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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Over the past several months, I’ve written several pieces on diversifying both your mindset and income by investing internationally – from buying rental houses in Spain to farmland in Bulgaria.
But I read an article in the Wall Street Journal that topped all that…
It seems that an increasing number of new investors from the U.S. is striking commercial real estate gold in – wait for it - Poland.
Yep. The one-time doormat of Europe, and the butt of thousands of bad ethnic jokes, is now considered, as one talking-head investment-management puke put it – the tiger of Central and Eastern Europe.
That’s regular folk speak for the rest of us who aren’t talking-head investment managers for it has an economy, which is undergoing rapid economic growth accompanied by an increase in the standard of living.
More People Than Canada, Eh?
Poland has a bigger population than Canada, and more people than Australia. And right now, it looks like a pretty darn good place to put your money.
Poland’s commercial-property market is one of the largest in Central and Eastern Europe, and for the most part has been dominated by European investors. But lately, new foreign faces are showing up, attracted to Poland’s expanding economy and low real estate prices compared with other markets on the continent.
In the past 12 months alone, it seems that U.S. firms bought $1.4 billion of commercial property in Poland, more than anybody else, and topped Germany’s prior-year record of $1.3 billion.
Now the pace of investment has tapered off in recent months, apparently. But investors are predicting sales volume this year will exceed 2014, barring any major geopolitical shocks, including a domino effect from Greece’s crisis or any further Russian interference in Ukraine or elsewhere in the region.
The interesting thing is that investors are attracted to Poland partly because the country pulled through their financial crisis stronger than most other Eastern and Central European countries. And in fact, it was the only European Union member country to avoid recession.
Adding to that, it has a transparent legal system and multiple cities besides the capital, Warsaw, with the type of high-quality properties investors like.
The Eye of the Polish Tiger…
Poland’s gross domestic product expanded 3.4% in 2014 compared with 1.7% in 2013, which are both well above the 0.9% growth seen in the 19-country Euro area in 2014, according to Eurostat data. Retail sales in Poland rose 4.7% in April from the same month in 2014, compared with 2.2% in the Euro area.
Poland also is benefiting from the rise in commercial property values throughout the world, caused by low interest rates and central banks pumping money into their economies. This was felt in major cities like New York and London first.
But now, prices have gone so high in those markets that investors are searching for deals with higher returns in other markets. In Poland, the average capitalization rate, which measures the annual income from a property compared with its original cost, was 7.3% in the first quarter, compared with 6.7% in Germany.
(Cap. rates fall as prices rise. But as a real estate investor, you should already know that!)
Not only are the major cities seeing strong commercial real estate interest from U.S. investors, but investors also are beginning to spread out to secondary markets in Poland as prices rise in Warsaw.
The problem, as usual, for any flavor-of-the-month strategy, is that there aren’t enough quality assets to meet demand. And the overall Polish market remains relatively small compared with large Western European countries. A Cushman & Wakefield report stated that the rush of capital has tapered “largely due to the shrinking supply of the most sought-after prime assets.”
Which means, again in plain English, that the flow of investor dollars going into Poland has slowed due to the lack of stuff to buy.
Why can’t they just say it like that in the first place?
And as will happen everywhere else, commercial real estate demand in Poland will likely decline when interest rates eventually rise.
But right now Poland is hot.
Whatcha Think?
Think about investing in Poland? Share your thoughts in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.