Poland Real Estate

An Opportunity to Receive an Exceptional Fixed Yield from Eastern Europe

The Investor

Old Town Apartments is a company specializing in accommodation for the Polish market, offering short and medium term apartment accommodation to travelers as an alternative to hotels. We currently have about 40 apartments in our Warsaw inventory which are leased from individual landlords. An opportunity has arisen to purchase a building with 41 apartments and some office and retail space in a very good central location. This would make a good strategic fit for our company, and we would be able to occupy all of the apartments with our own customers.

The Return

What we are looking for is small to medium sized investors to loan us the money to use as equity to buy the building. We will offer these investors an attractive yield (in the area of 10 to 15% on euro, depending on the demand, with full repayment of the original loan in a few years time. At the moment the repayment schedule is open. We want to see what repayment potential investors are most interested in – a bond which repays the principal at the end or a steady repayment of interest and principal over an agreed number of years.

The Project

The building will cost between 7 and 9 million euro (asking price is around 13 million). We estimate we will need 1.5 million to 2 million euro from investors, with the remaining money coming from the bank. The building is due for completion in June 2004 and already has a first grade tenant who has signed to lease 1400 of the total 4900 square metres for 10 years at 22 euro per square metre. The total space is as follows:

These figures are market prices, and if we adjust them for 5% vacancy in the apartments, the office and retail space over the coming 10 years, we estimate a revenue of 928000 euro. Estimated running costs and depreciation are about 170,000 euro per year, leaving a net profit before interest and taxes of around 757,000 euro.

Our firm, Old Town Apartments Sp. z o.o. will lease the apartment space at 12 euro per square metre. That is our interest in the building. So as you can see, with our commitment the building has 3400 of 4900 square metres already leased.

RISK

If extreme problems occur within our apartment business and we are no longer able to lease all the apartments, the local market in Warsaw would still easily support the target price of 12 euro per square metre, or 10 euro as a minimum for medium to long term stays.

The other tenants will also be required to sign long term contracts although the retail space should be considered high risk as retailers often go bust. Fortunately our target rent is very reasonable and it should be easy to find new tenants quickly at that price.

In a worst case scenario, the building would be completely empty except for the key tenant. Although unlikely, the possibility must be considered. In this case, the risk is that the interest the project will be able to afford to pay to the investors could fall to zero until the remaining space is re-let. There is no chance the bank would repossess as the key tenant’s rent covers the bank interest payments, even with depreciation and running costs included. We will, of course write into our contracts with investors some voting rights allowing all investors to decide the fate of the building in such a case.

In the worst case where your investment is at risk and the way forward is not clear, investors will be able to appoint an arbitrator to negotiate with our company and the bank to represent them and their rights.

WHO WE ARE LOOKING FOR

We would like to attract investors for the initial 1.5 to 2 million euro investment. There would be a minimum investment of 100,000 euro, as it would be too difficult to communicate with over 20 investors. You will be looking for a passive investment with a decent return and will accept a moderate level of risk (please don’t bet the house on this investment). Much as we would like to update everybody all the time we will need to concentrate on making a profit, so communication would be minimal and would be formal. Most likely we will provide e-mail reports about news and financial results, and perhaps provide a secure web page where investors could download data.

You do not need to be a sophisticated investor to invest in this project. The risk is quite easy to understand. The mechanism for investing the money has yet to be decided and depends on factors such as taxation.

If you are interested, please fill out this form to receive details of the project and drawings