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The owners of large plots of land usually wonder whether they can consider their land to be an “investment plot”.  It is generally believed that this type of real estate is desired the most by investors. What is an investment plot and what types of it can be distinguished? How to determine the price of an investment plot? The article below explores these subjects.

Definition of an investment plot

Investment plots are real properties which, in accordance with the local development plan or development conditions decision, can be used for an investment project related to conducting business activities. These can be factories, warehouses, manufacturing or logistics halls, office and commercial buildings. No residential buildings can be erected on this type of land. Buildings used for business activities are often very burdensome for local residents; therefore, investment areas are mostly located at suburbs or outside of the cities, in the vicinity of trunk roads, express roads or motorway junctions. Exceptions include office and commercial buildings, which are erected in well-connected places inside the cities.

What can be built on an investment plot

This depends mainly on the size and location of the plot, as well as the provisions of the local development plan (or development conditions decision) and the state of access roads. Different types of buildings can be erected on an investment plot depending on the combination of the above-mentioned elements. These include mainly:

Warehousing parks

Large-area warehouse developments used by more than one tenant. This type of real properties are located in the vicinity of large cities, although mostly just outside their boundaries, along the largest communication routes and near motorway junctions.

Big-box warehouses

Large facilities located in the area of the largest urban agglomerations, mostly 10–50 km away from city boundaries, with access to express roads and motorways. The main tenants of big-box warehouses are e-commerce companies, retail networks, distributors and logistics companies.

Small business units

SBUs are smaller warehouses with the area from 500 to 5000 sqm. Such facilities feature warehouses and offices, and sometimes light production. This type of real property is mostly selected by the tenant who, except for perfect location, cares for visual and aesthetic qualities of the building. Small business units are located in the industrial urban districts located close to city centers.

Manufacturing facilities

The plots intended for manufacturing facilities are usually determined in detail in the local development plan. Complicated parameters and detailed requirements mandatory to construct this type of buildings limit the possibilities of land usage – not every plot meets the provisions for manufacturing facilities.

Data center

This type of building is intended for storing IT infrastructure, as well as processing and distributing data. It is characterized by very high electricity demand, and location far away from the main roads, but in a well-communicated area.

Office buildings

This is one of the most active investment property sectors. At the end of the third quarter of 2022, the total volume of office investments in Poland reached the level of 1.8 billion euro. Naturally, such investment projects are implemented in large cities, such as Warsaw, Wrocław, Kraków.

Retail park

The demand for plots of land intended for the construction of large-area commercial halls, so-called retail parks, is still high. This type of investments are implemented throughout Poland, both within and outside of the boundaries of large cities.

How to check whether a plot of land belongs to the investment category

The most important legal act which can help to determine the status of a plot is the local development plan. This document contains information which set forth the requirements applicable to the particular area. Pursuant to Article 4 item 1 of the Spatial Planning and Management Act, the local development plan provides for “determination of the intended purpose, deployment of public utility investments and identification of the development and its conditions for the land.” The local development plan not only sets forth what can be built on a particular land, but also describes the parameters, such as building height. The data on the actual status of the land plot can be found on the Internet or at municipality offices. If a real property is not subject to any local development plan and the investor plans to change its development manner, they can apply for a development conditions decision to be issued. The development conditions decision can be issued when several conditions are met, such as the presence of at least one adjacent plot accessible from the same public road, developed in a manner allowing for the determination of requirements for new development.

How to determine the price of an investment plot

To fairly determine the price of an investment plot, you need to first answer the question: what part of the plot area can be used for an investment. This type of analysis will help to estimate the initial price, which will be appropriately specified in detail after the technical parameters determining the investment potential are established. The most important of them are set forth in official documents issued by the self-government bodies at level of municipality, poviat or voivodship (e.g. local development plan). Based on the available documents, the useable surface area can be calculated, which will provide the answer to the question asked in the first sentence. This is one of the parameters necessary to determine the value of a land plot. If a plot is subject to additional conditions (it is located in a restoration zone, the real property has been entered into the list of heritage sites, it is located in a downtown development area or infrastructural investments are planned nearby) or an environmental decision is required, more documents will need to be obtained. Using a specialist support to obtain a reliable and accurate valuation report is recommended.

According to Statistics Poland, inflation in Poland was at 17.5% in November 2022.  The core inflation (minus food and energy costs) is double-digit, too, and amounts to 11,3%. For companies, it means constantly growing costs of raw materials, manufacturing and general costs, which significantly reduces financial surpluses.

In order to fight the increasing costs, companies must further review their assets and find ways to release equity. Properties owned by a company are one of the possible sources of financing which is rarely taken into account. In the case of manufacturing/warehousing companies, these assets are a significant part of the balance sheet, often funded with the equity, which is difficult to liquidate. Sale and leaseback transaction is a very convenient solution. Regaining the funds frozen in the property and reinvesting the revenue in the core business may not only help companies survive the period of growing costs and protect human capital, but also ensure equity required for the long-term growth and success.

Benefits of engaging in the sale and leaseback transaction

1. Financing in the amount of the property’s market value. Sale and leaseback may ensure equity of the property’s market value. This is particularly advantageous for big companies with turnover exceeding 100 million PLN, whose assets include essential manufacturing, office, warehouse or industrial properties.
2. Full flexibility in spending the money earned on the sale. The obtained equity may be allocated for investments, liability repayment, dividend.
3. Lease period, purchase, rent amount, service fees – at the parties’ decision. The proposed lease period is long, 10 years minimum, with multiple extension possibility and pre-emption or purchase option. Therefore, it fully safeguards further unlimited transactions of the company within the facility.
4. Monthly rent independent from WIBOR/EURIBOR – a cheaper alternative in the time of increasing interest rates. The enterprise may include the rent in the costs incurred in connection with earning the revenues.
5. Quick decision process. Sale and leaseback is a quick process and often more beneficial in financial terms than other methods of obtaining funds. The transaction does not require any own contribution.

What is sale and leaseback

Sale and leaseback consists of two interconnected stages. Firstly, the company sells its property to an investor, and then signs a lease agreement, thus continuing to run its business within the same scope and on the same property. The agreement often guarantees a pre-emption right to the seller following the lease period. The benefit of this type of transaction is that the company may reinvest this equity immediately in its core business. Due to current high inflation, these funds could be used to compensate for growing costs of running a business and to fund long-term initiatives. Moreover, the company retains complete operational control over its assets during the leaseback agreement, which means that nothing limits its activities.

Right now, it is a perfect time to consider sale and leaseback transactions. If the company decides to conclude a sale and leaseback transaction now, it previous rates can still be blocked, which are lower than the next-year rates due to the expected economic slowdown. In Western Europe and the USA, the number and the volume of sale and leaseback transactions are continuously growing. In Poland, this form of funding is gradually becoming popular among big company owners aiming at increasing their development, as well as those struggling with restructuring.

More information on sale and leaseback.

Urban recycling – an idea of the past, or the shape of future?

Urban recycling is a process of a physical, social and cultural transformation of a city. The goal is to improve living conditions of city residents and preserve or revive the memory of the city or its individual parts. The phenomenon of urban recycling has been known to architects for centuries. In the old days it would assume bringing new life into rundown urban structures. It affected dysfunctional and decaying areas and optimized them with regard to their social, economic and cultural potential. The contemporary idea of urban recycling differs from the twentieth-century assumptions that aimed at restoring the original condition of a given area. Today, when private entities are the main investors, existing structures are more frequently adapted to modern cultural and social requirements and new emerging needs arising from dynamic development and social changes. The contemporary urban recycling is intertwined with investments associated with transportation and telecommunication infrastructure modernization, the use of alternative energy sources and energy efficiency. Individual facilities and sometimes also whole city districts are developed with sustainability rules in mind. Urban recycling is gaining popularity especially in big agglomerations, where the shortage of land for new investments is evident.

“The present day urban recycling are mainly activities that consist in retrieving the full potential of land or a facility. In case when an existing facility does not meet applicable requirements, such as the ESG policies, the process of urban recycling may mean its demolishing. At present, the ESGs – environmental, social and corporate governance factors – are particularly vital indicators that help companies report the activities that are impossible to be directly translated into typical economic indicators. Such facilities may be outdated industrial installations, dormient commercial and industrial facilities or residential and office facilities built decades ago. At INWI, we can identify the right way that an investor should follow – whether a given facility can be modernized and its function restored, or rather some more radical steps should be taken. Thus we deliver to our customers the solutions that are tailored to their needs”, says Michał Niczewski, an INWI architect.

Besides regular urban recycling, processes related to land revitalization are emerging:

• Land recycling – reusing abandoned, empty or unused land for revitalization purposes. We can distinguish between grey recycling and green recycling. Grey recycling takes place when typically urban facilities, such as buildings or transportation infrastructure, are transformed by way of alteration and adaptation. We can talk about green recycling when green facilities, such as grassland, urban parks or sports facilities, are created.

• Land densification is defined as the management of the premises that takes place within the boundaries of functioning city blocks with the maximum use of existing infrastructure instead of building on the areas that have so far been undeveloped. The phenomenon can be observed within housing complexes built in 1970s and 1980s. Such management of the premises is also part of the assumptions of the 15-minute
  city, also known as the compact city.

Land recycling includes both land densification and recycling as such. And thus land recycling is understood in a broad sense and encompasses three elements: building a compact city as well as grey and green land recycling. The level of land recycling in relation to the total land use is shown by the so-called land recycling indicator. The total land use is understood as all land use processes.

There are a few ways of applying urban recycling processes. One of them is the adaptation of vacant buildings, whose presence in the urban fabric has increased (for example in Katowice and Łódź, respectively 17% and 20% of vacant office buildings were recorded in 2021) and continues to stay on a high level. Obviously, some vacant buildings are to be demolished, although the process is not economically optimal. More and more frequently the adaptation of facilities to completely new purposes is being considered, which contributes to their value increase.

A great example of urban recycling activities is the French developer Novaxia. In 2022, Novaxia purchased real property assets that may potentially undergo recycling into residential units within a short-, mid- or long-term perspective. The total amount allocated for that purpose by the company amounted to nearly 550 million EUR. France is one of three European countries, following Finland and Malta, with the highest rate of land recycling.

“At INWI, we have been paying attention to sustainability and sustainable construction since the very establishment of the company. Our mission is to initiate ambitious projects in order to facilitate the development of the city and improve the living standards of its residents. We combine business with social, cultural and historical values. We appreciate the needs of urban residents and communities that we take into consideration in all of our business activities. At INWI, we identify risks – but most of all opportunities, for which we find place in the investment process. Urban recycling and land recycling are notions that we have been managing for years. We find new, more beneficial functions (in business terms) for localizations that have lost their original significance. We give new applications to such facilities, setting the previously inaccessible capital free. Our experience in land and facilities transactions enables us to identify the opportunities I mentioned and thus we can maximize profit and offer satisfactory benefits to our customers,” says Daniel Radkiewicz, the CEO of INWI.

A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments.

Since October 2021, during ten monthly meetings, the Monetary Policy Council has raised the benchmark interest rate by 640 basis points. The recent increase was announced on 7 July 2022. Are interest rates going to increase even more? Most certainly the next increase in interest rates will be announced during the decision-making meeting of the Monetary Policy Council scheduled for 7 September 2022 (the meeting scheduled for 23 August has a non-decisional status, although that National Bank of Poland might change it). This is a good time to consider the advantages of sale and leaseback as a form of business financing that is independent from WIBOR.

Interest rates have been increased since October 2021 as follows (by dates of the Monetary Policy Council meetings):

on 6 October 2021 the reference rate was increased to 0.50%

on 3 November 2021 the reference rate was increased to 1.25%

on 8 December 2021 the reference rate was increased to 1.75%

on 4 January 2022 the reference rate was increased to 2.25%

on 8 February 2022 the reference rate was increased to 2.75%

on 8 March 2022 the reference rate was increased to 3.5%

on 6 April 2022 the reference rate was increased to 4.5%

on 5 May 2022 the reference rate was increased to 5.25%

on 8 June 2022 the reference rate was increased to 6.00%

on 7 July 2022 the reference rate was increased to 6.50%

In July 2022, according to the Statistics Poland flash estimate, CPI inflation reached 15.5% YOY. In accordance with the July 2022 report published by the National Bank of Poland, the main contributor to the increase in inflation was the growth in the prices of energy, including fuel and energy carriers, as well as:

• Growing dynamics of consumer goods and services prices in Poland in the first half of 2022.
• An increase in raw material prices on global markets, which has intensified after the start of Russia’s military aggression against Ukraine at the end of February 2022.
• An increase in enterprises’ operating costs (the price dynamics of sold industrial production in Poland – as in many other economies – has accelerated in recent months (to 24.7% YOY in May 2022).
• Positive domestic economic situation that facilitated the transfer of rising costs to consumer prices.
• Ongoing disturbances in global supply chains.
• The global growth in the prices of raw materials and of some goods, as well as prolonged disruptions in supply chains, have contributed to the increased dynamics of credit liabilities drawn by large enterprises. In Q1 of 2022, the growth was 6.7% versus 2.2% in Q4 of 2021 (source: National Bank of Poland “Inflation Report – July 2022,” p. 33). There is still a strong need to obtain working capital and accumulate financial resources.

A natural consequence of increasing interest rates is growing WIBOR, and hence – loan installments. When drawing liabilities with a bank, many entrepreneurs are not aware of the opportunities that are offered by sale and leaseback transactions, which may turn out to be a cheaper and faster alternative to obtaining financing than loans. As a result of signing this type of contract, the property owner sells it to the investor, and continues to operate in the same scope and in the same location. Sale and leaseback is a solution providing many companies with significant resources for development, which can be allocated for any purpose, and the funding amount reaches the market value of the property, which is a significant advantage over bank financing that requires own contribution.

Advantages of sale and leaseback:

• Full flexibility in spending the money earned on the sale – investments, liability repayment, dividend.
• Financing in the amount of the property’s market value.
• Long lease period, purchase option, service fees – at the parties’ decision.
• Monthly rent independent from WIBOR – a cheaper alternative in the time of increasing interest rates.
• Quick decision process

INWI is actively seeking real properties owned by companies with annual turnover above 100 million PLN. Feel free to contact us: mariusz.stepien@inwi.pl / tel. +48 789 046 179