Holger Schmidtmayr, Board Member of Sparkassen Immobilien: We evaluate projects more critically after the credit crunch

Companies that are not so equity-driven have to slow-down their investment pipeline in CEE and SEE regions

Sparkassen Immobilien AG is an Austrian real estate investment fund with over 20-year track record (established in 1987) and is one of the first companies to move into CEE real estate markets. So far, the company has made investments in six countries in this region, including Bulgaria. Sparkassen Immobilien AG entered the local market in 2006 in a joint-venture with German development company ECE for the Serdika Center project, to become one of the largest shopping and office centers in the country.
The Vienna Stock Exchange listed company, currently manages a portfolio worth EUR 1.5b of real estate assets. Its key shareholder is Erste Bank. Sparkassen Immobilien AG invests in various real estate segments - residential and retail properties, hotels, offices etc. By 2010 its property portfolio should add up to EUR 3b of assets. In the CEE region the company’s investments are managed by the local structures of the leasing company Immorent.
Holger Schmidtmayr has been Member of the Board of Sparkassen Immobilien since 2004. Prior to taking his term of office, he was the Vice President for CEE expansion of Sparkassen. He also used to work at different positions at Erste Bank and GiroCredit Bank. Although born in Vienna, he has a dual nationality (Austrian and American). Mr. Schmidtmayr holds two masters degrees - in Law and Business Administration.

Mr. Schmidtmayr, have central-European and southeast-European investment markets been influenced by the changes on the credit markets?
- There is an influence noticeable, though with a bigger time delay. So far funding for CEE/SEE property markets was easy to get in domestic markets (like us in Austria and Germany). With the credit crunch banks are getting extremely cautious - what is good for a conservative company like us - and that forces some investors to do more and more financing in CEE/SEE, which is more expensive. Plus companies that are not so equity-driven have to slow-down their investment pipeline in CEE/SEE.

Do you deem investors have become more conservative in their valuations of the markets in CEE after the credit crunch last year?
- We cannot speak for property investment companies outside of Austria, but for Austria we can say that valuation was always an issue and that most of them are on a rather solid side. De-valuation per se is nothing negative and happens from time to time with some properties - but we as a company don't have a de-valuation issue upcoming.

Could a period of lower liquidity in the sector lead to the start of price correction on commercial investment markets?
- Liquidity-driven investments of the last 1.5 years in that region evoked also a generation of investors like Spanish, Irish, etc. that have no connection to these markets, and a whole bunch of highly leveraged blind pool investors. We see those pulling back and we are not unhappy about it: it gives us and the others that are heavily active on these markets more opportunities at better prices.

Which markets do you think would be most vulnerable to an eventual correction? Are the SEE countries among these considering the yet-higher yield levels they offer to investors?
- Markets in CEE will not so much be affected - e.g. Prague, Budapest, etc. There we see a level to be similar like Vienna. We do rather see markets in Western Europe like England and Spain to be more vulnerable.

Could the real estate markets of the New Europe follow the pattern of stock markets, which have experienced strong downward pressures in the last few months due to mass sales from foreign investors?
- No, we do not see any indication like that in the market.

With the market fundamentals still in place and probability of higher yields compared to western-European counterparts, could the CEE and SEE markets enjoy even greater interest from foreign investors and developers? Is their any particular data that could support such development?
- We do not believe in such a development but rather in a constant flow of investments for the next 5-10 years - maybe slowed down on a short term basis.

Has the strategy of s-Immo changed due to the tightening of credit conditions? In which market segments do you see best prospects for either development or investment?
- Our strategy remains quite unchanged: we concentrate on standing properties in undervalued markets like Germany and on the other hand on development projects in markets like Bulgaria, Romania and Ukraine. We are mortgaging our Austrian and German residential portfolio, which puts us in the situation that we are still financing at 70bps instead of more than 100bps already seen in CEE. Our low loan-to-value-ratio of 40% also helps us to continue our growth path. Bearing the credit conditions in mind we certainly do evaluate the projects offered to us even more critically.
At the moment we still see German residential in Berlin and secondary cities like Rostock as most interesting in the segment of standing properties. For development projects retail and office in Sofia and Bucharest, also retail in secondary cities in both countries, and next to retail and office also hotels in Ukraine.

Read more:
Optimism prevails despite credit crunch
Levon Hampartsumyan, CEO of Unicredit Bulbank:We support the sector although more selectively
Momchil Andreev, Executive Director of Raiffeisen Bank Bulgaria:Rise in cost of money is modest compared to profits
Jonathan Perl, Vice President at Citi Property Investors:Many large investors remain bullish
Financial issues hit directly mature markets