A major deal by Morgan Stanley was one of several in recent months that show growing investor interest in the Hungarian market, by both locals and foreigners. We review the summer season’s big transactions.
The summer has seen three significant investment transactions as favorable investment sentiment and market fundamentals are resulting in improved liquidity with transactions concluded by international and local investors in addition to a major company transaction. While Hungary still lags behind Poland and Czech Republic in terms of investment volume, the significant yield gap is now attracting the interest of international investors. The following deals provide reason for optimism about major investments here.
In one of the most significant transactions in Hungary in recent years, a group of investors led by Morgan Stanley Real Estate Investing, in partnership with the Hungarian developer and investor WING and the Austrian shopping center manager and investor CC Real, has purchased a Budapest portfolio consisting of the 31,500 sqm MOM Park shopping center and the adjacent 19,000 sqm office building in Buda from a fund managed by Germany’s AEW Europe. The deal also comprises the 28,800 sqm West End Business Center and the 13,700 sqm EMKE office center, both on the Pest side of Budapest. pbb Deutsche Pfandbriefbank and Erste Group Bank AG have jointly underwritten a €126 million facility.
“Hungary’s real estate investment market has been showing growth in transaction volumes and we expect this trend to continue throughout the year,” commented Richard Wilkinson, head of commercial real estate at Erste Group Bank. “This is a strong sign of the overall recovery on the Hungarian real estate market.”
The transaction is the largest sale in Hungary since the 50% disposal of the Allee shopping center in Budapest for circa €100 mln according to JLL, which advised AEW on the deal.
While 2014 saw a clear re-emergence of investment activity, this was focused on domestic funds such as Diófa and the Erste Fund, with international funds tending to keep their distance. “The Morgan Stanley/AEW deal will open minds to Hungary once again. While the occupational fundamentals have been there for a while, investors have struggled to answer the question of who to exit to. However, the weight of a player such as Morgan Stanley will surely open eyes to what the market has to offer. As the market attracts more investors, the price gap between sellers and buyers needs to be more realistic,” said Mike Edwards, head of capital markets at Cushman & Wakefield, which advised the purchasing consortium on the deal.
The company sees market fundamentals as key, for example falling office vacancy in contrast to Poland and Czech Republic and low supply set against increasing levels of demand make for favorable conditions for future rental growth prospects. As office rents rise, yields are expected to compress.
“Hungary’s real estate investment market has been showing growth in transaction volumes and we expect this trend to continue throughout the year. This is a strong sign of the overall recovery on the Hungarian real estate market,” concluded Benjamin Perez-Ellischewitz, head of capital markets at JLL Hungary.
In the largest single asset deal in Hungary for 2015 to date, the Hungarian Diófa Asset Management fund purchased the 17,000 sqm Infopark E from the regional investor Bluehouse Capital. It had acquired the asset in 2012, and has strived to reposition the building by improving its tenant mix and achieving full occupancy. The office center is located in Infopark, the key high tech office area for IT companies in Budapest. The new owner is the Magyar Posta Takarék Ingatlan Befektetési Alap, managed by Diófa Asset Management.
“Budapest represents a great buying opportunity for investors seeking quality products at a yield premium compared to other core CEE markets,” said Bence Vécsey, director and head of investment services at Colliers, which worked on the deal. “We have seen an increased level of investor interest in Hungary, targeting mostly offices and retail assets, and we are certain that the transaction volume by the end of the year will be significantly higher than in 2014.”
TPG Real Estate, the real estate platform of the private investment firm TPG, has reached an agreement to purchase TriGranit. “Whilst ostensively a company deal, it is still one that has obvious positive implications for the Hungarian property market,” Cushman & Wakefield commented on the transaction.
TPG Real Estate is committed to further development of the TriGranit CEE platform. According to the agreement, TPG will acquire TriGranit’s development and asset management platform as well as a portfolio of high quality assets. The acquisition covers the full Polish and Slovakian portfolios, and part of those for Hungary and Croatia. Certain assets such as the WestEnd City Center in Budapest, and some other TriGranit-related projects, have been left out of the transaction. TriGranit’s existing management team will remain in place.
“TriGranit’s deep local market knowledge and a high quality real estate portfolio position the company well for future growth,” said Anand Tejani of TPG Real Estate. “We see a number of opportunities to expand the TriGranit platform. We look forward to working together with the TriGranit management team to continue to grow the business.” The company has approximately $75 billion of assets under management.
Sándor Demján, Sándor Csányi, Peter Munk and Immofinanz AG currently own TriGranit. Upon completion of the transaction, Demján and Csányi will acquire the shares of Peter Munk and Immofinanz. The company describes its primary focus as mixed-use “city center” projects and office and retail developments in strategic urban locations. TriGranit was founded by Sándor Demján, Munk, AIG and EBRD in 1997, and has completed development projects totaling more than one million sqm, worth approximately €2.5 bln, and has a pipeline worth more than €4 bln. The transaction is expected to close before the end of the year.