Eurobuild Poland: Please tell us a little about your background and your history in Poland.

Sven von der Heyden, Von der Heyden Group: Being a banker and institutional bond dealer by trade, I have little to do with cars these days, but back in 1990 with 2 partners we set up a company importing SEAT cars to Poland and with a little of our own money built up a network of morę than 60 dealers. We took out loans, started praying and got on with the job. The Iberia Motor Company SA really grew into something spectacular between 1992 and 1999. After selling our stake in the company, we began to focus more on real estate, and this all started back in 1995 with the PricewaterhouseCoopers corporate headquarters building. The management of PwC must have had a lot of trust in my ability to build their Polish headquarters, as we owned nothing but a bit of dirt and a building permit. Building on that success we were able to make a name for ourselves and the Von der Heyden Group was born. Without this transaction it would have certainly been more difficult. Following this, we successfully completed the headquarters for the Polish Bank Guarantee Fund, the Polish Press Agency PAP and not forgetting our landmark deal in 2001 with BZWBK in Poznań, which was the largest leasing transaction of its time in Poland.

Have you ever regretted coming to Poland ?

Ever since I came I have never regretted it. We've been here for 17 years and so there is no reason why we won't be here for another 17.1 personally really like the country and the fact that I will soon have spent half my lifetime here is in itself is a statement, don't you think? Sometimes I feel like a Polish ambassador when I'm abroad, and now I realize that getting over prejudices is no longer so much of an issue. Poland's record in the last 18 months or so has really improved — but it was a clear disaster before. Now my friends and business partners in Germany and Spain know that Poland is cultivated and interesting, and that one can build a successful business in this country.

Having been here such a long time, what changes have you observed in the way things are done in Poland?

Decision makers in the past formed an old boys' club — and they were generally people in their mid 40s-50s. Now younger people are in charge, and there is a more professional business climate - in banks for example. However, the political climate has still not improved: right and left still beat each other up and look back to the past instead of pushing the­ir country ahead! I am really amazed by the fact that business goes on despite all these constant fights. It remains to be seen whether all this finally impacts upon Poland's future.

In my humble view, Poland could certainly develop quicker and be much more successful in the EU than it is today, for instance, by being more diplomatic. If politicians of all colours were paid better so they could concentrate only on their jobs, the development of their country could certainly improve. De­spite this, prices have sky-rocketed in a flabbergasting fashion -class-'A' office space cost EUR 2,000 per sqm some 8 years ago, but we are now looking upwards of EUR 4,000 to EUR 5,000.

Could you tell us something about your current projects?

We are just completing a 171-room 4-star deluxe hotel in the very heart of Poznań - part of the Andersia complex. This will have a.950 sqm spa and 1,000 sqm of conference/banqueting facilities for up to 900 people, which makes the Andersia Hotel really unique in Poznań. No disrespect to the recently established competition, but the IBB Andersia Hotel has more features and is probably better located. However, we will all be suc­cessful. It will be completed this summer and the office component was 97% leased 6 months before completion — with 65% taken by a giant international financial institution, which decided to create some 1,500 jobs in Poznań and build their world-wide 24 hour back-office. Andersia is at EUR 58 min our largest development so far.

In the next months, we are also planning to open a beautiful boutique hotel in Gdańsk with 71 rooms, directly located on the main market square Długi Targ, where we estimate the costs will be EUR 11 min. We are working on 2 other hotel transactions, but it is too early to talk about them at this stage

The Von der Heyden Group seems unusual amongst developers in being involved in several hotel projects. Why do you think other major developers haven't followed suit?

The hotel business is not as sweet as candy as many may think. It's the same in the air travel industry. Planes with 150 seats must have around 100 passengers to break even, so every additional customer represents additional profit. The difficulty with hotels is that as a rule of thumb you have to run them at a 70% occupancy rate for the profits to be comparable to offices when the market is good market. Anything less would make a hotel investment relatively uncompetitive in comparison. On another note, you can't run a profitable hotel business in a city with less than 50 rooms due to the lack of critical mass, and the city centres of Polish cities usually don't offer these big sites where you can build a sizeable hotel.

The office sector is less vulnerable and more transparent — office occupancy costs statistically range between 3-10% of a firm's revenue. In the case of hotels, from the perspective of a hotel operator, 25% to 35% of revenue goes to the owner as fixed rent, 50% for costs — including salaries and wages - and overheads, so the margin for error is very small. If a disaster such as 9/11 happens, the impact on hotel operations is more marked than on regular business, so that you may have to sit down with your landlord to renegotiate the lease terms, otherwise you will go bankrupt. This is something that can't happen so fast with well located office developments, as total office co­sts are only a marginal part of a company's total overheads. And if you move your company, the infrastructure is very costly, so tenants prefer to stay in their old premises.

So despite alt these complications, why are there signs that the hotel sector might now be starting to take off?

Taking a look back a few years, the hotel industry was on its knees and as low as it could get. I can give you a practical example: hotel consultants produce an annual index of the value of - for example - 5-star hotels throughout Europe. In Warsaw, only 2 years ago the value per room was around EUR 95,000. Warsaw had the lowest value (bottom of the table even after Istanbul!) in the whole of Europe - whereas in Paris or London the value stood at EUR 550,000 per key, obviously supported by far higher room rates and healthier business. That was a sign for me that something is materially wrong, as you cannot build a hotel like the Intercontinental or the Sheraton in Warsaw for EUR 100,000 per key, since such quality hotels cost EUR 200.000 to EUR 300.000 per key to build. So something needed to happen, either occupancies, room rates and capital values had to go up for hotels make money again - or owners would have sooner or later defaulted on their mortgages. There were examples where bankers got really nervous, and seriously took several hotel owners to the cleaners. But happily the market turned in 2005, occupancies increased, and everybody could service their debts again. The 2 main reasons for this revival we­re the economic development of Poland since EU accession, causing a large influx of travellers and business and a greater willingness of banks to provide finance. Three years ago, only a handful would even consider this - now there are dozens.

Turning to the residential market, are you at all nervous about the prospects of a crash in growth in house prices  in the last year or so?

I see the latest developments on the housing market through both a laughing and a crying eye. Laughing because we are making money. However, too many private households are in debt with foreign currency loans — the zloty is currently Europe's strongest currency, due to economic fundamentals but certainly also due to the billions of foreign currency which are being converted into złoty. But once foreign currencies strengthen against the złoty, people will get burnt, and it will unfortunately hit mostly those who can't afford it. Are the 60-90% increases we saw in one year healthy? I say a clear no! Although we came from a very low level of house prices in 2004/5 and the recent price hikes have not yet reached a level that would make me have sleepless nights, we still all have to be very, very careful at today's levels and make sure we buy the right sites.

So you are saying there are signs of over-shooting?

I would prefer to see the price in the region of 10-15% annually, which would be healthy and sustainable for the next 10 years. I pray that the market will not collapse, as I've already seen and actively participated in my still relatively short life 2 crashes in New York and eastern Germany. And I don't want to see this again. To summarize, I'm still very bullish because of the economic growth, the competitiveness of Poles, the size of the country and population, its unique location in Europe and the fact that the political developments so far don't seem to be affecting the economy at all.

The commercial real estate market certainly looks very heal­thy. We feel very comfortable with the office market, as this is also the most stable sector. Our eyes are wide open for opportunities in the hotel market, although we may do the odd exclusive residential development. But we will stick pre-dominantly with hotels and offices, as we enjoy the challenge, whereas the residential market is intellectually not as demanding for us. Offices and hotels are much more of a challenge!

What would you say is the secret of your success – if it's possible for you to divulge such information?

I find the secret of success to be very simple — but it really couldn't be THAT simple, or there would be more people around achieving the same kind of success we enjoy. The secret formu­la is creativity, reliability, flexibility and honesty. We talk to our business partners first instead of sending in the lawyers at the drop of a hat. Big institutions usually don't want to talk or take risks - they tend instead to send in lawyers with bazookas, which may be understandable due to their instinct for risk-aversity. We, however, find solutions instead of risking the relationship with a contractual partner or a client. We are committed to having very high ethical standards in our business attitude and overall behaviour - and this is something that is very important to me personally and for sure for our entire team.