debt to ease the burden on municipalities and avoid a breakdown in their operations. The government will consolidate the entire debt load of the 1,700 municipalities that have 5,000 inhabitants or less, amounting to HUF 97.3 billion. The central budget will also take over some debt from larger local councils totaling HUF 515 billion. Hungary’s 3,200 local councils are struggling to repay their debt, much of which is denominated in Swiss francs, after the forint weakened and a grace period on bond principal repayments ran out in 2011. Municipalities have increasingly borrowed in foreign currencies since 2007 after the government reduced funding to cut the budget deficit, which in 2006 was the widest in the European Union at 9.3% of economic output.

NO NEW DATE FOR IMF TALKS WITH HUNGARY, BUDAPEST REP SAYS The International Monetary

Fund has no date for its next round of talks with Hungary on a financing backstop, its representative in Hungary said. According to Iryna Ivaschenko, “There are no dates yet for the negotiation mission to return to Budapest.” She added that latest round of fiscal adjustments announced by the government went against the IMF’s earlier recommendations. “As we stated before, we believe that the focus of fiscal adjustment should be on achieving a more balanced consolidation, shifting away from ad hoc tax measures,” she said. “This will help reduce the budget deficit in a sustainable manner and, when combined with structural reforms, generate higher and more inclusive growth. Several of the measures announced last week are not aligned with these objectives,” she added. Anonymous sources note that IMF officials found it insulting that the government has launched an antiIMF campaign in Hungarian media exactly when the government’s head of IMF negotiations, Mihály Varga, was to continue talks with the organization in Tokyo.

HUNGARY SLIPS TO 54TH PLACE IN DOING BUSINESS RANKING Hungary has slipped to 54th place on the World Bank’s latest Doing Business ranking from 51st a year earlier. The ranking gauges regulations that enhance or constrain business. The World Bank said that Hungary made starting a business more complex by increasing the registration fees for limited liability companies and introducing a new tax registration scheme. On the other hand it improved access to credit information by passing its first credit bureau law, mandating the creation of a database with positive credit information on individuals. In the area of taxation, Hungary made paying taxes easier for companies by abolishing the community tax, the World Bank said. At the same time, Hungary increased health insurance contributions paid by the employer, it added. Hungary reduced the time to export and import by allowing electronic submission of customs declarations and other documents, the bank said.

GOV’T DEFICIT TARGET REMAINS AT 2.7% DESPITE ADDITIONAL FISCAL MEASURES Despite the additional budget correction measures announced in mid-October, the target for the 2013 general government deficit has remained unchanged at 2.7% of GDP, the National Economy Ministry said in a statement. The government upped next year’s deficit goal from 2.2% of GDP when announcing a HUF 397 billion fiscal adjustment package as part of Hungary’s Excessive Deficit Procedure in early October. Citing unfavorable European Commission response as to the effect of the first package, it announced additional budget correction measures worth HUF 367 billion a week later. The two packages do not overlap and thus amount to a combined budget improvement of HUF 764 billion, the ministry said.

EC TURNS TO COURT OVER HUNGARY TELCO TAX The European Commission (EC) has turned to the European Court of Justice regarding Hungary’s extraordinary telecommunications sector tax. The Commission


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sent a letter of formal notice to Hungary in June concerning the “crisis tax” that has been levied on telecommunications companies since 2010. The letter was sent after a careful review of complaints by foreign companies from other European Union member states that the taxes were discriminatory, an EC spokesperson said at the time. Hungary had two months to provide further information on the tax. The Commission earlier expressed concern that the telco tax was levied to cover costs other than administrative and regulatory costs related to the telecommunications sector and was therefore incompatible with EU telecom rules. The National Economy Ministry said after the court’s announcement that Hungary could well defend its stand on the matter as the dispute is about a tax, not a charge. If the Commission takes an unfavourable decision on the matter, Hungary would have to refund about HUF 160 billion in tax, but the amount would not show up in this year’s budget, the ministry said.

LIQUIDITY SITUATION IS CRITICAL FOR HUNGARIAN BUSINESSES About 27% of Hungarian companies now say their liquidity situation is “critical” or “very critical”, up from 18% a year ago, a survey by consultancy Roland Berger shows. The percentage of companies that gave the same assessment to their liquidity situation across Central and Eastern Europe rose to 19% from 14% during the period, according to the survey.

BUSINESS TELENOR MAGYARORSZÁG EARNINGS DROP ON TELEPHONE TAX Telenor Magyarország’s third-quarter EBITDA fell 20% to HUF 12.2 billion from the same period a year earlier because of a recently introduced tax on telephone calls and text messages, the mobile telecommunications company said. Telenor Magyarország said it paid HUF 2.5 billion on the telephone tax – introduced in July – and an additional HUF 2.4 billion on the telecommunications sector “crisis tax” in Q3. The combined amount was equivalent to 12% of revenue during the period, it added. Revenue edged down 3% to HUF 40.5 billion because of a reduction in call termination fees from January. The company had 3,458,000 sub-

scribers at the end of September, 13,000 more than three months earlier. Based on SIM cards in use, the company’s market share edged up to 31.47% from 31.38%. Its share of the mobile internet market reached 28.89%. CAPEX rose by HUF 800 million to HUF 3 billion in Q3 from the same period a year earlier.

PANNON PULYKA AND SÁGA FOODS TO LAY OFF 400 WORKERS Poultry meat companies Pannon Pulyka and Sága Foods will lay off 400 workers in Hungary because owner Bernard Matthews Holdings’ is reorganizing its companies in the country, Saga Foods said in a statement. Bernard Matthews Holdings plans to further develop its profitable processing activities, while eliminating its loss-making animal husbandry operations, Sága Foods said.

TEN NEW VENTURE CAPITAL FUNDS TO START OPERATING BEFORE YEAR-END Ten new venture capital funds can start operating before the end of this year, supporting innovative micro-, small and medium-sized businesses with funds of HUF 41 billion, the National Development Agency (NFÜ) told MTI, announcing the results of tenders called as part of the New Széchenyi Venture Capital Programs. The programs are co-funded by the European Regional Development Fund. NFÜ received 33 applications from 21 businesses to the two tenders called in the summer with a limit of HUF 28.5 billion. According to the tender invitation, the fund management companies must draw in a minimum of 30% in private funding. These funds will add up to the HUF 41 billion limit, the statement said.

GE TO START LED PRODUCTION IN HUNGARY BY YEAR-END GE Lighting will start production of LED lights at its plant in Nagykanizsa this quarter, GE regional chairman-CEO Phil Marshall said. Parts for the LED lights will come from GE’s plant in nearby Zalaegerszeg, Marshall said. Three years earlier, GE announced mass layoffs at its lighting business in Hungary because of a European Union directive phasing out conventional, low efficiency lighting by 2013.

WIZZ AIR WINS MALÉV SLOTS TO ISTANBUL, ANTALYA, MOSCOW Hungary’s no-frills airline Wizz Air has announced that the Civil Aviation Authority granted the carrier the right to fly from Budapest to Antalya, Istan-

bul and Moscow. The approval becomes final once the diplomatic procedures are concluded and the relevant Turkish and Russian authorities greenlight the decision. As soon as the approvals from Turkey and Russia are received, Wizz Air will start selling tickets to the above destinations at once, the airline said in a statement.

METRO REBRANDS SATURN STORES IN HUNGARY Germany’s Metro group is rebranding its Saturn electronics stores in Hungary, turning them into Media Markt units from November 1, Media Markt Saturn Holding Magyarország told Penzcentrum.hu. The move is part of a rationalization strategy, Media Markt managing director Csongor Németh told the business news portal. There were 16 Media Markt stores and five Saturn stores in Hungary at the beginning of this year.

FINANCIAL MARKET WATCHDOG FINES ING FUND MANAGER FOR ILLEGAL CHARGES Financial market regulator PSzÁF has fined ING’s fund manager HUF 200 million for illegally charging members of its voluntary and private pension funds several billion forints. PSzÁF instructed ING to comply with regulations on fund management. The fund members were refunded the charges by the end of September under an earlier court order.

HOME PRICES COULD STOP FALLING THIS YEAR About 70,000 residential properties changed hands in January-September 2012, almost 10% more than in the same period last year, according to market-leading real estate broker Otthon Centrum (OC). For the entire year 2012, OC however projects a total of 90,000 transactions only, similar to last year’s number, predicting that the decline in home prices will come to a halt this year. The number of home sales transactions was 40% up in the first quarter of 2012 in Hungary from a year earlier due to early forex mortgage repayments, OC said in a statement. Later in the year the number of home sales fell steadily. In January-September 2012, prices were still down from a year earlier, however, looking at the quarter-on-quarter changes this year, the decline is far smaller. Prices of existing non-prefabricated homes fell minimally in Budapest, while rising slightly

in the countryside between the past two quarters, and prices of prefabs remained stable.

FIAT GROUP TO MERGE REGIONAL UNITS IN BUDAPEST The Fiat Group will merge its Hungarian, Czech and Slovak brand offices into a new Budapest-based company in January 2013, the company told national news agency MTI. The new regional center will represent all Fiat brands in the region under the name Fiat Group Automobiles Central and Eastern Europe.

ORANGEWAYS-CITY UNDERBIDS VESZPRÉM BUS SERVICE PROVIDER Hungarian-owned bus company Orangeways-City stands to win a tender to provide services for the city of Veszprém (NW Hungary) after underbidding the current service provider, business daily Napi Gazdaság reported. OrangewaysCity’s bid was lower than that of the Balaton Volán, which currently provides the city’s bus services, the paper learnt. OrangewaysCity said it would use 45 new compressed natural gas-fueled buses for the 2.2 million kilometer a year contract, the paper added.

BSE FINES KREDITJOG AND HUN MINING FOR FAILING TO PUBLISH REPORTS The Budapest Stock Exchange (BSE) has fined property development and operation company Kreditjog HUF 1.5 million and asset-management company Hun MINING HUF 1 million for failing to publish their required financial reports, BSE CEO Zsolt Katona announced on the exchange’s website. Katona called upon Kreditjog and Hun MINING to publish their 2012 first-half financial reports and for the latter company to publish its H1 interim report or corresponding quarterly report as well pursuant to BSE regulations. Both Kreditjog and Hun MINING are category B issuers at the BSE.

DOMESTIC BUDAPEST TRANSPORT COMPANY TO RAISE PUBLIC TRANSPORT FEES 5-8% NEXT YEAR The Budapest Transport Company (BKV) plans to raise public transport fees 5-8% in 2013, according to daily Magyar Nemzet. The newspaper said that the Budapest Public Transport Center (BKK) would submit various proposals regarding

a hike in public-transport fares to the Budapest Council. Magyar Nemzet noted that Budapest mayor István Tarlós and Budapest Transport Company CEO Dávid Vitézy have both cited the need to raise public transport fees in 2013, the first such increase in three years, to compensate for their 15% real-term price decline over that time.

ONE DEAD IN CAR CRASH WITH HUNGARY PM AIDE One woman has been killed in a car crash involving a senior aide to Hungarian Prime Minister Viktor Orbán on a motorway south of Budapest. Police spokesman Tamás Nyikos told private broadcaster InfoRádió that the driver of the other car involved in the accident on motorway M5, 109 kilometers southeast of the capital, died at the scene. “A young woman driving the car was injured so severely that ambulance services could not help her, she died on the spot,” Nyikos said. He said police were unaware of any further serious injuries in the crash near the town of Kecskemét. The government spokesman’s office confirmed that head of Orbán’s office, János Lázár was involved in the crash, giving no further details.

HUNGARIANS WATCH MORE THAN FOUR HOURS OF TV A DAY Hungarians watched on average four hours and 21 minutes of television a day in the third quarter, data compiled by market research company Nielsen show. Nielsen’s gauge of viewing habits showed the share of viewership enjoyed by public broadcasters rose three percentage points to 15.4%. The share of the two biggest commercial broadcasters fell more than five percentage points to 31%.

MINISTER APPOINTS COMMISSIONER FOR BORSOD COUNTY ECONOMIC DEVELOPMENT National Economy Minister György Matolcsy has appointed Roland Mengyi to serve as ministerial commissioner coordinating the economic development of B or s o d-A b aúj-Z e mplé n county, a resolution published in the official gazette Magyar Közlöny reveals. The new ministerial commissioner’s mandate is from October 15, 2012 until April 14, 2013. Roland Mengyi is an MP of the governing Fidesz and chairman of the B or s o d-A b aúj-Z e mplé n County Council. BorsodAbaúj-Zemplén county is one of the most economi-

cally underdeveloped areas of the country, with very high unemployment rates.

FIDESZ TO OFFER PREFERENTIAL IMMIGRATION TREATMENT TO FOREIGNERS WHO BUY HUNGARIAN BONDS The ruling Fidesz party has submitted an amendment seeking to grant the opportunity of settling in Hungary to foreign investors. Under the bill, submitted by Fidesz group leader Antal Rogán, as well as Fidesz MPs Mihály Babák and Krisztián Kapus, people from outside the European Union would be ensured preferential treatment in obtaining Hungarian citizenship and a permit to settle in the country if they or a company they are the majority owner of buy equities issued by Hungary’s state debt management center ÁKK worth €250,000 or more. The bill “ties granting citizenship to a purchase of state bonds in an effort to contribute to state financing. Further direct investment by those applying for this form of settling in Hungary will boost domestic real estate markets, commercial activities and the investment market”, the signatories wrote in their reasoning to the motion.

NINE-TO-FIVERS GET LITTLE WORK DONE ON SATURDAYS Hungarian companies that usually operate during normal weekday business hours get little done on Saturdays that replace a workday between a holiday and a weekend, according to an analysis by Bank Quarter Business Center. About 71% of managers and staff surveyed at 500 businesses said little is accomplished on these “workday” Saturdays. Few staff show up on these days, and those that do usually leave early. About 31% of those surveyed said the cost of operating on such days is not worth the business generated. Some even require staff to take a day off. There are five such workday Saturdays in Hungary in 2012.

SUMMER TIME SAVES HUNGARY POWER FOR 30-40,000 HOUSEHOLDS Data from Hungarian power transmission-system operator Mavir indicates that the switch to Summer Time saves enough electricity to meet demand for between 30,000 and 40,000 households in Hungary, Mavir CEO Zsolt Bertalan told MTI. Bertalan said that Summer Time saves around 120,000 MWh of power, saving consumers around HUF 6 billion forints. Summer Time ended in Hungary on October 28. ■


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energy Gazprom seeks Far East expansion OAO Gazprom will spend RUB 1.2 trillion ($38.4 billion) launching a gas field and pipeline to Vladivostok in the country’s Far East by the end of 2017, Interfax quoted the company’s chief executive as saying on October 29. Gazprom CEO Alexei Miller told President Vladimir Putin that the company would spend RUB 430 billion launching the Chayanda field in Russia’s Far East and RUB 770 billion on a pipeline to Vladivostok on the Pacific coast. Putin ordered a rethink of Russia’s natural gas export policy to take advantage of rising Asian demand, as giant producer Gazprom launched a huge Arctic field to supply Europe, where demand is falling. Putin said Russia needed to amend its long-term gas sector development, in an apparent reference to pressure from a probe by the European Commission into the pricing model that drives Gazprom’s export revenues, Reuters reported on October 23.

regional OSCE criticizes Ukraine’s election, Yanukovich seems to win new term Ukrainian President Victor Yanukovich’s party seems to be on course to secure a parliamentary majority, but international monitors said flaws in the way the election was conducted meant the country had taken a “step backwards”. Exit polls and fi rst results from the October 29 vote showed Yanukovich’s Party of the Regions would win more than half the seats in the 450-member assembly. They will face, though, a revitalized opposition boosted by resurgent nationalists and a liberal party led by boxing champion Vitaly Klitschko. But a team from the Organization for Security and Cooperation (OSCE) in Europe, which sent more than 600 observers to monitor the election, criticized the way it had been conducted. “The elections were characterized by the lack of a level playing field, caused primarily by the abuse of administrative resources, lack of transparency of campaign and party fi nancing and lack of

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Ukraine to cancel gas export duty for Energy Community countries Interfax-Ukraine has reported that the Ukrainian Cabinet has proposed that export duty on supplies of Ukrainian extracted gas to countries that are members of the Energy Community be canceled. Draft law No 11356 was registered and posted on the parliament’s website. The authors of the law note that according to Article 41 of the agreement on Energy Community ratified by the Ukrainian Parliament in December 2010, no export duty on supplies of gas and electricity from Ukraine to the European Union countries is applied. Present Ukrainian law says that during exports of natural or liquefied gas, an export duty of 35% of the customs value of goods is paid, but no less than UAH 400 ($49) per 1,000 cubic meters unless otherwise provided for by international agreements ratified by the Parliament.

Poland says nuclear, shale gas not an either/or issue Poland remains committed to investing in shale gas and the development of its nuclear program as a way of building its energy independence and security, the prime minister said on October 25. The head of Poland’s top utility PGE warned the country would need to choose between the two projects, boosting speculation that the European Union’s largest eastern member could drop plans to build its first nuclear plant. “Polish state companies will, as far as the law allows, fulfill the government’s strategy, which is based on the diversification of energy sources to guarantee Poland full security and independence from outside suppliers,” Prime Minister Donald Tusk said, adding that this means continuing the development of the nuclear and shale gas program. Tusk said earlier this month he expected Polish companies to invest PLN 5 billion ($1.56 billion) in shale gas exploration by 2016.

Czech gov’t approves support for renewable resources The Czech government has approved a proposal counting on a rise in subsidies for renewable sources by CZK 7 billion (€280.5 million), but at the same time reducing the state’s contribution, Radio Praha reported, citing Deputy Prime Minister Karolina Peake. The change will lead to a growth in prices that households and companies will pay for electricity as of the next year. According to preliminary estimates, electricity prices for households will rise by 2% to 4%. Croatian gov’t to replace INA supervisory board members Croatia’s government is recalling its three members from the supervisory board of oil and gas company INA in an effort to ease tensions between the company’s Hungarian and Croatian management, Hungary’s MTI reported on October 24 citing Croatian Jutarnji list. Hungarian oil and gas company MOL holds

a little less than 50% of INA, slightly more than the stake held by the Croatian government. Croatian Prime Minister Zoran Milanovic wants to ease tensions between the Croatian government and MOL and also with the Hungarian government, which owns a minority stake in MOL. Slovenia referred to EU court over energy directives Slovenia is under the threat of a fine for failure to fully transpose the EU’s electricity and gas directives into its legislation, The Slovenia Times reported. The European Commission referred the country to the Court of Justice of the EU on October 24, proposing a daily penalty of €10,287 for each directive. The directives, which are part of the EU internal energy market rules, should have been transposed by the member states into national law by March 3 last year. European Energy Commissioner Günther Oettinger said that the final establishment of an internal energy market was necessary to ensure reliable energy supply at

affordable prices to companies and households. Slovenia can avoid the fine in the case of the energy market rules if it fully implements both directives in its national law before the ruling is handed down. Bulgaria will hold referendum on construction of NPP Bulgaria’s Parliament has decided to hold a referendum on whether to continue with the construction of a nuclear power plant at Belene on the Danube or build a new reactor at the existing Kozloduy power plant. Parliament voted 106 to 7 in favor of a referendum. Prime Minister Boiko Borissov’s Cabinet canceled on March 28 a €10 billion ($12.25 billion) project to build a 2,000 MW nuclear power plant at Belene with Rosatom Corp, Russia’s state nuclear company, after failing to agree on its cost and find Western investors. The referendum may be held at the same time as parliamentary elections, scheduled for the middle of next year, to save money, Borissov said on August 1. ■

NEWS FOR THIS SECTION IS TAKEN FROM THE BUDAPEST BUSINESS JOURNAL’S DAILY BRIEFING, REGIONAL TODAY NEWSLETTER AT WWW.BBJ.HU/STORE/NEWSLETTER-PACKAGE

balanced media coverage,” the OSCE mission said in a statement. Saving in CEE becomes more important Erste Group’s latest ‘CEE Savings Barometer’ shows that saving money is important to more than three quarters of the people in Central and Eastern Europe, web portal friedlnews.com reported. Every other person in CEE is used to regularly putting money aside. Two thirds of Czechs, Slovaks, Hungarians, Romanians, Croats and Serbs save as soon as they have some spare money, said Martin Skopek, head of retail at Erste Group. Most people who were interviewed as part of the survey said they save for fi nancial backup, pension provisions, home acquisitions or renovations. Poles and Slovaks are the region’s saving champions, putting aside 15%. In nominal terms, Germans lead the way (€178 saved per month), followed by Austrians (€164), Poles (€90), Slovaks (€83) and Czechs (€78). The barometer reveals a rather signifi-

cant gap, with Hungarians, Ukrainians, Serbs, Croatians, Montenegrins and Romanians putting aside less than €50 per month. Germany, Sweden push for Balkan visas Key EU states pressed for the reintroduction of visas for people coming from Balkan EU candidate states so as to curb soaring numbers of unfounded asylum requests. “Everyone must live up to their responsibilities before joining the European Union,” Swedish Interior Minister Tobias Billstrøm said quoted by AFP. Candidate countries should “improve the lot of their minority populations,” Billstrøm said. Austria, Belgium, France, Germany, Luxembourg, the Netherlands and Sweden are all calling on the European Commission to allow them to reintroduce controls after Serbia and several other Balkan states were given visa free status in 2010 under the EU’s Schengen freedom of movement provisions. They say that many people are abusing the system to seek asylum in their

countries, and since each request has to be properly examined, the system has become totally clogged up. Slovak Parliament moves tax-hike bill to its second reading Tax rises proposed by the Slovak government are one step closer to implementation after Parliament on October 24 moved to its second reading the income tax amendment, newswire SITA reported. If it receives fi nal approval, the measure will come into effect at the beginning of next year. Among its other effects, the amendment would limit the current 40% flat-rate deductible expenses for selfemployed people to a maximum of €5,040 per year. It would also end the possibility of lump-sum deductible expenses from property rent income, and increase the tax rate on corporate profits from 19% to 23%. The current 19% tax rate would continue to apply to personal income tax up to a tax base of 176.8 times the current subsistence level; above this tax base, the tax rate would be 25%.

Slovenia adopts reform laws but referendums possible The Slovenian Parliament has passed reform laws on banking and management of state firms that the government says are crucial to ensuring financial stability in the country, which is struggling to avoid a bailout. But Slovenia’s powerful trade unions are threatening to force a referendum on both laws, saying they could lead to a sell-off of state assets. The first law would enable the establishment of a state company to take over bad debts of state-owned banks in exchange for state-guaranteed bonds, as a means of easing the credit crunch. Slovenian banks, mostly state-owned, are nursing about €6.5 billion of bad loans, amounting to some 18% of GDP. In Albania you can register business in 30 minutes for €1, PM says In Albania you can register a business in 30 minutes for one euro. Very soon this will also be possible online, Albanian Prime

Minister Sali Berisha said at a meeting with Bulgarian and Albanian businessmen, Denka Katsarska reported on October 23. It is easy to get a license from the National Center for Licenses, a center that processes all documents digitally. According to the report, direct foreign investments in the country climbed by 316%. Polish poverty rising The number of people living in extreme poverty in Poland rose by 300,000 in 2011, with children most at risk, Polskie Radio reported citing a survey by the Central Statistical Office. The most affected are families with three or more children, it said. The definition of extreme poverty is an inability to maintain payments of bills for housing costs (electricity, gas, etc.), as well as difficulties in securing basic necessities such as clothing and food. All in all, the statistics agency estimates that 2.5 million people in Poland qualify for this category (the overall population is 38.5 million). ■


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Know your customer! Acquiring information and handling it well is the key to good credit management, says Péter Szentirmay, chairman of the Hungarian Credit Management Association. He says that in order to avoid losses, businesses first have to become aware of the risks accompanying their operations, and need to gain experience in bringing back the balance between risks and opportunities. Q: The Federation of European Credit Management Associations has just published its cumulated CMI (credit managers’ index) for the first time. What does this index refer to, and what are the basic findings of Q2 2012? A: Publishing a cumulated, allEuropean CMI was an initiative of the Hungarian Credit Management Association. This index, as well as the national indices that are in the background of the aggregate figure, is a calculated product that aims to indicate trends and tendencies based on the experiences and expectations of credit management professionals. The methodology of its calculation is similar to that of PMI (purchasing managers’ index), a well-established indicator of economic tendencies. We ask credit managers ten questions, that they have to answer with “increased”, “decreased” or “hasn’t changed”. The calculated index reflects on the expectations of these professionals. An aggregated result above 50.0 points shows an optimistic mood, while a result below 50.0 shows that these professionals expect things to get worse. Much to our surprise, the first cumulated European CMI turned out to be exactly 50.0 points. Q: Why would credit managers’ opinions bear special significance on the state of the economy? A: Enterprises are the biggest creditors in the economy. The

A: An increase in corporate lending generally means slower payments and higher risks, which is obviously a constraint and can not be deemed a good sign. These longer payment periods are mainly allowed by suppliers so that the customer can also survive. In actual relationships, a lot can be determined by the power of the two parties. If the difference is big, then as always, the bigger one will dictate the conditions. A supplier who is big enough will be able to operate on its own terms – the telco sector is a good example, with only a few giant service providers. And a big customer will do the same if it has many smaller suppliers, like retail chains.

amount of credit extended by companies well exceeds the volume of loans granted by the bank sector. But while this latter is closely monitored and thoroughly analyzed, loans given by companies to each other is an often overlooked aspect of the economy. It is easy to see that CMI and PMI, the indices based on the findings of credit managers and purchasing managers respectively, mark the two endpoints of the very same relationship. If we accept PMI as a valid indicator, we should pay attention to CMI as well. Q: The state of the Hungarian economy is said to be very fragile and unpredictable. Still, the Hungarian CMI of 53.9 is the highest among the eight European countries that participated in the survey. What is in the background of this unexpected optimism? A: We have to highlight that in our survey, we asked credit management professionals, and lacking these professionals, this index could not include the micro enterprises that make up the vast majority of Hungarian economy. Although the SME sector is represented, it is usually the bigger companies that have credit managers on board. We see that these companies have positive expectations: they have their own markets, their products or services are met with sufficient demand. Another contributing factor is that the German economy, one of the biggest partners of Hungary, but one that is not included in the cumulated index yet, is in a very good shape at the moment. On the other hand, negative tendencies also showed up, and the optimism behind the 53.9 figure should not be overestimated. The increase in business volume is accompanied by payments getting slower and risks becoming higher. As with all figures that are published for the first time, it will be interesting to see the direction of change in the next quarter. Q: Is it possible to make industry-specific observations based on CMI? A: Unfortunately our panel is not yet big enough to be able to represent specific sectors separately. Markets that have longer traditions of credit manage-

ment (US, UK or Netherlands), and whose national credit management associations consist of thousands of members do have this opportunity, but it would be too early for us to attempt that. Q: When it comes to the bank sector, lending is a sophisticated, thoroughly monitored and analyzed activity. For companies, it is much more a spontaneous, ad hoc ingredient of business. Can you explain the difference in these two approaches, when both of them refer to money? A: Firstly, for banks lending is their core activity. Their whole staff, their education systems, their policies and processes are all optimized to make the most of lending money to others. They rely very heavily on guarantees, and they have very sophisticated ways of minimizing their risks, making sure that whatever they lend out, they will eventually get back. Companies, on the other hand, have to lend out money to other companies as a “necessary evil”. Their employees and policies are optimized to make the most of their main activities, and the biggest companies aside, no rules or regulations refer to financing their customers. Credit rating is virtually non-existent among companies, and there is no way companies can set their prices in line with the risks a specific customer represents. Also, they can not rely on guarantees, because more often than not, banks already have all the guarantees under their control. We have recently published an

analysis of the Hungarian meat industry. When looking into credits, we found that roughly the same amount of financing came from banks as from suppliers. But while the bank industry had a yearly profit of HUF 3 billion on this amount, suppliers and business partners made nothing. The three basic sources of financing are the company’s owners, the bank sector, and the company’s suppliers. The rule of thumb is that there has to be a balance among these three. Using an anonymous but actual example: if the owner’s investment equals his kid’s computer and a used car, he can not expect his suppliers to finance his company with hundreds of millions. And when he does, it is not likely to end well. Q: Do credit managers aim to minimize risks that accompany business operations? A: It’s not so much about minimizing risks than about becoming aware of them and aligning them with business opportunities. No business can exist without risk, and there are real risks that can be taken or can be taken at a certain price. The important part is that we become aware of all these risks, and even if we decide to take them, we do it knowing the pros and cons. Q: An increase in lending in the bank sector is usually a good sign, because it means that the banks think companies will be able to repay these loans. What does the volume of company credit say about the economy?

Q: What are the techniques or tools a smaller party can use to insure itself in these unbalanced relationships? A: Most of the techniques and tools used in credit management have nothing to do with size. The first thing is that you have to know your customer. What we see among companies is that most of the time they know their customers very well from a commercial perspective. They know which products they would buy, how much they would pay, what else they may need or even when the warranty period of the products they already purchased would be over. While this is great, usually these very same companies know next to nothing about their customers from a financial perspective. Who are their owners? Where are they based? What is the structure of the ownership? What is the financial situation of the customer? Are there other interests of the same circle of owners? Have they had severe financial difficulties recently? Knowing these alone can raise a lot of red flags well before actual troubles arise, and it is not related to size at all. Q: Is this information available and accessible by anyone? A: Most of it is, and we find that in most cases the accessible information is more than enough when handled well. There are service providers who will find out and monitor these data at affordable rates, but knowing is only the first step. It has to be followed by the ability to evaluate the infor-

mation (what does a change in the ownership structure mean? what does a reorganization mean? what does it mean when a company sells its properties and rents them back? etc.), and most importantly, executives will have to be able to be responsive and make decisions based on this information. What is more, they will have to monitor and re-evaluate these on an ongoing basis. At conferences, we often look at case studies, such as famous bankruptcies, and we almost always find a six to twelve month period before these bankruptcies when the signs of trouble are already clear. Suppliers who pay enough attention and take these signs seriously can avoid losing huge amounts of their investments, by demanding to change their payment periods or by making smaller shipments more frequently. If the customer is big, it will likely look for alternative sources, but as I said, there has to be a balance between risk and opportunity. This approach is particularly important on an international scene, where suppliers from other markets are likely to monitor and respond to the changes we mentioned above. Hungarian companies have a much lower tradition of credit management, so while they might be overjoyed by a jump in the volume of the orders, they might not be aware that this is because other suppliers have already limited their shipments or demanded much more rigorous terms. Q: How exact and accurate can credit management be? Is there a point where a credit manager’s evaluation has to overwrite all other business interests? A: There is a point, although a good credit manager will not say “no” very often. His job is to find a compromise, to bring the balance back. There will always be a natural conflict between credit managers and, for example, salespeople, but we see more and more examples of satisfactory compromises. There will always be cases that are impossible to foresee, like Enron’s cooking the books or the anomalies at Parmalat. Still, I can say that credit management is a rather accurate and reliable field of expertise. ZsB


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Our house in the middle of the street The real estate business in Hungary was really shaken in these last few years by the economic crisis, and since supply is very high, prices are still pretty low and thus liquidity is low as well. But as the saying goes, every cloud has a silver lining: low prices means that if you plan to invest in real estate, this might be a good a time to do it. Or is it really? We sat down and spoke a while about the topic with an expert: Nóra Sarlós, MRICS, Senior Manager at PwC Hungary. “When the economic situation improves, real estate will again be a good investment vehicle,” says Sarlós. Then again, according to her it will not happen too fast, since the real estate business is the kind which is relatively slow to respond to economic changes, so with the current market conditions it is better to wait for the best results in the long term. While talking to Sarlós, we also asked her about the type of business which PwC does. FULL KNOWLEDGE OF THE RULES OF THE GAME “We provide professional assistance for those market participants who are in real estate or are planning to be part of it. For specific real estate needs

we have a team of professionals with expertise in the technical, economic and legal areas,” says Sarlós. Besides the very high standards of professionalism, she also thinks that their independence is very important, and they also keep the information provided strictly confidential. Those are essential factors, but are they essential enough to pique the interest of foreign investors who plan to invest in the Hungarian real estate market? “Unfortunately they are attracted to the Hungarian market only to a very small extent,” says Sarlós. “A transparent and predictable legal and economic environment would be needed.” Fortunately the situation is a lot better when it comes to Hungarian investors. Not on the

which entails an overview of the legal structure, the market development and potential, and the current and planned usage concept. PwC analyzes the historical development of financial and non-financial KPI’s and the current liquidity status as well, including the development of financial liabilities, the business plan (if available) and an onsite visit. “Of course, a relevant market research must be prepared as well. PwC develops a scenario analysis on the basis of reasonable assumptions, then evaluates the scenarios,” Sarlós adds to the already impressive checklist.

Hungarian market though: the Austrian real estate market is the most popular nowadays for Hungarian investors. “So if you want to invest fast in this foreign market, PwC can quickly provide opportunities for current investors in Hungary. For market analysis, ROI calculation or the conducting of negotiations, we have a full real estate advisory team in our Budapest office,” says Sarlós. NOT AN ERA TO BE AVERAGE Going through the city of Budapest, we can see many empty business center buildings with the words “For Rent” written on them in big letters. It gives the impression that the real estate business in this segment is not at its best nowadays in Hungary... Sarlós agrees, since the economic crisis led to many market participants withdrawing from the country. “Still it is also important to point out the differences between the qualities of those buildings.” The biggest problem of many of the existing empty offices is their qualities. “Average” grade office buildings without any specific features are expensive to maintain, because they are not attractive for tenants, and they remain empty as a result. Fortunately there are many new office buildings, for example those built with BREEAM or LEED certificates, which are customized for companies, and because of their intelligent design and high-quality construction they may attract specific future companies. But what about the buildings already constructed and either not really attractive or simply in bad shape? ANALYSIS AND EVALUATION PwC does the entire job required for a proper evaluation of those buildings. They assess the technical condition of the property and do a thor-

ough analysis, with a valuation and appraisal included, for potential developments. “In order to carry out real estate development initiatives, we draw up the most appropriate development plans for the subject property, taking into consideration the general and specific requirements and regulations of the various authorities, the community structure and technical features. We match this to the most economical method of implementation,” specifies Sarlós. In the case of real estate utilization assignments, they also identify the mode and form of use that is most suitable for the owner. They prepare the documentation on the possible best utilization of the real estate with both content and form meeting international expectations. They determine the value obtainable during utilization on the basis of the proceeds projected for after realization. If required they identify, either via tender process or direct

contact, the most suitable investor. HOME SWEET LOAN One of the biggest problems in Hungarian economy in the last few years was caused by the loans based on the Swiss franc, which fluctuated enormously, thus the interests to be paid back reached a very high level for many Hungarians. It caused many buildings which were used as collateral to be either acquired by the banks or to negotiate another possible solution. One of the roles of PwC is also to help and evaluate those cases. The goal of each case is to understand the likelihood of future cash-flows of the client and based on this understanding to achieve an agreement between the bank and its respective client which sets out how the respective loan(s) are repaid or restructured with a view to maximize the returns of the bank. For this purpose they analyze the cash-flow generating assets themselves,

YOU BROKERED MY REAL ESTATE! Browsing through the webpage of PwC, we can see “real estate brokering” among the services offered. When we asked about this specific service, Sarlós quickly explained: “Within this field, we provide in-depth consultancy services to our clients, assisting them in identifying the best way to utilize and/or select real estate. In the course of our real estate marketing assignments, we apply scientifically based methods, continuously improved on the basis of practical experiences and tailored to each specific real estate.” A FUTURE-PROOF INVESTMENT? It is hard to say if the real estate business in Hungary is the safest investment, but according to an article on portfolio.hu, foreign investors already think so: since last year we can see a considerable growth of foreign investment in buildings. It only makes sense: prices are so low now that even if they do not go up, it is a safe bet that they will not fall any further, either. Still the question remains: will it be a successful business in the future? Only time can tell… GH


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News from Europe

Europe’s meal plan The ingredients for healthy economies are all available: countries should use them and agree on a European meal plan that can be followed for years.

of steady over-consumption for years (in some cases, decades). With their pantries empty, they have to take meal plans from those whose shelves are stacked high and are lending to them. When it comes to diets, there are plenty to choose from. The ones offering lasting results usually run long; crash diets rarely work. Yet the European Commission BBJ ZSÓFIA VÉGH (EC), the EU’s executive body, and the International MonEurope is on a diet. It has etary Fund (IMF), the main been cutting back on con- suppliers, opted for a strict sumption for more than and painful method. Ireland, three years, but there is still Greece and Portugal were all a lot ahead. Though not all instantly ordered a zero diet, of its members are in need which consisted of cutting of shredding, most are tak- all extra spending (e.g. labor ing their fair share of it. The costs) to improve their figbiggest losers so far have been ures. The allotted target for Greece, Portugal and Ireland, Portugal, for example, was an with Spain and Italy about to approximately 10% saving of join them. The above line-up GDP between 2011 and 2014, is restricting intake as a result an ambitious goal.

made from the privatization, which is scheduled for 2015, Greece needs to generate €8.8 billion, says a draft by the EC, the IMF and the European Central Bank (ECB). It may also receive additional support (a €16-18 million loan). Portugal has also been granted some extra time earlier this fall: it needs to bring deficit down to 2.5% of GDP by 2014 as opposed to 2013. (And the leniency towards Greece may open the door for further leeway for the country.) Portugal has introduced rigorous salary cuts and tax hikes this year and still had to adjust its growth forecast downwards by about 1% in both 2013 and 2014 to around -1% and +1%, respectively. Austerity has tested the patience of the people of these countries: unemployment hit record highs late this summer, and social benefits have been reduced so seriously it is little wonder growth is not happening. Self-defeating does not seem so remote anymore. Economies need fuel to perform. The question is, where it is supposed to come from? In the short run, countries in need of downsizing will continue to rely on their peers to refill their stocks. For

the longer term, there are several plans on the table. The financial transaction, to be discussed in mid-November, has good potentials to generate some extra intake for member states willing to participate. The Compact for growth and jobs, agreed by EU member states in June 2012, and reviewed by the Commission at the October EU summit, can help increase employment. The banking union, along with a stronger Economic and Monetary Union, would ensure disciple. Eurobonds, which have been overshadowed by the implantation details of the banking union lately, could help solve the problem of sovereign debt. The opponents of the new system, such as Germany or Finland, fear that this method of burden re-allocation will slacken discipline and will only lead back to old problems. But their worries are exaggerated: no economy that has experienced such lean times is likely to return to it. Relapses can occur and it is hard to learn to get by on less. But once Italian car factory workers agree to accept the hourly wages of the Polish, they may attract investors and production back. It

is equally difficult to get rid of the accumulated “toxics” such as distressed assets. Even with the establishment of a bad bank this November, Spain will need time to sell off what’s left from the property bubble. Fortunately, there are good examples. In the early 1990s, Finland went through a major bank crisis. The reasons leading to that situation were largely similar to those of the current financial crisis (easy credit from foreign banks, lax consumer credit regulations, property bubble, etc.), though the country did not have the euro, of course. But it managed to overcome difficulties by introducing bank regulations and by devaluing its currency to enhance exports and has stayed on the path ever since. A more recent example is Iceland. The measures used to lift the country out of recession may not be transferrable to the worst-off members of Europe, economists warn, but the principles of how to keep on the course are. Iceland is out of the hole and is considering joining the EU. The prospect of a common diet does not scare it off. ■

The problem is that cutbacks alone will not cure the root of the problem. The European Commission has duly noted this fact and urged structural changes, too. In its latest quarterly report, the EC acknowledged that debt-to-GDP ratios may initially increase in some member states in response to fiscal consolidations (from 2008 to 2010, Spain’s debt-to-GDP ratio increased by almost 50%, while Ireland’s has doubled). But it added it sees very low risk of austerity becoming self-defeating and suggested everyone should stick with the prescribed regime. Nevertheless, Greece will very likely be given two more years to carry out reforms tied to international loans. The deadline to adjust its labor and energy markets has also been extended. Instead of the planned €19 billion revenue

Tougher rules to protect investors and curb highfrequency trading A draft EU rule voted by the European Parliament (EP) last Friday calls for better protection of investors and fairer financial market trading. The rules would apply to all investment firms and to almost all financial instruments, from bonds to commodity derivatives. MEPs also tightened up proposed rules on high-frequency trading. The aim of the changes is to regulate financial markets rather than individual financial products and to have clear rules on high-frequency trading. The new legislation would require any investment firm to act fairly and determine which financial instruments may be traded via their systems. They should also be properly prepared to cope with disruptions of these systems. MEPs decided that organized trading facilities (OTFs) should be reserved for non-equities (derivatives or bonds), so to bring them under the new rules.

The EP has also tightened up the Commission’s proposal on high-frequency algorithmic trading, in which computers trade millions of orders per second, with little or no human intervention, by voting provisions to ensure that all orders are valid for at least 500 milliseconds, that is, they must not be cancelled or modified during that time. All firms and trading venues would ensure trading venues are able to cope with sudden surges in orders or market stresses, and have “circuit breakers” in place to suspend trading if necessary. Provisions to regulate commodity derivatives trading have also been included in the legislation. Commodity derivatives trading is often said to be the cause of food and energy price volatility. Rules would involve imposing thresholds such as the maximum net position that traders can hold or enter into over specified periods of time. ZsV


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Blogging for a living Ever since the first appearance of blogs over ten years ago, the question has been there whether these self-published media outlets can be taken seriously, whether they can survive and compete in an environment dominated by major publishing houses, and ultimately, whether they can make real money. Over the recent years, the relationship between blogging and business grew more sophisticated, and it has become clear that a well-written and well-built blog can add great value to any business. Blogging, in some cases, can also develop into a full-time job. “If you know what you are doing and you are doing it in a self-conscious way, you can make a living blogging,” says Ágnes Vida, a.k.a. “Gazdagmami” (translates to “rich mom”), author of www.kismamablog.hu and www.gazdagmami.hu, who managed to build her blogs into a thriving online business, selling online courses, info products and various other services. “In my experience, if someone launches a blog with a ‘we’ll see if it works or not’ attitude, in most cases it won’t. In order to build a financially successful blog, you need targeted efforts, perseverance and a well-founded business model,” she says. According to her estimate, the number of Hungarian bloggers who make their livings solely with their blogs is somewhere in the neighbourhood of one thousand. While the genre still has a reputation of being highly self-centered diaries of anonymous authors, blogs have changed hugely over the past years. Even those blogs that are not written with the intention of making money at all and grow popular simply because of their content are much more targeted and focused than in the early days of blogging. Zsuzsanna Várszegi, for one, is the author of Tánc, Zene, Rum, Kuba (Dance, Music, Rum, Cuba - tanc-zene-rum-kuba. blogspot.hu) a diary she dedicated to her travels to Cuba, that can be both read as entertainment and as a trip advisor. When she made it in the Top 10 of this year’s Golden Blog Awards, she noticed a huge boost in her blog’s traffic. “I still can’t believe it!” she wrote in a Facebook status after her blog ended seventh

at the award ceremony in the “Local value” category in the league of many professionally-written blogs. But while most of the 1,200 nominations of Golden Blog

and editor of Glamour’s Hungarian edition, author of gastro blog Két Cica Konyhája (“kitchen of the two kittens” ketcicakonyhaja.blog.hu/). According to her, this market

are still hobby projects, not all blogs are diaries, and quite a few of them target businessrelated, niche subjects. And although the market a Hungarian language blog can reach is relatively little, a wellaimed and well-structured blog can still make a profit. “Blogs are popular in Hungary and bloggers can become opinion leaders, but the online advertising market is still tiny, and the amount spent is still low,” says Ildikó Bezselits, a former journalist

structure means that there are only a few companies that want to advertise on blogs, and they want ads at really low prices. “Another problem is that the attitude of Hungarian companies towards these ads is still very conservative. Basically what companies want is that they pay you money and expect you to write about how great their product is,” she opines. “I could make a lot of money writing about products I would never use

in my kitchen, because I don’t regard them as ingredients of real food. On the other hand, if I wrote down that I’m using these products to make the meals I present, and that I think they’re great, I would lose most of my readers in a short period of time,” she explains. “The problem is that most advertisers can not think of any other option.” Két Cica Konyhája has some 60,000 visitors a month, which means that if the ads could be sold at prices similar to those of English-language blogs, the author could make a living out of this blog alone.

visitors a day can make real money in all the ways English language blogs can, it’s just that the Hungarian market is smaller, and things are a bit more complicated,” says Vida, who has trained hundreds of would-be entrepreneurs in the area. Hungary might not have the huge and easy-to-use affiliate networks, like Commission Junction, Clickbank, Share a Sale, or Google Affiliate Network available, but there are still affiliate programs on the market and the smaller the company is, the higher the commissions can be. While major book retail-

“Luckily, due to the popularity of my blog, I get additional assignments and can organize other projects. These, of course, mean extra work, but at least they are paid for,” Bezselits concludes.

ers, like Libri or Alexandra, offer 5%, the number at minor companies can be as high as 20% in some cases. Advertising networks are also available. Google Adsense or its Hungarian competitor Etarget are both potential substitutes to selling advertising directly to companies, and with the new setting options in Adsense the revenue potentials are substancially higher, especially since Google introduced the “remarketing” function, which will show the same tar-

REVENUE SOURCES Using blogs to promote the author’s other businesses is a general scheme of making money online, but more direct approaches can work, too. “A blog with a few hundred, or maybe a thousand

geted ads to its users again and again. “I know of people who are building their houses from their Adsense revenue,” Vida reveals. “However, it requires lots of fiddling around with keywords and other settings, and I personally think that there are better ways to make money from the very same amount of work,” she adds. It is also true that if blogs reach a certain critical mass, products and companies will reach out with potential cooperation offers, although most of these are barter deals. “I refuse to eat for free, I only review restaurants for money, but still a part of my life is managed via barters,” says Bezselits, adding that she was lucky enough to be found by a few advertisers outside the gastro industry. “OTP Bank realized that my audience is a really valuable target group for them, and we have recently had regular cooperation, allowing me to make some money and maintain my credibility towards my readers at the same time.” The freemium content model or subscription-only content is also an option that could work in some cases. The difficulties here are mostly of technical nature, as there are currently no Hungarian banks who would allow charging recurring subscriptions via credit card. And while PayPal, which allows this payment form, might be a good workaround, its user base in Hungary is still very low. Although the ratio of PayPal payments is up, most of these transactions come from outside of Hungary. The service is particularly popular with Romanian Hungarians, because transaction fees in Romania are rather high for normal card payments. E-books, online courses and other info products, on the other hand, work just as well as on the English language market. According to Gazdagmami.hu, Vida has written two books and authored 11 online courses, getting some 15 orders a day for these products. And considering that her basic course costs HUF 35,000, it is fair to say that making a comfortable living with a blog is possible even on the Hungarian market. ZsB


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Boost your personal energy, gain competitive advantage employees. One such initiative at Ernst and Young was to encourage top managers to fully take their annual holidays, as impossible and even painful as it seemed to some of them at first. To follow up the initiative, the company made a study in 2006 and found that every 10 hours of extra vacation used by employees in the test group resulted in an 8% increase in their performance reviews in the following year. Not a negligible return for such an “investment”. “Conscious energy management practices are especially

important for those in leadership roles. When Krauthammer and The Dutch Chamber of Commerce were looking for a topic for our joint Leadership Event in early 2012, we needed to look no further after hitting on The Leader as Center of Positive Energy,” adds Galambos. Certainly the times are gone when leaders could drive their organizations purely by setting challenging numerical goals, ensuring effective control and reinforcing rules and regulations. More importantly than ever, becoming the

center of positive energy is a prime requirement for today’s leaders, as they unwillingly influence hundreds or thousands of others around them. Their energy is contagious within the organisation and both the quality and quantity of a leader’s energy can drain or galvanize their teams. Therefore, it would be advisable to call them Chief Energy Officers and give them all the support needed to become one. Gábor Horváth, senior HR development consultant

SAP Hungary exports know-how to Russia The way most of us work is not working. Study after study has shown that companies are experiencing a crisis in employee engagement. A 2007 Towers Perrin survey of nearly 90,000 employees worldwide, for instance, found that only 21% felt fully engaged at work and nearly 40% were disenchanted or disengaged. This is entirely in line with what we continue to experience after the economic crisis. That kind of negativity has a direct impact on the bottom line. Towers Perrin found that companies with low levels of employee engage-

ment had a 33% annual decline in operating income and an 11% annual decline in earnings growth. Those with high engagement, on the other hand, reported a 19% increase in operating income and 28% growth in earnings per share. Full engagement is a matter of being able to combine two distinct philosophies of life. Undoubtedly our lives are like a marathon with no definite end point. The trick is to look at this marathon as a series of sprints where full engagement is possible and even desired for short periods of time, and afterwards a conscious, deep relaxation can refill our energy tanks. “We have started to work with some of the major companies in Hungary who have recognized that conscious personal energy management practices are key to sustainable high performance. Furthermore, they are a serious competitive advantage. We start with a personal Energy Audit, then move on to establish

healthy personal and organisational Energy Rituals that will secure optimal energy levels on the long run,” says Ágnes Galambos, managing partner of Krauthammer Hungary. Personal Energy Management is based on some simple principles. Our performance is directly linked to our level and quality of energy. We all have limited amounts of energy, and we need to maintain our energy on four levels: physical, emotional, mental and ethical-spiritual. We can refill our energy reservoirs by installing so-called energy rituals, highly specific actions to recharge our batteries, such as taking a ten-minute walk after lunch to help us digest and prevent ‘food coma’. Some of the most progressive companies such as Sony, ING, Generali or Ernst and Young have been heavily investing in Energy Programs and experimenting with new practices for their managers, sales force and top

Contrary to the “traditional” direction of know-how, Hungarian SAP experts have now started to export their knowledge to foreign markets in the framework of a new project where these professionals are thoroughly involved in setting up the company’s Moscow office, SAP Hungary announced. “This is an outstanding achievement for Hungary, one that marks the strategic importance of the Budapest office,” says Markus Hilken, head of SAP’s Global Support Center in Hungary. “Our Russian support center currently consists of a smaller team, with staff who mostly have general knowledge of our application and processes. In contrast, the Budapest office has many highly-trained professionals who are specialized experts of their areas and bear full responsibility for a specific part of the application. These best experts now provide their vast knowledge to Moscow by providing training and contributing wherever possible on an ongoing basis,” he adds. Russia, evidently, is a very unique market with many environment-specific requirements. Some of these are standard localization problems, like making the application compliant with the local legal requirements. Others pose the company with challenges of different nature. Russia is very specific, especially in company size. While other markets may not need applications that serve more than a few thousand people, in Russia, SAP has to be prepared to have a user base of several hundred thousand users. The application has to provide the same per-

formance and safety features, only in a much larger size. Scalability, therefore, is a critical requirement. “Most of our colleagues in the Budapest office have degrees from both the field of economics and that of IT,” Hilken explains. “The knowledge we transfer to the Russian market is well-balanced between technical and business information. Our professionals obviously have to have a good understanding of our clients’ business processes and their backgrounds, but the very same employees have to be able to write the code itself or make suggestions to improve the application wherever possible. Fulfilling all these complex requirements shows the value of the proficiency accumulated in our Budapest knowledge center,” the director concludes. Training and education are key elements of SAP’s processes. “We bring as much knowledge to our customers as possible,” says Hilken. But educating the users is rarely enough. Since SAP is able to contribute to virtually all business-critical processes of its clients, it is essential for the company to provide very fast response whenever support is needed. The former support strategy of having a few colleagues with general knowledge on every market has been changed ten years ago (exactly when the Budapest office was opened) when SAP decided to set up a few regional support centers employing many experts and highly qualified specialists, focusing its efforts in order to reach better efficiency. This strategy, and the support network that was built as a result, ensures that specialized knowledge is available to SAP’s clients 24/7 across the globe. With its almost 200 employees, the Budapest support center is among the ten strategic offices with a very high level of knowledge, topped with the experience of the past ten years.


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Fragmented left a bit more united after October 23

Gordon Bajnai came close to declaring his candidacy for prime minister, but ultimately shrank back from a pledge to run. In his much awaited speech he was harshly critical of the government, however, calling on a wide coalition to oust Fidesz and to restore democracy and sound economic policy. Not far away, the prime minister himself spoke before his adherents, essentially reiterating the motifs of his earlier speeches, notably the threat of foreign domination and the decline of the West. While October 23 brought few surprises, Bajnai did manage to get Milla’s leader, the politician-bashing Péter Juhász, as well as Solidarity’s Péter Kónya to sign up for a co-operation with the former premier, marking the first two pieces in the complex puzzle that Bajnai will need to solve to successfully run in 2014. In retrospect, former MSzP Chair Ildikó Lendvai either had insider information or moonlights as a fortuneteller: her assessment that former PM Gordon Bajnai’s first public appearance in a long time on October 23 was both under- and overrated in the left-wing media – which at times did indeed appear on the edge of hyperventilating – was spot on. It was overrated because although Bajnai came as close to declaring his candidacy as was rhetorically possible, in spite of press reports to this effect he did not actually pledge to run. The former PM himself strenuously sought to downplay the significance of his speech, clearly rejecting the notion that his appearance means that he is ready to enter the fray.

DEFTLY PLAYED This is disingenuous, of course, for that is exactly what his appearance was. Nevertheless, despite the obvious false modesty in Bajnai’s “I am just a citizen”-type comments to reporters, he was smart to try to force a lid on over-exuberant expectations that he would immediately seek take over leadership of the disunited left. For one, placing himself at the center of the political game would immediately damage his relatively unscathed reputation. That will be inevitable sooner or later, of course, and the scorn that the left- and right-wing media keep in store for candidates of the other side will ultimately be unleashed on him (though it did not have much of an impact last time). Moreover, getting a united left to line up behind him will take a lot of work, and Bajnai needs to make sure that he does not force any of the left-wing opposition formations into a position of having to publicly rebuff him. Finally, Bajnai may genuinely wish to keep his options open. It is far from clear whether the left will be either strong or united enough to oust Fidesz from power. If leading the left is going to be a losing proposition, Bajnai will not have to beat a retreat; he will just continue to portray himself as the concerned external observer that he presently claims to be. AN IMPRESSIVE SHOW OF UNITY Still, by getting both the new Solidarity movement and the civil powerhouse Milla to sign up for a joint platform, Bajnai has lined up two important players behind him. Solidarity’s heft is untested of course, so the extent of its influence is unclear. Though it holds an edge over the other parties because it actually includes working class folks, Solidarity’s social support is unmeasured by regular polls and likely low at this point. What is key, however, is that Solidarity could serve as a bridge along Bajnai’s route towards a still-skeptical LMP. Being wedded to their virulent opposition against the pre-2010 governments, theoretically including the Bajnai cabinet (which is obviously less virulently rejected by LMP), the greens will be the most difficult partners on the left to woo. Solidarity maintains strong ties to LMP, having conducted consultations on co-operation and even having fielded candidates together. If a friendly organisation embraces Bajnai, that

› IF LEADING THE

LEFT IS GOING TO BE A LOSING PROPOSITION, BAJNAI WILL NOT HAVE TO BEAT A RETREAT; HE WILL JUST CONTINUE TO PORTRAY HIMSELF AS THE CONCERNED EXTERNAL OBSERVER THAT HE PRESENTLY CLAIMS TO BE. might make rapprochement more easy (read less like flipflopping) for LMP as well. Milla is of course important because – as was apparent once again – by relying on its antiestablishment and anti-politics sentiment, it is the most powerful mobilizing force on the left. Bajnai clearly seeks to ride the same wave that makes tens of thousands of frustrated people attend Milla’s rallies, even as the parties that drew hundreds of thousands of voters two and a half years ago generally attract a few hundred, maybe a few thousand at most to their rallies. Milla is simultaneously closed to all parties and in theory open to all their supporters, and this kind of supra-party attitude is the one Bajnai’s quiet campaign for premiership wishes to exude as well. TWO SPEECHES The prime minister’s speech was not especially remarkable, though it is only in view of his highly provocative statements in previous years that Viktor Orbán’s harsh comments concerning the EU and the opposition in this year’s speech did not raise many eyebrows. Once again, he talked about efforts at foreign domination and the failure of the West and the EU, cautioning that this failure was rooted in the fact they had been beholden to credit lines provided by an ominous “financial world empire”. Before half-burying the West, he also equated the preceding MSzP governments with the communists of 1956. While Orbán was lambasting the left and the wider world, a few kilometers away Bajnai was not holding back, either. As anticipated, he took

Photo: Szilárd Koszticsák / MTI

Former premier Gordon Bajnai managed to get Milla’s and Solidarity’s leaders to sign up for a co-operation with him on October 23 – this marks the first two pieces in the complex puzzle that Bajnai will need to solve to successfully run in 2014.

the Orbán government to task for its attacks on the democratic system and its economic policies that have failed to advance Hungary. In an ironic turn, he held the government responsible even for his own return to politics, arguing that even though he had once said that he was not a politician, the Orbán government made it impossible for anyone to abstain from politics. He called on a wide coalition (describing the political elements rather than specifically naming them) to change the government and with it the entire post-transition political culture. Foreshadowing what will likely be a momentous challenge for any post-Fidesz prime minister, Bajnai also noted that it would take a comprehensive effort to overcome the institutional blocks (or safeguards, depending on one’s view) Fidesz has enshrined with its supermajority. To overcome those, however, the left would need a boost from which it is very far at present.

The perennial concomitant of political demonstrations is the numbers game, since the success of each political demonstration depends on its ability to bring people to the streets. As a result, estimates of crowd sizes are extremely politicized and, faced with a mathematical problem without any non-biased data accessible, we find ourselves helpless in ascertaining what really went on. The police reported numbers that many critics said betrayed political bias and lacked seriousness: according to the Interior Ministry’s statement, there were 20,000 at the Milla demonstration, 150,000 at the Peace March endorsing the government, while a whopping 400,000 allegedly heard Prime Minister Viktor Orbán speak in Kossuth tér. Some of the non-aligned media remained agnostic on the question, while the

left-wing media – echoing Milla – asserted that an estimate of 20,000 was especially ludicrous in light of the fact that it drew a larger crowd than ever. An estimate of 60,00080,000 might stand closer to reality. Nevertheless, the key insight concerning mobilization is that neither side produced numbers that were either embarrassing or stunningly impressive. All in all, that is better news for Fidesz. If Fidesz has reached its low point in the polls, then it can take solace in the fact that it can still mobilize considerably more people than MSzP could when it stood in a comparable position in the polls (and maybe ever). The governing party has demonstrated that unlike its predecessor, it will continue to be a formidable foe going into the next elections. ■

THE NUMBERS GAME – AND WHAT IT MEANS www.policysolutions.hu Political Research and Consultancy Institute


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SpecialReport//RealEstate

Skeletons outside the closet Real estate sector craving predictability Focusing on long-term strategies

Mixed signs on the market Soaring vacancy rates and a lack of financing have significantly rearranged the postcrisis office market. The years after the crisis have brought significant changes to the office market. Deteriorating sources of financing, growing vacancy rates and decreasing rental fees all lead to remarkable market consolidation. Thus, only companies with

a strong financial background, serious knowledge and a focus on high qualities and standards could survive on the market. On one hand, the Hungarian real estate market outperforms its regional competitors. Last year, the Budapest office market accounted for a record 400,000 sqm of rental, which meant the Hungarian capital finished ahead of cities like Prague, Milan and Amsterdam. In Q2 2012, about 100,000 sqm

of office space has been rented in Budapest, which is clearly above the corresponding 2010 and 2011 levels. According to forecasts of Cushman & Wakefield, the world’s largest privately held real estate services company, this year’s total rental amount will not reach last year’s level but will still be above 300,000 sqm – also an outstanding performance. During the past five years, Hungary was the most reliable market in the CEE region in terms of

rental level. The difference between the highest and lowest rental ratios was only 25%, while the same proportion in Poland and the Czech Republic reached 52% and 40%, respectively. On the other hand, that does not necessarily mean a buzzing and prospering real estate market. In Q3 2012, not a single sqm of new office space has been handed over; however, the vacancy rate still increased by 17bp to 21.5%. Apparently there are no new ten-

ants on the market, so property managers are fighting for the same clientele’s favor. The speculative development market has almost emptied. Skanska and Atenor are developing on the Váci corridor and HB Reavis announced a new project in the same area. The lack of new developments and the growing occupancy rate suggests that the vacancy rate will decrease slowly in the near future. Tenants still prefer to take financial terms into account instead of qualitative issues, while financing opportunities are still unfavorable. According to the common opinion of market players, it is not fundamental problems of the real estate

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market that scare off new investments but rather the political uncertainty. A high country risk means more expensive loans, decreasing the appetite for investment. However, a new attitude towards investors seems to have been introduced in the public administration. The management of Budapest would like to clearly demonstrate to developers and investors the favorable medium- and long-term improvements in the city, deputy mayor of Budapest Balázs Szeneczey pointed out at a real estate conference. He said that he could not pledge support for every development project but promised faster decisions compared to previous practices. KK


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Our chief weapon is flexibility In less than three years, the initial real estate assets of Appeninn Vagyonkezelő Holding have more than doubled, while its shares are already listed on the Budapest Stock Exchange. Interview with Gábor Székely, chairman of the board. BBJ KRISZTIÁN KUMMER

Real estate developer Appeninn Vagyonkezelő Holding was founded in December 2009, but the real work began only in 2010. In less than three years, the initial real estate assets of the company have more than

doubled, while its shares are already listed on the Budapest Stock Exchange. We have talked to Gábor Székely, president of the board. Q: Appeninn was founded in a time when most of the experts forecasted only gloom and doom for the sector. But Appeninn seems to have contradicted all the warnings. The company not only found new tenants on a shrinking supply market but also increased its portfolio and went public. Impressive pace. A: With the founder and current principal owner Swiss-registered Lehn Consulting AG, Appeninn established a holding company by joining the management of two or three office buildings together. Through the cooperation, significant synergies and savings could be achieved

– in the first year we saved around HUF 60 million by unifying the energy purchases, the insurances, the maintenance, and so on. However, capital market orientation was an important factor in our strategy from the very beginning. We decided in January 2010 to join the stock market, and in June 2010 our shares were listed on the Budapest Stock Exchange. This was a technical issue with no IPO, the closed corporation simply turned into a publicly traded company. Trading volume depended only on the timing and quantity of shares the original owners sold on the market. Fortunately, the owners mapped out the timing very well. Accordingly, we did not have to see our share suffering a huge price drop as it had often happened to small papers. Since this was a technical listing, the capital mar-

ket funds obtained went straight to the original owners. However, the books of the company clearly show that parallel to the increase of the free float, the company’s net assets are growing too, which means we received the funds back to build up our portfolio. In addition, we have been planning an IPO for more than a year now, but the current situation on the capital market is not in favor of the move. Based on our market performance, our stock was included among the Category A shares last year and made it into the BUX basket this April. As far as I can see, our message about what we are dealing with and what we are planning to do with the acquired capital reached many small investors. And our story is as simple as that: we want to use the fresh capital gained from the stock market and bank loans to

acquire new properties on a market that is significantly underpriced. Q: Buying underpriced office buildings sounds easy, but filling them up seems to be much harder. How do you manage to reach a profitable occupancy? A: Today, you can buy an office building at a price that was previously not enough for obtaining the land under it – with a little exaggeration. There is an office building the price of which is only a third of the amount asked three years ago. Every office building has a story behind the very low asking price. Usually the owner of the property is in very heavy financial stress, or the building has already been reclaimed and put on sale by the financing institute. We prefer the former situation. Our philosophy is that every

situation has a solution that we can generally provide with our flexibility. The last two years absolutely justified our strategy to invest in Category B office buildings. The Category B market segment was the clear winner of the last few years of crisis for one specific reason: SMEs not able or willing to rent Category A offices infiltrated the Category B market. However, it is to be seen that a current Category B office building offers pretty much the same as Category A. Maybe the entrance is not that fancy, but overall it is able to provide a very suitable working environment. I think we figured out how to rent out a well-suited office building. The most important factor is flexibility. We can reach an agreement with a new client in one or two weeks and create a new working environment based on the tenant’s needs. Instead


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CURRICULUM VITAE Gábor Székely, Chairman of the Board, Appeninn Holding Nyrt Gábor Székely earned a degree at the Accounting and Finance College, majoring in taxes, duties and levies. He has been CEO of investment and advisory firm RMBK since 2004, and has also been the leader of mechanical maintenance and service company RIG Service since 2009. He gained great experience in development and complex management of condominiums and in coordinating the operation of industrial properties and logistics centers. As a consultant, he was involved in major capital operations of significant Hungarian firms and also in the sale of industrial production factories as an expert.

of bargain rental fees, our main attraction is our flexibility. A really nice interior can be established in a Category B building too. A good design does not cost more. Furthermore, quick response to the needs of tenants is crucial. They like to move in fast. They find out one day that their office is expensive or in a bad location, and the next month they would like to move into the new place. Depending on location, office occupancy in Category B is around 70-75% in Budapest. Appeninn buildings operate with a 95% occupancy rate. When the occupancy of the Hattyúház office building in Buda fell to 40% on the exit of some state company, we brought the rate back again over 80% in just over six months, while you can find whole ghost office buildings around Budapest without a single tenant.

Q: How much does location matter in choosing the acquisition targets? A: Location is very much appreciated, as there are so many offices for sale on the market. We basically prefer Buda. The main reason behind our approach is the fact that traffic in Budapest challenges everyone seriously, and we do not know anything about the planned congestion charge yet. Therefore as far as I can see, inner city office buildings are devalued. Those who deal with a lot of customers ask questions about accessibility, free parking lots, etc. This approach already emerged once when banks moved out en masse from the center to Váci corridor. But this phenomenon has intensified. However, Buda is revalued as the decision-makers – living mainly in Buda – easily vote for an office just a five-minute drive away from them.


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Q: Yields decreased to 8.5-9.0% on the market, ensuring enough revenue to survive but choking the willingness to invest and develop. What yields are you expecting when thinking about a new project? A: When we approach a property, we presuppose a 10% yield as a rule of thumb. Whether it is a logistics installation, an office building or something else, yields vary between 8-12%. Of course, in this harsh situation we are witnessing on the market now, it is rather difficult to define a precise yield. When an office building is empty, there is no yield, for example. So how to define a single evaluation method to prevail? Many factors must be taken into account, and all market players are trying to figure out an in-house method that is suitable for evaluating a particular property. Q: Most market players complain about the lack

of predictability in the real estate sector and the financing opportunities as well. Do these factors hold your business back? A: We are confident that the willingness of banks to lend will be restored in the near future. Unfortunately, the country risk is still too high, which raises interest rates as well, but I hope it will not take too much for financial investments to buzz, uplifting the SME and the commercial real estate market as well. Banks prefer to lend, not to manage investments. They don’t like it, and they are not very good at it, either. On the other hand, we have pretty high expectations for the business environment, as the government’s intention to help and support the development of SMEs is clearly visible. If this is the case, a situation may arise in any moment when Budapest runs out of good offices, especially in the Category B segment. Just a side note: according to other experts,

rental prices on the commercial real estate market have already hit rock bottom, so tenants are encouraged to sign a new contract for five or six years now. Q: How do you prepare for such a boom? A: Our initial HUF 7-8 billion in real estate has grown to HUF 20 billion in two years. Our short-term goal is to raise the property portfolio to HUF 30 billion, as there are a lot of office buildings for sale on the market. To meet that goal, we turn to the capital market. For the first two years, we concentrated mainly on property market communication, and I believe we succeeded as the name Appeninn was learned by quite a lot of people. After two years, we would like to emphasize the capital market communications due to the reason that after small investors, we would like to attract more institutional and professional investors. We are continuously in talks with various asset manag-

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ers to make them understand the opportunities in our shares. Of course, their behavior is very much influenced by the current situation on the Hungarian capital markets. But we are very confident that the right processes and measures will occur throughout the coming years to support and establish a favorable economic environment for SMEs. If that happened, the stock market would be a significant additional source of capital for SMEs, just like it is in Poland. Currently, the free float on Appeninn shares is 40%, and most of the investors are small. Accordingly, the turnover is always high enough, the paper is always in the top 10 stocks in terms of liquidity. I think that for investors to get to know and trust a paper and the company behind it, a long time has to pass. To establish transparent operations in order to build up confidence is our responsibility. To meet this expectation, we already

presented the corrected IFRS reports retrospectively. (The company and some of its executive members were fined by Hungarian market watchdog PSzÁF three weeks ago, criticizing the content of the 2011 IFRS financial statement’s appendix.) I think we can provide data that supports our goals and intentions adequately. The most important thing is that even if we suffered a net loss in the first half of this year, revenue and EBITDA increased by 60% and 80% year-on-year respectively, which is a very good result. Q: What are the latest projects Appeninn is working on? A: As for ongoing deals, last week we signed a contract with Wallis over a car dealer. More specifically, we are talking about the Opel showroom on Kerepesi út, who is one of the most successful car dealers in Hungary. In response to the challenges of new times, Chevrolet and Citroën models and used cars are also on

sale. We bought the project with a 10% yield, the tenant is one of the members of the Wallis Group. A very nice part of the agreement was that we were able to pay our part in our own shares, indicating that our package is seen by Wallis as a strategic investment. Both parties consider the agreement as a pilot project that – if successful – can be followed up by closer cooperation in the future. There are visible synergies between the two companies, which could be explored in the future: for example, they are purchasing power for us. Another interesting investment was the purchase of an old printing factory in Egyenes utca. It was almost empty, however, in a year we were able to fill it up with carrelated companies including painters, locksmiths, car alarm experts, LPG installers, etc. The occupancy is just shy of 100%. I think this is the area where we are skilled: flexibility and the unique exploitation of opportunities. This is our added value. ■

A SPECIAL SELECTION BY THE

FINE OFFICES

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A+ CATEGORY OFFICES CURRENTLY AVAILABLE FOR RENT IN THE MOST PRESTIGEOUS AREAS OF THE CITY

TERRAPARK A, B PALACE ANDRÁSSY

MARGIT PALACE PALACE ANDRÁSSY ADDRESS 2040 Budaörs, Puskás Tivadar út          BUILDING YEAR A: 2000, B: 2002 FREE SPACE A: 1200 sqm, B: 4350 sqm PUBLIC TRANSPORT BUS 240, 40 busz, TERRAPARK shuttle CONTACT Éva Szilágyi

ADDRESS 1027 Budapest, Henger utca 2. BUILDING YEAR 2004 FREE SPACE 2416 sqm PUBLIC TRANSPORT Tram 4, 6 Metro 2 HÉV 5 BUS 86, 11 CONTACT Éva Szilágyi

Tel: +3620 / 9848 999 szilagyie@terrapark.hu

Tel: +3620 / 9848 999 szilagyie@terrapark.hu

The two most successful buildings of Terrapark offer A-category offices in green surroundings, at excellent location in the junction of motorways M1-M7. The buildings have been constructed in a contemporary and representative style. Technical equipments of the buildings meet modern requirements. The buildings have secure underground parking and surface parking spaces.

R70 OFFICE COMPLEX ANDRÁSSY PALACE

The five-storey A-category building offers offices, service units and a two-storey underground parking lot for its future tenants. The building, which formerly housed trams, is under local heritage protection. The state-ofthe-art equipments of the facility meet today’s standards. It is accessible by car and public transportation; Déli railway station and the Danube is only a few-minute walk away.

INFOPARK D ADDRESS 1074, Rákóczi út 70-72. BUILDING YEAR 2001 FREE SPACE 4900 sqm PUBLIC TRANSPORT Tram 4-6, Metro 2, Bus 5, 7, 173, 178, 239 CONTACT CBRE

+361374 30 40, www.cbre.hu; Eston

+361 877 10 00, www.eston.hu This “A” category office building was built at 70-72 Rákóczi út in 2001. The excellent downtown location makes it easy to reach from both sides of the Danube. R70 Office Complex offers special services such as local post office, restaurant, wellness and fitness facility and conference room.

ADDRESS H-1117 Budapest, Neumann J. u. 1/E BUILDING YEAR 2007 FREE SPACE 6000 sqm PUBLIC TRANSPORT Bus 33, 33A, 33E, 86, 103, 203A, Infopark bus 203, Tram 4, 6, 9 CONTACT

+36 1 382 7560 office@ivg.hu Infopark Building D is one of the most exclusive office buildings in Budapest with location on the Danube bank, great view to the river, lots of green surfaces and roof terraces. Due to its advanced, environmentally conscious solutions, its offices operate with low maintenance costs. Being situated in Infopark, the building is provided with a bank branch, ATM, stationary, cafes and restaurants. Infopark Building D offers a total of 6000 sqm area for rent.


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The case for professional local real estate asset management When vacancy rates for most real estate sectors remain stubbornly high, and the prospects of oversupply continuing for years to come present a gloomy outlook for owners of all except the best properties, what can be done? Csaba Zeley, Director of Asset Management at ConvergenCE looks at some solutions to the current problems faced by building owners.

The first misconception building owners need to face is that Budapest is a brokers’ market, and a broker makes money on turnover. No broker is incentivized, therefore, to help building owners keep tenants in a building, unless the fee the owner is prepared to pay is equal to, or greater than, the fee the brokers would receive for taking tenants elsewhere. One would think that this is obvious, but it is often a point not understood by owners coming from markets such as the UK or Ireland, where the brokers are normally part of a full service consultancy organization where a long-term outlook is taken, diverse services are packaged and provided by the same real estate consultancies and client loyalty puts a brake on the broker mentality. Secondly, rent levels for all commercial sectors of real estate in Hungary have now reached such low levels that simply offering a lower rent or other financial incentives barely has the effect it would have done five years ago. The incentive rent level below competitors’ rent levels is now marginal. Indeed, reducing quoted rents and service charges has led some building owners into situations where they simply cannot provide any meaningful level of service to their tenants. Even inexperienced tenants sense this when searching for property, and I would maintain that the effect has almost become counter-productive for some buildings. So what can be done? Every building owner needs to take a hard look at the placement of their building in the market, the benefits it offers to its tenants and its future competitiveness. This is a necessity, as the alternative of simply selling the asset (as was typically the case between 1989 and 2007) is no longer a possibility unless the owner is willing to take a large loss. Very often, only an external expert who understands the peculiarities of the local real estate market can provide an objective view. Location and quality are obvious enough, but what about an objective assessment of how

competitive the building is in terms of its amenities, the true level of its property and facility management services and costs, its utility costs and how the building physically meets current and future demand trends? For example, the majority of recent new large office leases in Budapest have been to international service center tenants. Many office buildings constructed in the 1990s simply cannot meet their requirement for large, efficient space capable of high occupational density, flexible technical solutions and low add-on costs. Assuming you are fortunate enough to own a building that can still be fundamentally competitive in terms of location and physical structure (following internal reorganization and renovation if necessary), how can a local asset manager assist you further? Quite apart from being able to act on behalf of the owner in managing the essential property and facility management services necessary in any building to a competitive level (which requires knowledge of the respective levels provided by your competition), there are two key areas. The first, a strategic overview applied to buildings and portfolios based on local knowledge and experience, we have already touched on. Translating this advice into action to protect your buildings and tenants is the next step. This is proactive asset management at the level of lease restructuring and renewals, which we began back in 2007 on behalf of our clients. Yes, we had to accept concessions and a drop in income, but five years later, almost all of these tenants are still in occupation in our client’s buildings. This was a course of action which many building owners either did not contemplate or, if they did, it was a case of “too little, too late”. What about when the building is already substantially vacant, you may ask? Well, this presents a more challenging problem. If the building requires capital expenditure to become competitive, it is often not available, as neither the owner (whose original 20% equity is now often worth nothing) nor the loaning bank is prepared to provide it. In the case of the banks, this is a critical error arising from the fact that financial analysts cannot justify additional capex due to a lack of knowledge about the details of real estate and therefore the prospects of its return. Unlike paper financial instruments, real estate is not a homogeneous product that can be easily priced. Many real estate assets have ended up in liquidation, forcing a write-down of 50% or more of loan value, for want of a 10% (of value)

capital injection. For this reason, I would suggest that banks acting as “building owners” via debt could also benefit from specialist real estate asset management advice. The second key area comes down to relationships and understanding the local business environment. Budapest can now been seen as a reasonably mature real estate market. It has experienced two boom and bust cycles since 1989 and 90% of the tenants in the market have been here for some time. How then to attract and keep these clients (and note that they are clients, not just rent payers as some building owners would treat them)? I would say that it is essential for any building owner not only to know who they are (directly or through brokers), but also to know their decisions-makers personally and to understand what drives their businesses. For example, service centers are far more sensitive to availability of public transport and local amenities due to the competition with other ser-

vice centers for their personnel, than they necessarily are to rent and service charge levels. Logistic companies are not only sensitive to location and amenities but also to on park services and lease length, which is driven by their clients, and so on. This is not a level of relationship and understanding typically provided by a broker, but rather by an organization which is driven by a much more longterm view and non-conflicting client loyalty. So, if you are a distressed building owner, you should ask yourself; “Do I have a local representative whom I can trust to pursue my best interests to a level which I myself would seek to attain if I had the necessary local experience, knowledge and contacts?” If the answer is no, then a reappraisal of your building or portfolio and your local advice is overdue.

NOTE: ALL ARTICLES MARKED EXPERT OPINIONS ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

Many building owners seem to hope for the best as far as keeping existing tenants is concerned, and will trust in real estate brokers in the local market to bring them tenants when others leave. It seems that surprisingly few take proactive steps to avoid finding themselves in this situation, and fewer still understand the nature of the local broking market. Some do not consider retaining an asset manager, and those who have professional asset managers in-house or as advisers are most often based in London, Warsaw or Vienna. Others think that having good, efficient property and facility managers should be sufficient.


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Banks slow to unwind bad property loans Hungarian banks are not in a rush to sell off distressed assets of their portfolios. Sales are curbed by several government measures and the hope of reaching better deals. BBJ ZSÓFIA VÉGH

Hungarian banks are in no rush to get rid of their bad property loans, the Q2 forced sales report of the financial supervision PSzÁF reveals. For the third quarter, credit institutions have launched 2,866 residential property loan sales, using up 71% of the available 4,053, a 10% fall compared to the previous period. Overall 113,840 loans were more than 90 days overdue in the second quarter. For fear banks will sell bad loans en masse, causing

oversupply and lower prices, the government introduced a quota system in the summer of 2011. According to the regulation, financial institutions are allowed to sell 3% of their existing property stock, with the amount set to increase to 5% by 2014. But fears seem to have been unfounded: banks have not flooded the market with their bad loans ever since, and utilization of the quota dropped to 71% in Q2 from 84% in the first quarter. The patience of banks is not surprising. Selling bad loans hardly brings them profit as the selling price is well below the asset’s original value, so banks try and strike an agreement with the client first. Should they fail, they still have a number of options. Selling the distressed asset to the National Asset Manager Company (NET), which buys the homes of troubled borrowers, offers somewhat higher yields. Set up last year, NET allows residents to con-

tinue to live in their homes as tenants until their financial position is consolidated and they can repurchase the properties. By the end of July 2012, the state bought eight homes for HUF 27 million, but due to a change in regulation, it will be able to buy more from this fall. The allotted number is 8,000 for this year and 25,000 by the end of 2014. The use-up of the quota depends largely on the number of homes offered for sale. Banks have put up approximately 500 homes for sale, with FHB and OTP taking the lead. At OTP, an overall 1,250 home owners said they were interested, of which the bank has forwarded 250 claims, daily Napi Gazdaság reported. However, debtors who could really make use of this opportunity – with loans due for over 90 days – are often hard to reach. Some banks inform them through various means, even in person, but often in vain. This

Cities/counties with the highest and lowest number of bad loans designated for forced sales (Q3 2012):

also slows the process down. Another ‘brake’ in the system is the option of paying off debt at a fixed exchange rate. “The deadline for FX-mortgage borrowers to pay off debt under

this condition will expire at the end of this year, which may account for moderate sales,” said Zsolt Kalocsai, managing partner of RSM DTM Hungary Zrt., a tax and audit advisory

firm. Banks are over the worst in terms of portfolio deterioration, the expert noted. Recent measures such as extending the lifespan of the bank tax or increasing the rate of the transaction fee will have no impact on the existing loans, Kalocsai believes. However, banks’ lending activity will be significantly hurt. “Stagflation (stagnation and inflation) is a real threat for 2013.” BANCO MALO IN SPAIN The Spanish government has until November 19 to set up its bad bank, a bank absorbing toxic property assets, a condition for receiving €100 billion of external aid for the financial system it requested in June. Named SAREB, the bank will have €90 billion of assets based on their transfer price, initially comprising land, developer loans and residential units that went sour after Spain’s decade-long real estate boom finished. ■


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Skeletons outside the Real estate development is not a particularly risky business under normal conditions, but the economic environment since the 2008 financial crisis has been anything but normal. In our article, we take a look at the most infamous property developments of Budapest where things have not turned out the way they were meant to.

HOTEL PANORÁMA Ever since its opening in 1971, Hotel Panoráma has been a remarkable, if not very nice, characteristic of the sight of the Danube’s Buda shore. Originally owned by the centralized trade unions (SZOT) in the communist era, the building used to function as a hotel until its difficulties began in the early 1990s. Following various changes in its ownership structure, it became the ultimate symbol of Hungary’s greatest embezzlement and fraud scandal, known as the Globex case. During its seven years of operation, Globex Holding was found to mishandle its investors’ funds in the volume of some HUF 7 billion. After its collapse, the building remained in the state of refurbishment, exactly as it can be seen now, 14 years later. The various attempts to utilize the former hotel, which is regarded as one of the most valuable properties of Budapest, included plans to transform it into a luxury apartment building, with real estate prices between HUF 1-3 million per square meter. The construction that began in 2007 was then put to a halt due to a two-year-long lawsuit and finally ended in the bankruptcy of its investor, Pro-Hill Kft, which proved unable to finance the lengthy procedure. According to recent rumors, the building’s current owner, CIB Bank has requested feasibility studies from various architecture firms this March, although its specific plans with the property are yet to be revealed. TÓPARK QUARTER The concrete jungle that spreads across some 180 hectares just outside Budapest was originally intended to be a vivid city within a city, packed with office buildings,

apartments, a lake, a huge and beautiful park, its own motorway exit and even a train station. Two years after the construction was put on standby, its biggest achievement is that both Paramount Pictures and 20th Century Fox considered the area as a potential shooting scene of their movies World War Z and Die Hard 5, respectively. Eventually both chose other locations instead. The project, whose overall budget was estimated to be in the area of HUF 300-500 billion, went bankrupt shortly after the financial crisis began in 2008. Tópark’s financing partner, German-based Eurohypo Bank (an affiliate of Commerzbank), decided to withdraw from the Hungarian market in 2010 after its parent company received state subsidies in return for cutting back on high-risk projects such as EMEA investments. Although construction carried on until November 2010, the interim period resulted in unpaid invoices to the tune of HUF 2 billion, and the numerous lawsuits that followed suggest that the parties involved are unlikely to cash in on the project, ever. The missing amount is one of the many points currently under debate. According to business weekly HVG, the investor received some EUR 80 million of the EUR 130 million the original 2006 contract was about, but according to the bank’s claims, the project’s state of completion is far below the proportional 60%. Last autumn the general contractor, DGB Kft, suddenly moved to Zalaegerszeg, known as “the elephant graveyard” among corporate lawyers. The liquidation procedure against DGB was launched earlier this year. CET BUILDING As Central European as its name, the whale-shaped CET

(Central European Time) cultural and commercial center has been ready to open its doors for over two years but is still standing empty and unused. Originally meant to become a new symbol of Budapest, the project might as well earn this reputation on the long run. The lawsuits, police investigations, fines and quarrels around the construction are next to impossible to untangle. CET was originally a PPP investment worth HUF 8.5 billion, with Porto Investment Hungary Kft as general contractor, MKB Bank as financing partner, and Budapest contributing to the project with the construction plot. According to the original contract, Porto would finance the construction in return for the exclusive right to manage the property for 25 years. Calculations suggested that the building’s revenue would be more than enough to pay Porto’s fee. But when the previous, Gábor Demszky-led city council of Budapest was followed by mayor István Tarlós and his staff in 2010, things began

Hotel Panoráma

to get clumsy. Completion of the building was delayed, a fact that was mutually blamed on the other by both parties involved, and the handover of the building never happened. The unwholesome situation was followed by vice mayor Gábor Bagdy calling on a bank guarantee of over HUF 1 billion (a step that was never agreed by the city assembly, and one that Porto claims was unlawful), the municipality imposing a fine of HUF 1.5 billion and demanding that Porto immediately hand over the building. Porto, on the other hand, refuses to leave the construction site, sued the municipality for HUF 12.5 billion (the original costs plus interests), and MKB Bank also chipped in with a HUF 7.5 billion lawsuit against Budapest.

If that does not sound symbolic enough, one wonders what does. RÁC BATH Budapest is famous for its bath culture, but the HUF 8 billion refurbishing of its Rác Bath is unlikely to raise this position any further anytime soon. The bath, and especially the construction of an adjoining 67-room luxury hotel, raised the ire of local residents early on as they are located in one of the rare green areas of downtown Buda. But now, as the building that had been completed two years ago is still standing abandoned in Tabán park, it seems difficult to think up a scenario that is even worse for everyone involved. The obstacle in the way of the opening ceremony was a

CET Building debate between general contractor Rác Nosztalgia Kft and its 25% shareholder, the Budapest municipality, but just as the two sides appeared to reach an agreement earlier this year, the project’s main financing partner, Hungarian Development Bank (MFB) decided to cancel its contract. Part of the reason is that its claims were left unpaid by Rác Nosztalgia since June 2011, and another part is that the agreement between the other two was negotiated and reached without MFB’s involvement, something the bank dubs “a business nonsense”. As a result, in late September a liquidation procedure was launched against Rác Nosztalgia and the building

is expected to be auctioned, meaning that another HUF 250 million state subsidy that was used in the project will be lost. THE BALLET INSTITUTE (DRECHSLER PALACE) In the previous paragraphs, we introduced a few miscalculated, mismanaged or simply unfortunate projects that were abandoned at various stages of their constructions. But the example of the former State Ballet Institute shows that for a property project to go completely wrong, not a single brick needs to be moved. The representative building just opposite the sparkling Opera House on Budapest’s


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closet MTV Headquarters

The Ballet Institute (Drechsler Palace)

Tópark quarter deal, and the potential of the building’s reconstruction’s gaining new momentum, could be a key element of the Hungarian real estate market in the following years.

Rác Bath Andrássy út has been empty and increasingly in ruins for over 14 years, after the municipality of Budapest’s District 7 sold it to a company called Andrássy 25 Kft (named after the building’s address), which then traded it to two Israeli investors, sister companies of Plaza Centers, for an unrevealed sum. The investors mentioned huge property developments and planned to transform the former ballet school into a luxury hotel, but no details or actions followed. A few years later, in 2007, the building was acquired by Portuguese real estate developer Aquapura Hotels, who also published plans of completely refurbishing the building and turning it into a pre-

mium hotel. Unfortunately these plans, along with much of Aquapura Hotels’ assets, were washed away by the economic crisis that hit a year after the deal. According to Aquapura’s CEO Miguel Simoes de Almeida, the company is doing “their utmost” to at least maintain the building’s conditions, but the actual development plans seem more remote than ever. According to anonymous sources, the Portuguese owner, who now refuses to officially disclose its plans with the building, made it clear to its Hungarian partners that it is willing to sell the palace in case a good customer shows up. Industry experts agree that another

MTV HEADQUARTERS The bankruptcy procedure against Tőzsdepalota Ingatlanforgalmazó és Fejlesztő Kft, the owner of the former headquarters of the state-owned television MTV, was filed in early September. According to its books, the company is in a severe financial situation, and its losses have been skyrocketing since MTV left the building in 2009. Tőzsdepalota Kft, led by Canadian businessman Michael Tippin, acquired the prominent property in 2006 in a public tender, which was the fourth attempt to sell the building by the state. The HUF 4.5 billion price included the condition that MTV would rent the building back for a monthly HUF 25 million (this amount was later raised to HUF 45 million). But when the television moved out from the building on July 31, 2009, things began to get worse for the owner. Its losses equaled HUF 576 million in 2010 and rose to HUF 1 billion in 2011. Plans to completely refurbish the building by the end of 2015 with an investment of some HUF 100 billion are still in the preparation phase, although all per-

missions are ready and valid as of November 2010. It is currently unknown what, exactly, caused the collapse of Tőzsdepalota Kft’s plans and the bankruptcy of the company, but business website Mfor.hu suspects that its short-term debts could be in the background. According to Mfor.hu, the project’s financing partner MKB Bank and Tőzsdepalota are currently making every possible effort to re-negotiate the conditions, but to date neither parties wished to comment on the details or possible scenarios that may follow the bankruptcy. ZsB


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Real estate sector craving predictability The office space vacancy rate in Budapest and its agglomeration grew by 17bp to 21.5% this year. Most of the market players highlight unpredictability and anti-investor climate as the main problems. BBJ KRISZTIÁN KUMMER

If you take a look at the panorama of Budapest from Castle Hill, Gellérthegy or just the window of a top-floor office, you will barely see more than one or two crane silhouettes over the city. And it is not a rare coincidence but the bitter truth: almost all investors and developers have abandoned their projects in Budapest and its agglomeration. According to the Budapest Real Estate Consultants

Coordination Forum (BRF), 244,000 sqm of office space was leased in Budapest and its agglomeration in the first three quarters of 2012, 16% less than a year before. Of the 3.175 million sqm of office space, 2.622 million is rented and 533,000 sqm is selfowned. Given the unchanged supply and reduced leases, the vacancy ratio is further worsened. The current 21.5% vacancy rate is 17bp higher than a year ago. The real estate development companies forming the forum – CB Richard Ellis, Colliers International, Cushman & Wakefield, DTZ, GVA Robertson, Eston International and Jones Lang LaSalle – stated that office space supply in Budapest has not increased by a single square meter this year. NOT ENOUGH TO DEVELOP “Rental prices are under strong pressure – mostly in locations that are strong on the supply side, like on the

Váci corridor or in Southern Buda. Yields are around 8.59% for class ‘A’ offices, but there are no investors at this level,” said Jürgen Blum, office park Terrapark’s owner and managing director. “Tenant demand comes mainly from relocation, not from new contracts,” he added. Most tenants are looking for cheaper offers for shorter periods. More contracts are signed for around three years or even shorter, compared to the previous practice of five years or more. “Commercial real estate landlords with long-term vacancies have to be prepared to meet the often excessive expectations of tenants. But that can help to reduce the vacancy on one hand. On the other hand, these deals do not justify new developments, therefore no market growth is expected in the near future,” said the Hungarian vice-president for Prologis, László Kemenes.

CAUTIOUS INVESTORS It also has to be admitted that Budapest still has a bad reputation amongst investors. At the 15th Real Expo in Munich, one of the most important European real estate expos, the overall opinion of the region seemed to remain unchanged: Poland reigns over the investors’ market, as Hungary is still not convincing enough to attract major investments. Most market players (investors and developers too) highlighted not unfavorable real estate fundamentals or macroeconomic problems but political instability as the main reason. The biggest risks on the Hungarian market are unpredictability and an anti-investor climate. “A predictable politicaleconomic environment in line with the guidelines of the European Union and a fast alignment with the IMF could probably increase consumer confidence and stimulate GDP growth. That

eventually would attract investors again by the middle of next year,” pointed out Goodman’s business development manager Krisztina Máté. The country asked for a financial package of €12-15 billion to protect its economy in November 2011, but talks on the request have stalled as the positions of both sides have not yet converged. According to the latest news, negotiations are unlikely to resume this year, making Máté’s wishes unlikely to come true. The reluctance of banks to lend also narrows the possibilities of investors. “Major banks and financing institutions are still cautious and therefore very selective in property financing. Some of them have completely put on hold their activity as such,” Máté said. So called “crisis taxes” levied – among others – on financial institutions lead to lower foreseeable margins and profits in the

sector. Also, the EU is asking banks to install stricter risk management. “These features together will lead to the shortage of financial facilities for local companies. Without state subsidies, banks will not recover soon, and the lack of financing will be a problem for many years,” Blum predicts. CLOSER TO THE TENANTS With the deterioration of market opportunities, communication with tenants has become more important. “We are very flexible, we listen to tenants’ wishes and we always find individual solutions. For instance, tenants can grow or reduce spaces within Terrapark according their actual needs,” Blum said. Prologis has been primarily focusing on leasing existing vacant space and customer retention in the past four years, during which it managed to reduce its vacancy levels to 15% and increase its retention rate to well above 90%. ■

[ EXPERT OPINION ]

KATALIN SERMER Country Manager S IMMO Hungary Kft.

In 2012 S IMMO Hungary, a daughter company of Vienna based real estate investor S IMMO AG, signed new contracts for 2,000 sqm and extended existing agreements for 12,000 sqm. The company agreed with four new tenants on 820 sqm and 1,200 sqm areas in the City Center, Buda Center and Maros Utca Business Center. The extended agreement concerns the City Center and Buda Center office buildings, with 500 sqm each. Contracts were also extended on 10,000 sqm with a major financial institution in the River Estates building, and on 1,100 sqm with the fitness center in the same building.

Thanks to its attitude, S IMMO Hungary conducted very successful projects in 2012. In the first half of the year the company successfully refurbished the ground floor lobby of the City Center office building, while the exterior of the building will be renovated later this year. The River Estates building will also undergo a technical upgrade during the next two years. In three other buildings, (Buda Center, Pódium Irodaház and Maros Utca Business Center) technical developments were carried out, including the replacement and modernization of cooling and heating systems, and the inner garden was also refurbished in the latter building. Katalin Sermer, country manager of S IMMO Hungary said: “It’s a great challenge and very exciting to renovate our properties so that they meet the needs of our days. Last year we decided to respond to these needs by renovating the City Center office building, starting with the replacement of the air conditioning system and implementing energy saving water- and lighting solutions. We placed a greater emphasis on design makeover: the ground floor lobby was completely rebuilt, and the common areas and elevators have a new look. We are currently working on establishing accessible entrances and conveniences for people with disabilities, and the building’s environment will be

refurbished this autumn. The total volume of these investments will be some €500,000 in the next twelve months. We have received positive feedback from our tenants, especially regarding the impressive modernization and design elements. We hope that they will be pleased with the new working environment in their offices.” S IMMO AG, one of Austria’s leading real estate investment companies (listed on the Vienna Stock Exchange since 1987), is present in Austria, Germany and in six other countries in the CEE and SEE region: Hungary, the Czech Republic, Slovakia, Bulgaria, Romania and Croatia. The company’s operating results for the first half of 2012 were very satisfactory. S IMMO has been successful in signing new rental agreements in Southeastern Europe. At Sun Offices in Bucharest, a rental agreement has been concluded with a local software company, which brings the occupancy rate up to roughly 67%, and S IMMO is expecting it to rise to 80% by the end of the year. S IMMO has also signed a contract with international tenants for the Eurocenter office building in Zagreb so that the property is fully let now. The asset management team has had some impressive achievements in Austria as well, among others signing a 10-year rental

agreement with the City of Vienna for nearly 4,000 sqm of office and warehouse space in Arcade Meidling. S IMMO believes that the keys of its success are understanding the business environment, providing excellent services based on clients demands and considering sustainability. These guidelines have led the company to launch new and sustainable developments. One of the success stories is Serdika Center, the company’s shopping center in Sofia, awarded SEE Green Building of the Year in 2012. A particular focus was placed on this approach in the construction of Serdika Center and the offices above it. In September 2011, Serdika Center became the first shopping center in Bulgaria to receive a DGNB gold certificate from the Bulgarian Green Building Council (BGBC). The largest shopping center in Bulgaria, it was opened in 2010, with an investment volume of €210 million. Serdika Center is also the largest development project in S IMMO’s history.

www.simmoag.hu

NOTE: ALL ARTICLES MARKED EXPERT OPINIONS ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

S Immo Hungary: sustainability and excellent services are the key drivers for developments


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Real estate developers

8,745

»







 

www.ece.com

2

BUDAPESTI INGATLAN HASZNOSÍTÁSI ÉS FEJLESZTÉSI NYRT

2,592

»

  

  

  



ONGOING PROJECTS IN HUNGARY (INVESTMENT VALUE IN HUF, EXPECTED YEAR OF COMPLETION)

PREVIOUSLY COMPLETED REFERENCE PROJECTS, YEAR OF COMPLETION

MAIN CLIENTS IN 2012

Árkád Örs Vezér tere 2. time (2013)

Árkád Örs vezér tere (2002), Árkád Pécs (2004), Árkád Győr (2006), Debrecen Fórum (2008), Árkád Szeged (2011)

Interspar, Media Markt, Zara, H&M, C&A, Hervis, NewYorker

»

Ü 48 Corner 2010

Axel Springer, CIG Pannónia Biztosító, CEMP Group, Nemzeti Kereskedelmi Hatóság, GTS

8.900 sqm logistic distribution and plant facility, 1,1 Mrd HUF, 2012 Q4

Gateway Office Park (2008), Europeum Shopping Center (2011), Airport City Logistic Park (2008), Business Center 30 (2007), Buy-Way Dunakeszi Shopping Park (2006)

Marriott, Courtyard, Magyar Posta, KPMG, Samsung, H&M, Panalpina, BASF, Trilak

Újbuda Tóváros II. time (2012)

Újbuda Tóváros I. time

Nanette Harmony (2012), Nanette City Home (2012)

Tüzérkert (2008), Magnólia Lakópark (2008), Jazz Loft (2010), Nanette Viva Lakókert (2011)

»

Poznan Glówny Transportation Hub-Poznan, 2012, K&H Bank székházaBudapest, 2011, Bonarka City Center-Krakow, 2009

www.bif-irodak.hu, www.bif.hu

ABLON REAL ESTATE DEVELOPMENT KFT www.ablon-group.com 2,090 1,030

3

4

5

ÚJBUDA TÓVÁROS KFT www.tovaros.hu

NANETTE CONSTRUCTION HUNGARY KFT www.nanette.co.hu

1,847

»

1,722

»

  



Hotel







  

  

 

» » » » » » » » » »

 

TRIGRANIT DEVELOPMENT ZRT www.trigranit.com 6

7

1,642

»

RE PROJECT DEVELOPMENT KFT www.raiffeisenevolution.hu

749

»

  

  

















»

»

»

»

»

»

YEAR ESTABLISHED NO. OF FULL TIME EMPLOYEES IN HUNGARY ON MARCH 1, 2012

ASSET MANAGEMENT

REAL ESTATE BROKERAGE

CONDOMINIUM OPERATION

BUILT-TO-SUIT DEVELOPMENT

REAL ESTATE UTILIZATION

REAL ESTATE INVESTMENT

CONSTRUCTION

PROJECT MANAGEMENT

PORTFOLIO MANAGEMENT

FACILITY MANAGEMENT

OTHER

PUBLIC BUILDING

INDUSTRIAL

INFRASTRUCTURAL

RESIDENTIAL

COMMERCIAL

OFFICE

 

ACTIVITIES AND SERVICES

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

ECE PROJEKTMANAGEMENT BUDAPEST KFT

TYPES OF INVESTMENT

OWNERSHIP (%) HUNGARIAN NON-HUNGARIAN

1

COMPANY WEBSITE

TOTAL NET REVENUE (HUF MLN) IN 2011 H1, 2012

RANK

Ranked by total net revenue

ADDRESS PHONE FAX EMAIL

1996 128

– (100)

Gyula GyalayKorpos, Christoph Augustin Hanna Szilvásy –

1106 Budapest, Örs vezér tere 25/A (1) 434-8200 (1) 434-8207 info@ece.hu

1994

(100) –

Gábor Angel Krisztina Czifra –

1033 Budapest, Polgár utca 8–10. (1) 457-3860 (1) 367-2800 bif@bif.hu

– ABLON Group (100)

Adrienn Lovro – –

1132 Budapest, Váci út 30. (1) 225-6600 (1) 225-6601 ablon@ablon.hu

MAC Kft (100) –

Ottó Komáromi, Ulrich Wrede – –

1054 Budapest, Hold utca 21. (1) 877-5615 (1) 877-5611 info@tovaros.hu

2006 16

– Nanette Real Estate Group N.V (»)

Gábor Kiss, Alex Goor – –

1066 Budapest, Teréz körút 46. (1) 472-2818 (1) 472-2819 iroda@nanette. co.hu

1997 33

Demján Sándor (»), Csányi Sándor (») Immofinanz Group (»), Peter Munk (»)

Árpád Török Gyula Ágházi Ernő Koncz

1062 Budapest, Váci út 3. (1) 374-5600 (1) 374-5601 info@trigranit.com

– Raiffeisen Evolution GmbH (100)

Rudolf Riedl Sabine Wegscheider –

1027 Budapest, Ganz utca 16. (1) 346-6400 (1) 346-6448 office@raiffeisenevolution.com

»

1993 32

2007

»

2003

»


24 2 BusinessPartnerWatch

»

 

 

  

ASSET MANAGEMENT

REAL ESTATE BROKERAGE

CONDOMINIUM OPERATION

BUILT-TO-SUIT DEVELOPMENT

REAL ESTATE UTILIZATION

REAL ESTATE INVESTMENT

CONSTRUCTION

PROJECT MANAGEMENT

PORTFOLIO MANAGEMENT

FACILITY MANAGEMENT

OTHER

PUBLIC BUILDING

INDUSTRIAL

INFRASTRUCTURAL

RESIDENTIAL

COMMERCIAL

OFFICE

 

ACTIVITIES AND SERVICES ONGOING PROJECTS IN HUNGARY (INVESTMENT VALUE IN HUF, EXPECTED YEAR OF COMPLETION)

www.convergen-ce.com

420 215

 



  

  

MAIN CLIENTS IN 2012

ADDRESS PHONE FAX EMAIL

»

1999 75

Wingholding Zrt (99.90), Other (0.10) –

Noah M. Steinberg – –

1095 Budapest, Máriássy utca 7. (1) 451-4760 (1) 451-4289 info@wing.hu

2004 7

– Convergen Central Europe Ltd. (100)

Alan A. Vincent – –

1062 Budapest, Teréz körút 55–57. A/5 (1) 225-0912 (1) 375-0445 office@ convergen-ce.com

– IVG Immobilian AG (100)

Kay-Uwe Blandow – –

1117 Budapest, Neumann János utca 1/E (1) 382-7560 (1) 382-7567 office@ivg.hu

– Shikun & Binui Real Estate Development B.V (100)

Liron Or Botond Spiesz Gábor Győző

1036 Budapest, Bécsi út 38–44. (1) 437-8280 (1) 437-8282 office@shikunbinui-red.com

Péter Kállay (50), Gyula Kerényi (25), Réka Pálffy (25) –

Gyula Kerényi Erika Bachmann Réka Pálffy

1094 Budapest, Ferenc tér 2. (1) 219-5477 (1) 219-5478 pestihazak@ pestihazak.hu

2001 12

– ProLogis B.V (100)

László Kemenes Peter WhiskerdWegorzewski Marta Tęsiorowska

1095 Budapest, Lechner Ödön fasor 7. (1) 577-7700 (1) 577-7701 info-hu@ prologis.com

2003 1

– Grupo MartinsaFadesa S.A (100)

José Luis Moreno Alcaniz Zoltán Horvát –

1051 Budapest, Bajcsy-Zsilinszky út 12. (1) 413-1451 (1) 413-1452 –

– Goodman Europe S.A (96.67), Goodman Belgium (3.33)

Roger P. Peters – –

1024 Budapest, Lövőház utca 39. (1) 336-2270 (1) 336-2289 info-hu@ goodman.com

Biggeorges Vagyonkezelő Kft (50), NV Vagyonkezelő Kft (50) –

István Hajnal – –

1036 Budapest, Lajos utca 28–32. (1) 225-2525 (1) 225-2521 info@ biggeorges-nv.hu

 

Millenáris Office Buildings (2010), k3 Office Building (2010), Dél-pesti ComHegyvidék mercial Park II. Központ shop(2010), Átrium ping center Park Office (5000 mln Building (2008), HUF, 2012) Agria Park Shopping Center (2008), Corvinus University new building (2007)

 

»

Eiffel Square Office Building. City Point 9 Warehouse and Business Center, Margit Palace Office Building, TerraparkNext Office Buildings A and B, àPark One Office Building (Bratislava)

»

Infopark G, I, B, C, D, E (2009)

Garden Ville Kamaraerdő, Cornerstar Office Building, Club Aliga, Méta Logistic Center

Izabella Garden, Új Udvar Shopping Center, Rose Garden

Pesti Ház-Dandár utca (2010), Pesti Ház Átrium (2009), Pesti Apartmanház (2008)

»

Prologis Park BudapestSziget, Prologis Park BudapestHarbor, Prologis Park BudapestBatta, Prologis Park Heghalom

Prologis Park Budapest-Gyál (2008)

Geodis, HOPI, FIEGE, Raben Trans European Hungary, CEVA Contract Logistics, UTI

CONVERGENCE 9

PREVIOUSLY COMPLETED REFERENCE PROJECTS, YEAR OF COMPLETION

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

www.wing.hu

700

TYPES OF INVESTMENT

OWNERSHIP (%) HUNGARIAN NON-HUNGARIAN

WING ZRT

WWW.BBJ.HU

Budapest Business Journal | Nov 05 – Nov 15

YEAR ESTABLISHED NO. OF FULL TIME EMPLOYEES IN HUNGARY ON MARCH 1, 2012

8

COMPANY WEBSITE

TOTAL NET REVENUE (HUF MLN) IN 2011 H1, 2012

RANK

BBJ

Europa Fund, JP Morgan, KPMG

IVG HUNGARY KFT www.ivg.hu 346

10

»

SHIKUN & BINUI R.E.D. 11 MANAGEMENT KFT www.shikunbinui.hu

PESTI HÁZAK ZRT 12 www.pestihazak.hu

13

14

PROLOGIS HUNGARY www.prologiseurope.com

FADESA HUNGÁRIA ZRT www.martinsafadesa.com

GOODMAN 15 HUNGARY KFT[1] www.goodman.com/hu

BIGGEORGE'S-NV REAL 16 ESTATE DEVELOPER ZRT www.biggeorges-nv.hu

179

»

99

»

88

»

56

»

39

»

28

»



» » » » » »







» » » » » »









  

 

» » » » » » » » » »





  





 



» » » » » » » » » »

 









»

»

»

»

»

Goodman Üllő Airport Logistic Goodman Central I. and Üllő Airport II. time (2009Logistic Cen- 2010), Goodman tral, Goodman Kecskemét Gyáli Logistic Logistic Central Central (2008), HOPI Logistic Central (2007)

Rossmann Hungary Kft, Oriflame Hungary Kft, HOPI Hungária Kft

Sasad Liget Lakópark I. time (2008), Bécsi Corner Office Building (2009), Garibaldi Apartmanház (2008)

NIKE, Audi, GenoID, LEGO, Budapest Bank

Sasad Liget Lakópark II. time (2012)

1998

»

2000

»

2003

»

2007

»

2004 10


2 BusinessPartnerWatch 25

AIG/LINCOLN KFT www.aiglincoln.hu

» »

 





  









ASSET MANAGEMENT

REAL ESTATE BROKERAGE

CONDOMINIUM OPERATION

BUILT-TO-SUIT DEVELOPMENT

REAL ESTATE UTILIZATION

REAL ESTATE INVESTMENT

CONSTRUCTION

PROJECT MANAGEMENT

PORTFOLIO MANAGEMENT

FACILITY MANAGEMENT

OTHER

PUBLIC BUILDING

INDUSTRIAL

INFRASTRUCTURAL

RESIDENTIAL

  

 

 

ONGOING PROJECTS IN HUNGARY (INVESTMENT VALUE IN HUF, EXPECTED YEAR OF COMPLETION)

»

The Quadrum Office Building phase II. (2014)

PREVIOUSLY COMPLETED REFERENCE PROJECTS, YEAR OF COMPLETION

»

MAIN CLIENTS IN 2012

»

IP West Office Building (2009),The Quadrum Office Building phase I. (2008), Haller Kert Heitman GLL Office Building Real Estate (2008), Market Partners, UnCentral Ferihegy ion Investment, Kiskereskedelmi Immofinanz Park (2007), M1 AG, Guardian, Business Park Managers (2006), Airport Business Park (2004), Alkotás Point Office Building (2002), Infopark (1999)

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

NR

»

ACTIVITIES AND SERVICES

OWNERSHIP (%) HUNGARIAN NON-HUNGARIAN

www.indotek.hu

COMMERCIAL

24

TYPES OF INVESTMENT

OFFICE

INDOTEK ZRT 17

RANK

COMPANY WEBSITE

TOTAL NET REVENUE (HUF MLN) IN 2011 H1, 2012

Budapest Business Journal | Nov 05 – Nov 15

YEAR ESTABLISHED NO. OF FULL TIME EMPLOYEES IN HUNGARY ON MARCH 1, 2012

BBJ

WWW.BBJ.HU

ADDRESS PHONE FAX EMAIL

»

Dániel Jellinek (») Indotek UK. LLC (»)

Dániel Jellinek – –

1148 Budapest, Kerepesi út 52. (1) 688-1700 (1) 688-1701 indotek@ indotek.hu

1998 38

– AIG/Lincoln Eastern Europe LLC (100)

Robert Lance Bozman János Gárdai Edina Magó

1117 Budapest, Budafoki út 91–93. (1) 382-5100 (1) 382-5101 info@aiglincoln.hu

– Codic International SA (100)

Christophe Boving – –

1051 Budapest, Szent István tér 11/B (1) 266-6000 (1) 266-6002 p.szilvasi@codic.eu

Péter Futó (50), Gábor Futó (50) –

Gábor Futó Pál Darida Péter Karai, Áron Görög

1082 Budapest, Futó utca 47–53. (1) 266-2181 (1) 688-5499 office@futureal.hu

– Hochtief Projektentwicklung GmbH (100)

Ferenc Daróczi, Peter Noack – –

1133 Budapest, Váci út 76. (1) 452-4030 (1) 452-4040 adel.kolber@ hochtief.de

2006 3

(100) –

Attila Kovács Attila Kovács István Kerekes

1054 Budapest, Szemere utca 17. (1) 473-1209 (1) 473-1210 info@horizondevelopment.hu

1987 15

– Skanska Commercial Development Europe AB (97.50), Skanska Komersiell Utveckling Norden AB (2.50)

Grzegorz Strutyński András Péterfy Ildikó Rézműves

1134 Budapest, Kassák Lajos u. 19–25. (1) 382-9100 (1) 382-9129 property@ skanska.hu

Sándor Bagossy (33), Terra-Dom Bt (55) Jürgen Blum (12)

Sándor Bagossy Gabriella Molnárné Lakatos –

2040 Budaörs, Puskás Tivadar utca 4. (23) 423-323 (23) 423-324 info@terrapark.hu

1997

CODIC HUNGARY KFT www.codic.eu NR

» »

FUTUREAL NR

» »

HOCHTIEF DEVELOPMENT NR HUNGARY KFT

» »

www.futureal.hu

www.hochtief-development.hu

 

  







Hotel, city development







» 

  









»

Krisztina Palace (2010)

Corvin Sétány – Corvin Corner, VISION TOWERS

Corvin One (2008), Corvin Towers (2009)

»

Ringier, Garantiqa, ING, P&G

»

Capital Square

»

Eiffel Palace 2014 Q1, Promenade Gardens Irodaház 2015

Eiffel Tér Irodaház (2010)

»

Green House 2012

East-West Business Center (1991), Westend Business Center (2001), Science Park (2004), Light Corner (2006), Népliget Center (2010)

ABB, Actavis, Aramis Pharma, AVIS Budget Group, Buszesz, Coop, Ericsson, Hessyn, IsysOn, MAI Insurance, Papyrus

2006

»

1993

»

2002

»

HORIZON DEVELOPMENT KFT www.horizondevelopment.hu

» »

NR

SKANSKA PROPERTY HUNGARY KFT NR www.skanska.hu

NR

TERRAPARK KFT www.terrapark.hu

» »

» »

 

 



NOTES: (1) Data for business year July 1, 2010 - June 31, 2011.



















» » –





 »

»

»

1995

»


26 2 BusinessSpecialReport//RealEstate BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 05 – Nov 15

Focusing on long-term strategies While the property market is still constantly struggling to find its way back to “business as usual” after its collapse in 2008, the field of asset management may mean an escape route for companies who intend to find a solid background and willing to provide quality in return. As the competition gets harsher, clients have higher expectations, and well-founded, long-term strategies remain the only guarantee of success. BBJ ZSOLT BALLA

The market of office buildings is at a standstill, but competition in the asset management market is getting tougher, say industry experts. “No new offices are being built, but since property management tasks are not closely related to whether the office area is empty or being used, the market of asset management is not in a decline,” says Csaba Zeley, director of asset management at Convergence. According to him, many property developers realized following the crisis that they have to extend their profiles to include asset manage-

ment in order to survive and the market therefore soon became saturated. “While getting high commissions from unique one-off deals was a great business, we knew it well before 2008 that asset management can provide property companies with a much more solid and predictable, albeit more humble, revenue source,” adds Katalin Sermer, country manager at S Immo Kft. “While one-time commissions generated much more income during the years of the property boom, asset management made it possible to be in control of things, and to make decisions and steps whenever the market conditions changed and we needed to respond to these changes,” she says. “The value of asset management has increased from the clients’ side as well. More and more property owners recognize that they need professional and full-fledged asset management services,” Zeley claims. This latter phenomenon appears to be particularly true for international property companies that may not even be present on the Hungarian market themselves. “International owners tend to think long-term,” he explains. “They require a complex strategy to market their buildings and keep their tenants, and to achieve this, costs are by far not the only aspect to consider.” Csaba Széll, managing director of CE Land Holding Kft agrees. “The crisis has highlighted the importance of asset management, both in term of insource and outsource solutions,” he says.

“Considering all the aspects of a certain property portfolio, including its market environment and life cycle, became inevitable.” According to the director, the first two years of the crisis were a period of “shock and idling” that was followed by a period of adaptation and the implementing of the necessary changes to basic strategies in 2011. The expectations and requirements of Hungarian clients and those with international background appear to be almost identical under the current market conditions. “We can basically regard all our clients as Hungarian, because all of these companies try to manage their properties in the local market environment,” Széll opines. “When it comes to the structure of ownership, however, we can highlight that international investors have more resources, and are able to survive a lengthy time period of difficulties, but on the other hand, they are not necessarily rigid in connection with their local investments and are more flexible in deciding to close their positions and liquidate their assets if they deem it necessary or think that it serves their interests the best.” Another difference is that of reporting. “An international property firm might have four to six properties in Hungary, but if it is a member of a thousand-property global portfolio, it is easy to understand why they demand more frequent and more thorough reporting schemes than local investors,” says Zeley from Convergence.

On a highly saturated market, it is not easy to stand out or to provide unique, welldistinguishable services. And as for success, costs are important but not sufficient. “We do not optimize our costs, we optimize our services,” says Zeley, adding that expectations towards service providers are on the rise. “We can only talk about success in relation to specific buildings, and we can say that a successful building is always a result of successful

asset management. A fully rented, successfully managed office building, like Convergence’s flagship building at Eiffel square (next to Nyugati Railway Station), is the only way to stand out and to show the market our uniqueness and the quality we are able to provide. We expect that more property owners will realize that they need a complex strategy that goes beyond the fact whether a certain property is rented out or not. As for a new building,

we have to set a target market, see the exact demands of that segment, and shape our services accordingly,” Zeley concludes. “Portfolio-level asset management is a strategic partnership between the owner and service providers,” adds Széll. He thinks that his company’s success is a result of focused efforts, where they maximize their services’ flexibility and provide the best cost-benefit ratio to their clients in the long run. ■


2 BusinessPartnerWatch 27

BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 05 – Nov 15

Asset management companies NUMBER OF TENANTS IN H1, 2012

MAIN PROPERTIES MANAGED IN H1, 2012 (MAXIMUM FIVE)

6,332 2,187

»

1,500

Millennium Towers, Művészetek Palotája, WestEnd City Center, Papp László Sportaréna

Management Corporation

TOP LOCAL EXECUTIVE CFO MARKETING DIRECTOR

ADDRESS PHONE FAX EMAIL

Sándor Demján (»), Sándor Csányi (»), Sándor Nyúl (») Peter Munk(»)

Philip Evans Zoltán Lehoczky Ernő Koncz

1062 Budapest, Váci út 3. (1) 374-5600 (1) 374-6500 info@tgm.hu

»

»

– CEE PropertyInvest Immobilien GmbH (100)

Lászlóné Sermer Tímea Földi Csilla Fülöp

1051 Budapest, Bajcsy-Zsilinszky út 12. (1) 429-5050 (1) 429-5055 office@simmoag.hu

100

– ABLON Group (100)

Adrienn Lovro – –

1132 Budapest, Váci út 30. (1) 225-6600 (1) 225-6601 ablon@ablon.hu

100

0

Wingholding Zrt (99.90), Other (0.10) –

Noah M. Steinberg – –

1095 Budapest, Máriássy utca 7. (1) 451-4760 (1) 451-4289 info@wing.hu

»

»

– (100)

Ede Gulyás Dóra Paksz –

1074 Budapest, Rákóczi út 70–72. (1) 501-2800 (1) 501-2801 office@caimmo.hu

100

– Convergen Central Europe Ltd. (100)

Alan A. Vincent – –

1062 Budapest, Teréz körút 55–57. A/5. (1) 225-0912 (1) 375-0445 office@convergen-ce.com

41

59

– IVG Immobilien AG (100)

Kay-Uwe Blandow Tibor Gasser Zsófia Knauer

1117 Budapest, Neumann János utca 1/E (1) 382-7560 (1) 382-7570 office@ivg.hu

100

Bankár Zrt (25.50), Individual (0.42) CS STEEL HOLDINGS B.V. (74)

Lóránt Varga Kibédi Tamás Turák –

1133 Budapest, Váci út 76. (1) 802-7300 (1) 802-7309 info@cbsproperty.hu

»

»

– Goodman Europe (Lus) S.A (96.67), Goodman Belgium N.V (3.33)

Roger P. Peters – –

1024 Budapest, Lövőház utca 39. (1) 336-2270 (1) 336-2289 info-hu@goodman.com

100

(100) –

Csaba Széll Anita Molnár-Széll Zoltán Balla

H-1085 Budapest, Kálvin tér 12. (1) 785-4985 (1) 799-8879 info@celand.hu

100

121

EUROPEUM Shopping Center, GATEWAY Office Park, M3 Business Center, Váci 99 Business Park, Airport City Logistic Park

Facility management, project management, portfolio management, property investment, property utilization and leasing

2,090

1,030

24

12

57

7

210,000

300

Portfolio, asset and propEast Gate Business Park, erty management, tenant Corvinus Egyetem, management, debt Studium Irodaház, management, project Honvéd Center, Agria Park management, accounting services, controlling

»

»

6

37

57

0

335,000

190

Capital Square, City Gate, Infopark A, IP West, Bartók House, Víziváros Office Center

Asset management, facility management, building management

»

»

1

2

9

120

Eiffel Square Office Building, City Point 9 Warehouse and Business Center, Margit Palace Office Building, TerraparkNext Office Buildings A and B

Business planning and implementation, revaluation management, property leasing concept, property monitoring and supervision, budget and controlling, keeping contact with tenants

»

»

16

16

68

70,000

139

Infopark, RiverPark, Andrássy 11-12, StefániaPark

Asset management

»

»

95

5

30,000

»

»

»

»

»

»

»

»

»

Goodman Üllő Airport Logisztikai Központ, Goodman Gyáli Logisztikai Központ, Goodman Kecskeméti Logisztikai Központ

Property management, asset management

»

»

»

100

»

»

Kálvin Center, Duna Office Center, Dexagon Office Building, B52 Office Building, Páva-Ház, B64 Office Building

Owner Representation, Portfolio Asset Management, Real Estate Asset Utilization, Sales, Value Maximization

»

»

16

84

OWNED BY CLIENTS

OWN PROPERTY

HOTEL

»

OFFICE

73

INDUSTRIAL

Property lease, property management

RETAIL

100

City Center Office Building, River Estates Office Building, Blue Cube Office Building

H1, 2012

Technical, let, safety, cleaning, marketing, controlling and power management functions

IN 2011

www.tgm.hu

OWNERSHIP (%) HUNGARIAN NONHUNGARIAN

SERVICES OFFERED IN PROPERTY MANAGEMENT BUSINESS (UP TO FIVE)

TRIGRANIT MANAGEMENT ZRT 1

NET REVPORTFOLIO ENUE FROM DIVERSIFICATION PROPERTY ACCORDING TO MANAGETYPE OF PROPERTY MENT (HUF MANAGED (%) MLN)

PORTFOLIO DIVERSIFICATION ACCORDING TO OWNVERSHIP STRUCTURE (%)

TOTAL VALUE OF PROPERTY MANAGED IN HUNGARY (HUF MLN)

COMPANY WEBSITE

TOTAL NET REVENUE (HUF MLN) IN 2011 H1, 2012

RANK

Ranked by total net revenue

6,332

2,187

58

38

4

»

»

S IMMO HUNGARY KFT www.simmoag.hu 3,075

2

»

48,215

ABLON REAL ESTATE DEVELOPMENT KFT www.ablon-group.com 2,090 1,030

3

4

700

WING ZRT

»

www.wing.hu

103,447

CA IMMO HUNGARY KFT www.caimmo.hu 570

5

»

CONVERGENCE www.convergen-ce.com

420 215

6

47,500

IVG HUNGARY KFT www.ivg.hu 346

7

8

9

»

199

CBS PROPERTY ZRT

»

www.cbsproperty.hu

GOODMAN HUNGARY KFT www.goodman.com/hu

[1]

39

»

»

4

» »

24,730

»

CE LAND HOLDING ASSET MANAGEMENT LTD. www.celandholding.com NR

NOTES: (1) Data for business year July 1, 2010 - June 31, 2011.


3 Socialite

BBJ

WHO'S NEWS

Name Botond Mihályi Current company/position CE On-Demand/chief financial officer

Mihályi has over 15 years of experience in finance and private equity. He has previously filled CFO positions at Netrisk.hu, Hungary’s leading online insurance broker, and Volvo Hungary. Before that he was an investment officer of Mid Europa Partners. He holds an MA in Business Administration from the Budapest University of Economics; he is a Chartered Financial Analyst (CFA) and has a postgraduate BA degree in Law for Specialized Economists from ELTE, Hungary. He lives in Budapest with his wife and three children.

Do you know someone on the move? Send information to research@bbj.hu

Name Tamás Fehér Current company/position Trenkwalder/managing director

Fehér has been named as the new managing director of Trenkwalder. Before taking up his new post, he worked with Grafton Recruitment – he joined Grafton several years ago and was promoted to managing director in 2009. Earlier, he worked for Procter and Gamble where he had held various management positions.

Name Péter Marosvölgyi Current company/position AEGONdirekt.hu Zrt/CEO

Marosvölgyi joined AEGON Magyarország in 2009, and he participated in the launch of AEGONdirekt.hu, a company that offers innovative direct insurance services. He started his career at Netrisk.hu in 2001, then joined independent insurance brokerage CLB in 2006.


3 Socialite 29

BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 05 – Nov 15

Switch: How to change things when change is hard by Chip and Dan Heath

Change doesn’t need to be hard. Just SWITCH. BBJ BBJ

We all know that change is difficult. It is unsettling, it is time-consuming, and too often we give up at the first sign of a setback. But why do we insist on seeing the obstacles rather than the goal? This is the question that best-selling authors Chip and Dan Heath tackle in Switch, and they argue that we need to understand how our minds function in order to unlock shortcuts to switches in behaviour. The Heath brothers have researched their topic at length, drawing on decades’ worth of studies in psychology and sociology, and fusing this into a deceptively simple method that can yield extraordinary results. The

basic problem they identify is that ‘the brain has two independent systems at work at all times’. One system is emotional – it is the part of you that feels pain and pleasure and acts on instinct. The other is rational – it is all about deliberation, analysis and ref lection. And where the rational mind wants change, the emotional mind wants comfort. The Heaths explain the tension between the two systems with an analogy used by Jonathan Haidt in his book The Happiness Hypothesis. Haidt asserts that ‘our emotional side is the Elephant and our rational side is its Rider. Perched atop the Elephant, the Rider holds the reins and seems to be the leader, but the Rider’s control is precarious because the Rider is so small compared to the Elephant.’ The Elephant provides the energy and gets things done, but wants instant

gratification. The Rider provides planning and direction, but can overthink things and slow the process down. If the Rider cannot keep the Elephant on the road long enough to reach the destination, the plan to change will fail. The lesson is that change comes easily when Elephant and Rider move together. SWITCH offers a threepart framework that you can use to get these systems in sync – one that involves directing the Rider, motivating the Elephant and shaping the path. It is an analogy that applies to more than just business. At some point we have all overslept, overindulged, skipped the gym or struggled to achieve a long-term personal goal. These are all situations in which the Elephant overpowers the Rider, and to which the Heath’s framework can be applied.

These ideas are illustrated with great anecdotes – from a pile of gloves that transformed a company’s finances to the secrets of successful marriage counseling – making this an accessible book with wide appeal. Called ‘witty and instructive’ by The Wall Street Journal, it will prove invaluable to anyone wanting to make change at either an individual or an organizational level.

SWITCH: HOW TO CHANGE THINGS WHEN CHANGE IS HARD by Chip and Dan Heath Random House Business Books ISBN 9781847940322 Available to order through www.hungaropress.hu

[ EXPERT OPINION ]

Sick of Being Stressed Out Not another good advice on taking vitamins in the autumn cold, right? Do not fret, this time we try to get to the bottom of it, and find out why we catch cold in the first place. ‘Prolonged stress is the worst you can do to your immune system,’ says Dr. István Filiczky, internal medicine specialist at Dr. Rose private hospital. ‘Consequently, you become susceptible not only to the common cold but to a great number of health problems.’ There are different kinds of stress, but generally we can say that acute physical and psychological pressure both trigger a series of biochemical reactions in the body. Detecting a traumatic intrusion – may it be an accident or an emotionally heated debate – the brain orders the immune system to start producing anti-inflammatory cytokine hormones, the natural agents that help healing a wound and guarding off infections. Needless to say, for want of a physical trauma or infecting wound, cytokines have no target to tackle, and they remain in the bloodstream after the confrontation or source of the psychological stress is gone. When stress becomes permanent, free radicals build up in the body, causing inflammations. The long running burden on the immune system makes us more susceptible to illness, and less able to cope with flu viruses. ’Patients are expecting doctors to remedy their conditions,” says Dr. Filiczky. ‘Fair enough, but managing stress is outside any doctor’s competence, in the hands of the patient alone. Without due downtime, proper relaxing and revitalizing, your body is forced to constantly

tap into its secret resources and compensate. It is taking its toll. The longer you live with stress, the less you are able to cope. We learned how to reward ourselves with food and amenities, to entertain ourselves with the flickering images on a television screen. What we forget though, is that the human body needs very different rewards to keep going: sleep, silence, fresh air, physical activities, or laughter… Why wait until some illness rings the alarm bells? We must keep the balance here and now.’ We can brace up for stress with a healthy diet that is rich in fiber, fruit and vegetables. Free radicals are kept at bay with vitamins C, E, and P, Omega3 and -6 fatty acids, vitamins B1 and B6. Don’t forget to supplement magnesium.

GOOD TO KNOW Researchers at The University of Pittsburgh studied how stressful events induce biological changes in volunteers, closely monitoring their heart rate, blood pressure and hormone levels in the blood serum. They found that increased heartbeat and rising BP coincided with a higher concentration of interleukin-6, a protein responsible for causing inflammation in the body. The inflammatory molecule was more expressed in patients who gave the strongest emotional response to the test. www.drrose.hu

For an appointment, call (+36)1-377-67-37 or go online at www.rendelo.drrose.hu


30 3 Socialite BBJ

WWW.BBJ.HU

Budapest Business Journal | Nov 05 – Nov 15

THE NEW LUFTHANSA AIRBUS A380-800

THE NEW LUFTHANSA BOEING 747-8 Flying with Lufhansa you can choose the world's biggest double-deck passanger aircraft...

...or the brand new version of the flying legend Boeing 747

A smart flyers’ guide LUFTHANSA HIGHLIGHT: CHILDREN ON BOARD

PACK SMART Luggage is a key point of concern for every passenger, especially for less experienced travelers. First thing first, check weight limits. Your ticket or your electronic receipt includes information on your free baggage allowance. If unsure, check Lufthansa’s website. A Business Class passenger may check in two bags (32 kg each) and carry one handbag on board. When packing your things, put together your packing list in advance. Try to “box” the items inside your baggage – shirts, toilet-set, books, presents, etc. and fix them tight inside so that they weather transport at the airport. Find a way to lock your luggage and always tag each piece of baggage you check in, indicating your name and mobile phone

number on the tag. Your handbag(s) (one for Economy Class passengers, two each for Business and First Class passengers) should comply with the limits of size (55x40x23 cm) and weight (8 kg each). Mind also that you may only carry 100 ml of liquids in total on board. If you buy liquids (perfumes, drinks, etc.) in a duty-free shop at the airport you can carry it in a sealable bag along with the receipt you get in the shop. When packing, do not forget that you will have to remove your laptop, empty your pockets and take off your belt at the security check – be prepared for that. CHECK-IN ONLINE OR ON THE SPOT Online check-in is very easy and practical. If you fly Lufthansa, you can check in via internet and mobile phone as

Lufthansa wants to be the best airliner not only for grownups but also for children. Make sure that you indicate it duly when booking tickets for children: their tariff is different from yours! If you travel with a baby, you will be among those who board first. There will be enough place on board for the pram and you will also find a changing table in the toilet on board. Children under 17 are welcome in the club of JetFriends. Upon registration, children become members of the Miles&More programme with a 2,000-mile welcome credit. Children are invited to have a memorable lunch on board as well. Just order them one of Stefan Marquard’s or Sarah Winer’s special child menus developed exclusively for Lufthansa, by calling Lufthansa Service Centre (+49 (0) 1 805-805 805) at least 24 hours before your take-off. Lufthansa has developed a system that allows children between the age of 5-12 and older to travel alone. Young travelers are accompanied by Lufthansa personnel on the ground and are taken care of by flight attendants on board.

well. To see how this works, go to www.lufthansa-demo. de. Did you know that at Lufthansa’s website you can choose your seat online during the check-in process? This certainly helps you secure a window seat for yourself. You can print your boarding pass at home or at the printers installed at airports. You can also have your boarding pass sent to your smart phone, and hence avoid printing and paper use. However, if you travel with luggage to check in, you will have to go to the drop-off counter by 40 minutes before take-off time at the latest. If you did not check in beforehand, the representative at

the desk will do it for you and print your boarding pass. ENJOY AIRPORTS Airports are often crowded and frantic. Therefore, good lounges come down as shelters in the rush. Lufthansa has its own lounges at the biggest airports around the world. Its Business lounges offer peace and entertainment: lounge seats, TV, computers free to use, free VLAN connection, fax, print and photocopy devices for those who want to work, a variety of international newspapers and magazines, as well as an expertly assorted set of food and beverages. In some lounges, you will find shower facilities as


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Budapest Business Journal | Nov 05 – Nov 15

erate fee to be paid at the airport. At Budapest Airport you can use the Platinum Lounge next to gate A12 with your Business Class ticket.

well. At Frankfurt International you can choose from thirteen Lufthansa lounges (six Business lounges, two First Class lounges, four Senator Lounges and a Welcome lounge) in different terminals. In addition, there is a new First Class terminal in a separate building. By far the finest airport lounge in Germany, the First Class terminal has a luxurious yet relaxed ambiance, a top-end bar, quiet rooms and all the

other lounge amenities. However, you need a First Class ticket or a HON card to have access to it. Lufthansa’s First Class lounges are quintessential compounds of cleancut, elegant interior design and top-end amenities. Enjoy first class food, use the special check-in desk (with hand luggage), and the limousine service that takes you right to the aircraft. You may also take your not-traveling companion to the lounge for a mod-

HAVE A COMFORTABLE FLIGHT Especially on long-haul flights, you should use the experience of long-time travellers and the expertise of the cabin crew to make your flight comfortable. Entertainment on long flights comes down as essential: choose from the hundreds of videos, games and music of the Lufthansa multimedia set displayed right in front of you on the touch-screen. If you bring your own laptop, buy access to FlyNet, Lufthansa’s onboard internet service that allows you to stay online all the time. Lufthansa is the only airliner that allows you to work online, chat, check your emails and keep up with your usual data stream as you fly across continents! After take-off, con-

LUFTHANSA HIGHLIGHT: ATTENTION, CHEF ON BOARD! If you are a food connoisseur, you should definitely book a First Class or a Business Class ticket on a Lufthansa long-haul flight. Building on its excellent relationship with five-star hotels around the globe, Lufthansa puts creations from star chefs on its on First Class on-board menu card. The Star Chef concept also includes a rotation of regional haute cuisine. In January-February 2013, First Class and Business Class passengers will be offered signature dishes from rising stars of Belgian cuisine. In First Class, Jean-Baptiste Thomaes of Le Chateau du Mylord in Ellezelles pampers foodie passengers. His creations include filled veal rolls with a green apple sauce as amuse bouche, confit salmon and egg salad with Flemish vinaigrette as hors d’oeuvres and a main course consisting of medium-fried veal fillet served with forest mushrooms, artichokes and mashed potatoes. Gourmets flying in Business Class can enjoy the creations of Lieven Demeestere of Restaurant Arenberg in Leuven. His menu features prawns with potato salad, tomato jelly and avocado crème, Flemish beef stew in a chocolate-beer sauce with celery mousse and caramelised apple wedges as well as chocolate-coffee crème, white wine pear and caramel mousse for dessert.

LUFTHANSA HIGHLIGHT: PRIVATE JETS: FLY LIKE NEVER BEFORE Imagine booking your own aircraft to your own timetable. All this on short notice (up to ten hours before departure), to a large range of European, American, Russian and Asian destinations. Lufthansa Private Jet offers this truly exclusive opportunity any time. You can arrange the food and the drinks you would like to have on board according to your own preference, and you can book your own flight attendant. At the airport, use Lufthansa or SWISS First Class lounges and choose the destination that the inclusive limousine service should take you to after landing. Take your fellow passengers with you to enjoy this truly luxurious service – for an attractive fixed charge. You can easily combine Private Jet flights with commercial Lufthansa flights (in First Class) and cash in up to 10,000 extra Miles&More points with every single Private Jet flight. For more information check lufthansa.com/ private-jet!

nect your laptop with VLAN receptor or your smart phone with GSM/GPRS connection to FlyNet’s network! It is fast enough for you to download even large attachments and allows you to phone and exchange text messages during the flight. You can pay for the service upon connection online with your credit card or with Miles&More points. The 1 hour connection fee is €10.95 (or 3,500 miles) while a 24-hour connection costs €19.95 (or 7,000 miles). If you go with the latter, you can use

it on all connecting Lufthansa flights and in every Lufthansa lounge within 24 hours. BEAT JET LAG Jet lag is a slight confusion of your inner biological rhythm that results from the crossing of several time zones between your point of departure and your destination. Jet lag can be very exhausting but here are some tips to beat it. When flying on westbound flights: Prepare to the time conditions of your Western desti-

nation before your flight by going to bed later than usual for a couple of days. Upon boarding, set the time of your destination on your watch. On board, try to stay awake! Eat high-protein food, drink much non-alcoholic beverages, and stretch out your legs by walking every now and then to stay awake. After you arrive, do not go fall asleep in your hotel before dusk! If you wait for the evening, you will be in a much better shape the next day. ■



Budapest Business Journal 20/21