Katowice-based real estate developer DL Invest Group, which has managed to build a significant portfolio of office, retail and logistics assets across Poland, sees further growth potential in all three major asset classes. Dominik Leszczyński, Founder and CEO of DL Invest Group shared his expansion strategy for the coming years with Property Forum.
While 2020 was a year that many businesses wish to forget, you’ve managed to significantly expand your portfolio last year. How has COVID-19 affected the execution of your development and investment strategy?
In 2020, we completed a modern office building DL Piano in Katowice, began work on the office complex DL Prime in Gliwice and continued the construction of another office building, DL Tower in Katowice. As far as the warehouse market is concerned, we signed a contract with DHL Supply Chain, which was preceded by several months of negotiations and verification by DHL from the organizational, financial and legal sides. On top of that, we completed a number of BTS projects for InPost, Hutchinson, GTX Hanex Plastic, and others. We also finalised the purchase of a 26-hectare plot in Teresin, near Warsaw, where the central warehouse of Stokrotka, one of the largest retail chains on the Polish market, will be located. Moreover, we continued the redevelopment and re-commercialisation of the shopping centre located in Zgorzelec, a city near the Polish-German border, which we had bought back in 2019. We are implementing all our business plans according to the previously adopted schedule.
To sum up, COVID has certainly influenced the way we operate, however it has not changed our plans, which we are consistently implementing, and which assume that - in addition to the development of new office buildings - we will deliver over 400,000 sqm of modern warehouse space based on the land bank we have already built by 2024. The current value of the real estate portfolio owned by DL Invest Group is more than €250 million. We plan to increase this to at least €450 million by 2024.
Dominik Leszczyński
Founder and CEO
DL Invest Group
In September, your company made headlines by closing one of the largest transactions on the industrial market in 2020. How challenging was it to ink such a major deal during the pandemic? How has the project in Psary progressed since the signing?
Yes, this is a landmark transaction both for the market and for our company. To be selected by DHL, one of the world's largest companies in this sector, as managing partner of the joint venture is a great honour and another important step in the development of our company. This also is a token of appreciation for our activities. The cooperation with DHL has been excellent. The DHL&DL JV project itself is currently in preparation for the launch of phase 1, which will comprise over 90,000 sqm of leasable space - we hope to announce the construction start date shortly. The existing facility, which is leased by DHL as part of DL Invest Park Psary, serves Amazon as one of the clients.
Was it more difficult to secure financing in 2020 than it was in the previous year? How do you expect financing conditions to change over the next 12 months?
The economic slowdown triggered by the pandemic is affecting all markets. While observing the developments, financial institutions often resorted to a wait-and-see approach and suspended lending in an attempt to gather as much data as possible. This is how they wanted to make responsible decisions, by financing only the best projects prepared by tried and tested stable companies. Consequently, businesses with extensive experience and a long history of cooperation with banks, boasting projects in key markets, secured their chances for financing. The situation was sector-sensitive: the retail real estate was practically deprived of any chances of acquiring capital from banks, whereas the warehouse market retained such chances - for some time as the only sector taken into consideration by banks.
Based on our running projects we obtained financing for the expansion of the DL City shopping centre in Zgorzelec. We also won financial support for the DL Tower office building and four warehouse projects. For us, to obtain our first foreign financing in the form of a credit line, in particular during this period, is a strong proof that shows the high level of trust that our organisation enjoys in the current environment.
In the following months, we expect banks to be cautious and selective in financing projects involving the retail market, however, we see signs of recovery and increased interest in financing and refinancing projects in the warehouse and office sectors, which means that financial institutions seem to expect a gradual unfreezing of the economies and a return to normality in the medium term.
In which asset classes do you expect to see stronger tenant activity in 2021 than in 2020?
We have seen some considerable interest in warehouse space from the e-commerce and automotive sectors. In this respect, Poland is a hot spot on the European map of warehouse space. We are also seeing changes in supply chains and the growing importance of smaller warehouses located in urban centres - SBUs (small business units). We are currently starting the construction of five such facilities. A consequence of the changes on the e-commerce market and shifting consumer behaviours largely enforced by the pandemic is the growing popularity of smaller retail formats, including retail parks, whose characteristic feature is that they are located close to customers, and their smaller format allows them to flexibly adapt to the requirements of local communities. Retail parks also complement e-commerce, playing an important part in the supply chain of products ordered online to the target customer. Accordingly, we are planning to further develop our portfolio of smaller retail formats that enable retail chains to be close to customers.
In the office sector, we see some potential in the BPO / SSC areas. Poland is an important BPO hub and due to the current changes on the global markets, some companies who used to locate their support in for example Asian countries, are now considering returning to Europe. We believe that this sector will be one of the main sources of tenants in non-central markets (located outside the largest Polish cities), where we develop our office buildings. Our largest office lease concluded in recent months concerns a company from this sector: ista Shared Services has leased nearly 8,000 sqm in the DL Prime office complex we are currently developing in Gliwice.
All in all, it is crucial in view of DL Invest Group’s growth, to tap into its operational potential and the present favourable market situation, especially in the warehouse area. Therefore we also plan to carry out the first foreign issue of corporate bonds, which will be addressed to foreign institutional funds. This way we are going to seek diversification of the Group's financing structure and make even better use of our operating potential by implementing a larger number of complete and commercialized projects and projects to acquire.
What kind of investment and development opportunities are you looking for this year?
We plan further growth in all three commercial property sectors in which we are now present. In the warehouse sector, we plan to deliver over 400,000 sqm of modern warehouse space over the next 2-3 years. We are also in advanced talks with potential partners and capital providers, including foreign ones, concerning the implementation of further warehouse projects. In particular, we want to strongly develop urban BTS formula warehouses: 6 such facilities which we plan to complete at the turn of Q1/Q2 2021 are already 100% leased and another 7 are in the pipeline for 2021/2022.
On the retail market, we plan to launch an investment platform that will enable foreign institutional investors, together with DL Invest Group, to invest in liquid and safe assets in the form of retail parks located in small and medium-sized Polish cities. We plan to use the presently tightened banking criteria for the retail sector to our advantage and make use of emerging opportunities by both acquiring existing retail parks and building new projects based on our land bank. We are convinced that this is the right time to start sowing the seeds in this area. This is evidenced by the condition of the 12 retail parks we currently own, some of which will act as collaterals for our investors.
In the office sector, on top of the aforementioned two office complexes (DL Prime and DL Tower) that we are completing, we are attentively looking for further opportunities, with special focus on regional cities, including cities in Silesia, where we see great potential for the development of service centres due to the availability of employees and significantly lower operating costs of such centres compared to developed markets.
DL Invest Group has managed to build a significant portfolio of office, retail and logistics assets across Poland but your company is still relatively unknown in the CEE region as a whole. Do you plan to enter other markets as well or will you continue to focus on Poland only?
Over the next few years, we want to promote growth in the Polish market by providing foreign investors with such solutions as an investment platform to invest capital in profitable Polish assets. With our track record of large projects for leading international companies, such as DHL Supply Chain and Hutchinson, we have proven our reliability and ability to deliver tailor-made products to even the most demanding organisations.
Nevertheless, we have already considered projects in the markets of neighbouring countries and we do not exclude medium or long term international expansion.
