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ekonomika / economy FINANCOVÁNÍ / FINANCING

improvement occurred after the issuing of the amendment to the law on collective investment from 2004; however, even this included impractical regulations, for instance when the shareholder’s minimal deposit had to be CZK 2 million. Only the next amendment from 2006, which stems from the German example, allowed the general public to invest in funds and thereby launched a constant increase in their popularity. Real estate funds can invest via direct investment through real estate or real estate companies in the rental market, markets with offices or shopping centres and the segment with industrial real estate. Yield then comes from rents or increased property market value. They expanded the possibility of collective investment and also put into motion the real estate market and its revival. Risks, on the other hand, represent an imbalanced real estate market and speculation when assessing a fund’s assets. However, we haven’t experienced any of these issues in the Czech Republic just yet. On the contrary, annual yields of real estate funds are quite stable at approximately 2% to 3%. Qualified investors’ funds reach an even higher performance. … AS WELL AS A RISK WITH HIGH YIELDS

“All depends on a funds’ risk profile and on their investments,” Martina Jůzová explains. “The conservative one’s purchase completed and established projects in the most lucrative locations. Their financial horizon is for the long-term. This is also how funds from Germany or the USA invest in the local market. Other, usually closed-end funds with a more adventurous strategy, can also deal with the purchase of so far unfinished or badly managed projects, which they eventually complete, change the management, improve the facility management and then sell them with profit.” Funds don’t usually enter development projects at their preparation phase. Taking care of the formalities, meeting all legal requirements and acquiring a building permit takes too long in our country and funds wouldn’t manage to make any yields here within a foreseeable time horizon. As for a completed project, this, on the other hand, also represents some security for the fund. Security that was before financed through a bank loan and where the project is therefore checked out from both an economic and legal point of view. Conservative funds include, for instance, REICO, the Investment Company of Česká spořitelna. Just to give one an idea, the fund had CZK 1.83 billion under administration in 2011 and this May it was more than CZK 10 billion. It is one of the very few funds in the Czech Republic which can be entered into with a deposit starting from CZK 300. “Funds can also help a developer when financing a project by con-

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cluding a contract about the future sale of the real estate. This is advantageous for the developer as well as for the financing bank as the preliminarily secured developer’s exit from the project also means a one lump sum pay off of his development loan from the yield from the sale,” Martina Jůzová says. This is how funds of qualified investors, where the initial deposit tends to be significantly higher, where the fund goes for more risky deals and where the shareholders’ yields tend to be higher, proceed. TRIGEMA ARE EXPANDING THEIR ACTIVITIES

New funds that focuses on real estate has recently been founded by Trigema, which operates very successfully in the market as a developer. The fund by Trigema Investment is, with its relative initial capital, intended for qualified investors. The sub-fund Alfa offers for subscription shares worth CZK 54 million whereby CZK 37 million has already been subscribed to. They intend to invest the funds in two residential projects. The minimal initial investment in the Alfa subfund is EUR 125,000, which is approximately CZK 3.4 million. “We are trying to attract external resources. We are aiming for bigger at stage projects that are being realised within the horizon of three to five years in key development locations,” says Jiří Polanský, Financial Manager at Trigema. “We are founding the investment fund in order to acquire more investment resources and allow investors to take part in our business. We would like to acquire hundreds of millions of Czech crowns from the market in order to be allowed to realise large projects. The fund is founding sub-funds whereby each of those will have its own investment strategy.” Other developers own resources include income from previous activities, loans from shareholders and silent partners and/or from their holding companies. Development companies often issue bonds. Project financing naturally includes bank loans. “They are cheaper than one’s own resources,” Mr. Polanský admits. What the loans share is in the overall financing depends on many factors. Especially on the fact as to how much the bank is willing to offer with the loan. “Loan conditions differ depending on whether it is a project of commercial or residential real estate, on its credit history and a creditor’s commercial success as well as at what phase the developer is loaning the money; whether it is for construction or land. Banks more or less secure themselves depending on that,” Mr. Polanský says. LOAN CONDITIONS ARE ADJUSTABLE

Loan conditions are very individualistic. The fact is that they are now freer in comparison with the very stringent rules that banks established at the

time of the crises, between 2008 and 2010. On the other hand, banks learnt to assess risk better and the Czech National Bank’s regulations have tightened. “I cannot tell you, with regards to our bank, the amount of the developer’s own resources he/she needs to put in. How much of the project needs to be presold or preleased. This is really a very individual thing and is diversified on the basis of the quality and type of the project and the developer. Each project is unique and our aim is to find the best solution via co-operation with the developer. After all, an investors’ strategy also differs. Some prefer the highest possible loan, others are looking for the lowest possible loan and so on,” says Martina Jůzová from Česká spořitelna. “It also depends on the immediate situation in the real estate market and on the particular location. There, Česká spořitelna utilises an extensive database of information that is available and through their loan strategy they actually take over the role as a type of market mediator.” But she admits that banks have sufficient free finance and relatively little investment opportunities which makes the offer of loans sufficient for development. And versatile as well: “There are banks that are more cautious regarding investment as well as those that are willing to undertake more risk. And what is good is that not everybody in the market works the same way. This provides clients with a choice,” adds manager Martina Jůzová. Mr. Polanský’s experience basically corresponds with that: “As banks’ interest rates are falling, we can also experience reduced margins from the loan banks,” and he adds: “Banks are prepared to provide loans but there is nothing to gradually loan for,” he sighs. He is thinking of the prolonged preparation phase of projects as well as development of the residential market. “Last year, 7,000 apartments sold in Prague and this year won’t be any different. Nevertheless, we don’t believe this will last long. The trend of a slowing down process of permitting residential projects will continue and this will influence the price of apartments. This year, they will on average accede 65,000 CZK/sq m. We expect a reduction in demand.” However, this trend will probably also affect the segment of commercial real estate. The supply of new administrative premises will almost certainly drop this year and what is being realised are the completions of already commenced projects. “That is a shame, especially in Prague,” Martina Jůzová says. “Extensive development areas are not stabilised and the city has stopped developing. I admire developers’ ability to be able to secure new building permits and to commence construction within the current administrative conditions. This is not sustainable over the long term” JAN FERENC

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