In the next two years, we will purchase real estate in Croatia. For 200 million euros…

The South African fund Tower Property has decided that its first investment outside the borders of its country will be in Croatia. They manage 44 properties in South Africa, and in Croatia, they have purchased 15 floors of the VMD building on Strojarska Street in Zagreb.

The total value of this investment is 23.7 million euros, of which the fund invested 18.4 million. But they are just getting warmed up. 

In the last few days, the leaders of this fund and their shareholders have been walking around Zagreb observing properties. And yes, believe it or not, they have just started shopping. Namely, in the next two years, they want to buy real estate worth 200 million euros exclusively in Croatia. And they will start making offers next week. So, if you are the owner of an attractive shopping center or office space, do not be surprised if an offer lands on your desk. Three offers will be sent out as early as next week. We spoke with Marc Edwards, the CEO of the South African fund Tower Property, about the plans of this fund.

– Let me explain this acquisition a bit. We bought the building for 23.7 million euros, but that amount was invested in the company Tower Europe, of which we are 80 percent owners, with the remaining 20 percent held by VMD. So, we invested 18.4 million euros. It was very important for us to find a strong local partner. The reason we invested in Croatia? We are a company listed on the stock exchange in South Africa, and there has been a strong boom in the real estate market in that country over the last 15 years. On the stock exchange, real estate as an asset has performed the best for most of that period. However, the South African economy has started to “tighten up.” We did not feel the effects of the global crisis, as China is South Africa’s largest export partner. As China grew, we grew too. But that has now stopped, and growth is much weaker. Real estate prices in South Africa are extremely high, as are rental prices. At some point, this will start to decline.

So, was it time to escape?

– I wouldn’t call it an escape, but rather diversification (Laughter). We decided to invest outside South Africa, and VMD is our first project, or rather our first acquisition outside our home territory. Friends brought us to Croatia, we know Croatians, and we came to VMD through various “connections” or acquaintances. We are not investors who invest from a distance; we want to be physically present where we invest. We want to start employing Croatians and expand our business. At this moment, we are focused exclusively on Croatia, not neighboring countries, although we have been offered several projects. For now, we are focusing solely on South Africa and Croatia. We bought 15 floors of the VMD building, we really like it, it is an excellent project and very well built. Long-term, this is an excellent investment.

If you are in the real estate business, your only option is long-term investment.

– That’s right, we are not “developers,” we are property owners who rent them out. We want to invest more in Croatia and are currently negotiating with several parties. We want to buy office and retail spaces, not hotels, for example. We are looking at opportunities in Zagreb, Split, and other regions. VMD is the first, the others are still under observation. We have been offered excellent properties, and for that reason, we brought our shareholders to Croatia for three days to present these opportunities to them. Starting next week, we would like to begin sending offers and try to increase our portfolio. In the next two years, we would like to invest around 200 million euros; that is our goal.

In Croatia?

– Yes, exclusively in Croatia.

And you start next week?

– In principle, we started negotiations recently. We want to see what all our options are, and there are many opportunities. Croatia is similar to South Africa. Until 1994, we were under apartheid, and you had a war until 1995, so the democratic system is of similar age. We want to create more partnerships in Croatia; we want to manage properties in Croatia.

You said you are in negotiations and have some potential acquisitions. I assume you have received a lot of offers?

– We are the ones who approached the property owners, not the other way around. We have not talked to real estate brokers; we are doing it ourselves. We have looked at shopping centers and office buildings; we have just engaged people to talk to the owners of those properties. The figure of 200 million euros is very optimistic; I do not know if it will ultimately be realized, but that is what we want; that is our goal. The plan is 200 million, whether we achieve it or not.

Rumor has it that you are negotiating with Konzum and want to buy some of their stores?

Formally, we are not in negotiations with anyone. The only ones we have officially negotiated with and concluded a deal with is VMD. We have had discussions with many people. Konzum is a major retail player in Croatia with whom we definitely want to talk because we want to understand their business. They are a very good company, but we have not had any official “interactions.”

Anything else?

Yes. Look, we want to position ourselves in Croatia; it absolutely makes sense for us to talk to your largest retailer.

You mentioned office and retail spaces. For example, what spaces are you targeting? There are quite a few such spaces in Zagreb; Cascade is an example.

– I have heard of them. From our standpoint, the reason we chose VMD is that it is a high-quality space, and we believe it will attract an exceptionally large number of clients. If we continue to invest in retail spaces, it will be done with the same philosophy. We have seen excellent spaces; most of them are not for sale, of course. But we have walked through them. For example, one such excellent space is Avenue Mall. We have not talked to the owners of that center, but we were there with our shareholders. It is an excellent center. We would love to collaborate with such types of centers. We heard that City Center One was recently sold. I have not personally seen that center, but I have heard it is excellent.

Why Croatia? Because it is quite interesting when someone comes from the Republic of South Africa to invest in Croatia. I would sarcastically ask – Why on earth? Were there not better opportunities?

– This is the fourth time we have been in Croatia in the last four to five months. Now we have also been to the coast for the first time. Why Croatia? We were looking for where to invest outside the Republic of South Africa. We searched for two years, and at the end of last year, we even looked at the American market. But the local market is extremely sophisticated, with many companies. One of our board members has been coming to Croatia at least once a year for years. He said we should take a look. And we started exploring the region and came to Croatia. What you have is excellent infrastructure! The road connectivity is excellent. You have finished an arduous eight-year recession, and your GDP has been growing for three quarters. Everyone we spoke to said that the recession has come to an end for you and that you will slowly grow. Slowly, but steadily. Tourism, infrastructure, and transport infrastructure are excellent! There are many opportunities for growth.

Thank you. We who live here unfortunately do not share your optimism. But it is good to hear that a foreign investor who has come to Croatia says how many opportunities and possibilities we have for investment.

– I can say the same to you. If you were to come to the Republic of South Africa now, you would say it is beautiful, wonderful. We would be the ones who would be pessimistic, and you would be thrilled.

Are the investment opportunities and the huge number of unsold apartments in Croatia, which are actually owned by banks or their subsidiaries, a concern for you?

– No. Based on our market experience, it is quite difficult to manage such properties. I see investment opportunities, but not for now.

Many investors who come to Croatia say they have significant problems with bureaucracy, laws, taxes, and levies. What is your experience?

– Keep in mind that this is our first investment. We have not had problems with the state or local authorities, nor with taxes. The biggest problem, although it is not a problem, was with the bank, or rather in understanding South African laws as well as Croatian ones from our side. Once we resolved that and got to know each other’s legal frameworks, which took about a month or two, we invested and closed the deal. But that is nothing unusual for us. We did not have any problems; everything went smoothly, and there were almost no obstacles.

You said you are observing potential acquisitions. What can we expect from you and the fund?

– Before we send offers, we need to raise additional capital in South Africa from our shareholders. That is why we brought them to Zagreb. In addition, a local bank would participate with the remaining capital. So, 50 percent of the capital comes from our shareholders, and 50 percent from the bank. Our shareholders have seen the properties, they really like them, and now we are starting the process of raising capital. We have seen three properties for which we would like to make an offer.

Which ones?

– I cannot tell you; they do not know they will receive an offer either. There is a possibility that we will not raise the money, but I believe our shareholders will invest enough capital.

You said that some of our banks would participate. Do you think our extremely conservative banks will participate?

– We have very good relationships with Austrian banks and London banks that want to lend in Croatia. I believe that will not be a problem. The deal with VMD was done that way. I would not want to say which bank before I ask them. So, we have very good experiences. That is why it is very important that the project is good and who the investor is. The purchase of quality properties, maybe there are not 500, but there are some, banks should easily co-finance.