Double Currency Boon Lures Pimco, Oaktree to Polish Property

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U.S. funds Pacific Investment Management Co. LLC and Oaktree Capital Group LLC are boosting their stake in Poland’s largest real-estate developer, attracted by a combination of favorable exchange rate swings.

The Polish currency has tumbled 18 percent to the dollar in the past 12 months, making U.S. investments in the European Union’s biggest post-communist nation less expensive. At the same time, the zloty hasn’t lost value against the single European currency, which helps keep down tenants’ costs in a market where most rents are denominated in euros.

Pimco and Oaktree, through their investment vehicle Lisala, offered on Wednesday to buy a further 24.4 percent in Echo Investment SA to increase their stake in the developer of shopping centers, office buildings and apartments to 66 percent. Economists expect Poland’s economy to expand more than 3 percent per year at least through 2017, increasing appeal for the real estate assets even after a construction boom.

“U.S. investors are benefiting twice” from exchange rate moves, said Tomasz Trzoslo, managing director at real-estate brokerage Jones Lang LaSalle Inc. in Warsaw. “That’s why U.S. firms are interested in Poland’s real-estate, with the Echo deal only providing more proof of this trend.”

Unfinished Skyscraper

Foreign investors are drawn to Polish property amid “extremely low” yields on Western European real estate and fixed-income markets, according to Maciej Dyjas, co-managing partner at Oaktree’s Griffin Real Estate unit in Poland.

“The Polish economy’s good track record as well as favorable currency trends also bring them to this country,” Warsaw-based Dyjas said by phone on Wednesday.

Laurent Luccioni, Pimco’s head of commercial real estate for Europe, the Middle East and Africa, was not immediately available for comment on Wednesday.

The Echo offer comes 10 months after U.S. fund Amstar Group LLC bought an unfinished skyscraper in central Warsaw from Orco Property Group SA for 63 million euros ($71 million). In November 2013, a fund of U.S. Lone Star Global Acquisitions Ltd. bought a 28 percent stake in developer Globe Trade Centre SA and later raised its holding to 55 percent.

Echo Slumps

Jones Lang LaSalle said that vacancies in Warsaw, the country’s biggest market, will increase to 18 percent of available office space in the next two years from 13 percent now and an average of 6 percent from the last decade as new projects are completed, according to a report.

The public tender for Echo, which ends on July 29, is required by law after the U.S. funds acquired a controlling stake. Lisala offered to buy 100.9 million shares in Echo at

6.75 zloty each. The stock slumped 1.8 percent to 6.71 zloty at close in Warsaw, the lowest close since April 21.

Pekao Investment Banking SA said the offer was 9 percent below its 12-month target price for Echo and 12 percent below the company’s last reported Net Asset Value Per Share. “We do not consider it as particularly attractive,” it said in a note.

Echo has a real-estate portfolio worth $1.1 billion as of March 31 and values its projects under construction at $370 million, according to the company’s first-quarter report.

“Echo has a large pipeline of projects,” Adrian Kyrcz, an analyst at Bank Zachodni WBK SA, said by phone on Wednesday. “The American investors recognized this, they have an idea for developing this business and they could consolidate the industry despite increasing saturation of the market.”

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