Arka BZ WBK Property Market Fund is the first Polish closed investment fund operating in real estate market. BZ WBK TFI S. A. has decided to extend its activities for six months. Agnieszka Jachowicz, manager of Arka real estate funds speaks about the reasons for this decision and other matters related to real estate fund and the market.
Why it was decided to extend the Arka WZ WBK Property Market Fund?
The reason for the decision to extend the activity of our first real estate fund are adverse market conditions that prevent the sale of the property at a price corresponding to the market value. Current difficult market situation lengthens the time of the negotiation, preparation and execution of transactions, and few buyers often expect a significant reduction in selling prices compared to the market price. Our goal is to sell the real estate's fund without the pressure of time, which can be used by potential buyers to propose low-priced bids. Therefore, although we formally extended period of the fund for six months to June 2013, we are confident that we will have to make this decision twice, extending the duration of the fund for a total of 1.5 years. Of course, it is allowed by the statute of the fund, which provides for such a solution in the case of unfavorable market conditions.
What are the consequences of extending the fund for the participants?
I would like to emphasize very strongly that the decision to extend the fund was made in the interests of its participants. We extend the activity of the fund, so that by selling the property at the best price, holders of investment certificates also received the highest rate of return on this investment. On the other hand we are not able to predict the behavior of the real estate market and actions taken by us will not guarantee that the fund's rate of return is higher or equal to the estimated based on the current valuation of the fund.
In order to meet the expectations of customers who do not wish to wait for the liquidation of at least part of their investment until the closing of the fund, we have introduced the possibility of buying out the investment certificates. With the above-mentioned reasons, each participant
must independently decide to use the buyout.
What is the buyout of investment fund certificates and when it takes place?
Buyout procedure has been prepared so that in the extended period of activity the proceeds from selling the property are payed regularly to the holders of certificates. At the moment, we have sold 11 of 23 properties, and the estimated amount for the buyout amounts to 91 mln zł. The first buyout is scheduled for December 28. Interested investors must submit the appropriate disposition in the brokerage house in which they have the account with the certificates of the fund. Deadline for application for the first buyout expired on December 18.Buyouts will be held every three months at the end of January, April, July and October until the end of the fund's activity. The next dates for buyout applications will be announced on our site www.arka.pl. I would also like to stress that there is no guarantee that all the planned buyouts will take place. The implementation of the buyout is conditioned in the following dates is subsequent to the sale of next properties.
And what happens if the value of buyout will exceed the capabilities of the fund?
Should the number of certificates submitted for buyout was greater than the possibility of the fund, orders will be proportionally reduced.
What is the current situation in the property market, and when can we expect the improvement?
Currently, the demand remains almost exclusively on large Class A office property in Warsaw, located in prime locations in the city and leased under long-term leases and on very well-functioning shopping centers in big cities. An example of this segment are the recently completed sales of Warsaw Financial Centre in Warsaw, Arkadia and Złote Tarasy in Warsaw and the sale of Alfa Centrum in Olsztyn in March 2012 by the Arka BZ WBK Property Market Fund. Other types of real estate, especially office properties outside of Warsaw, secondary real estate office in Warsaw or even modern office buildings, but located in areas of Warsaw, where vacancy rates are particularly high, are not very popular. Offers for the previously mentioned properties are made only by investors seeking opportunities, who in many cases are backed only by some equity, and therefore expect to complete the transaction at significantly reduced prices. Improvement of real estate market is associated with the condition of the financial markets and the global economy. According to economists, the year 2013 will be more difficult than the previous year, although it does not appear that experts expect the collapse of the market. In my opinion, the improvement can be expected in 2014.
In what situations is the second real estate fund Arka, which was started in different market conditions than the first one?
The second Fund, in accordance with the statute, begins liquidation of the portfolio for 18 months prior to December 2015 The fund invested in office, retail, developer and one housing real estate.
What are the advantages and disadvantages of investing in real estate fund for the average Kowalski? What is the level of profit and risk related to other asset classes?
The property is an asset with a lower sensitivity to economic fluctuations than stocks, returns are - in principle - between assets considered to be safer or bonds, and equities. However, the property is also less liquid asset hence real estate funds are usually closed-end funds. I believe that in order to have a well-diversified investment portfolio, you should invest a part of your funds in the real estate.
Real estate funds allow you to profit from the commercial real estate market, which is usually beyond the reach of the average individual investor in the real estate sector which has a limited capital.