18.03.2021

Environmental, social, and governance — what are the priorities for global investors in current conditions?

On March 10th Ukraine at MIPIM hosted the first pre-MIPIM online event dedicated to the growing role of alternative and responsible investments in a post-corona crisis environment. The key aims of the event were to learn about the investor’s moods, their new priorities, and global investment strategy. 

The event was moderated by Yuriy Kryvosheya, President and Managing Partner of Toronto-Kyiv, Head of Supervisory Board of Ukraine at MIPIM; and Anna Nestulia, Principal and Partner at Invest in Projects|STRIX., co-Founder of Ukraine at MIPIM. 

The speakers were Mathieu de Bruin, CEO, and Partner of Portico Investments; Wolfgang Gomernik, CEO of Delta Ukraine; Yuriy Fylyuk, CEO of Promprylad.Renovation; Aida Feriz, Executive Director at Wimmer Family Office investment company; Joerg Baehren, International Fund & Investment Management at edira Holding GmbH.

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The past year demonstrated a total decline in investment volume. According to S&P Global, it decreased by 53% globally. According to JLL Global Real Estate Perspective, the global full-year transaction volume in real estate totaled $762 billion, which is 28% less than in 2019. As Cushman & Wakefield says the investment volume in Ukraine in 2020 was $ 156 million. It is 59% less than in 2019. 

“Though, we see that despite such a decline, for long-term players the existing challenging business environment is about building resilience, adopting the companies’ strategies to new conditions, and finding out new opportunities. It drives us to ask International investors and experts directly about their opinion on current trends in property investments”, says Anna Nestulia. 

In the meantime, Yuriy Kryvosheya adds that when we talk in terms of macro-economic numbers we see one picture. However, it is impossible and probably, even, not proper to judge the market just by excel sheet or by a few standard assumptions as there are specific particularities on the market.

The most interesting trends for the market outlined by Yuriy are the following:

  • Finally, developers and key market players started to think in terms of ecosystems, not just simply in terms of square meters.
  • We notice that the energy of a particular location or property is not an abstract term anymore. This is sort of a magnet for any type of stakeholder. 
  • There is a global trend in terms of the transition from shareholder capitalism approach to stakeholder capitalism and related approach. In Ukraine, especially young players, and the younger business generation are grasping that concept.
  • Landlords, tenants, and stakeholders started not only to appreciate impact investments and socially responsible behavior, but it is becoming a part of their policies, fundamentals. 

Among others, Yuriy believes that the real potential of Ukraine is people. Ukraine is a country with a huge population compared to other European countries and is much driven by the younger generation. 

First of all, these young people do not care about who the politicians are, they are not much affected by gender. They are super creative adding value to the market and making it a little more advanced.

At the same time, Mathieu de Bruin believes that there are big differences if we look at the market individually. Portico Investments operates in Romania, Hungary, and the Netherlands and has shares in companies in Check Republic, Poland, and Germany. The decline in those markets was around 15% – 20%. Also, it depends on the sectors – retail, offices, shopping centers have a huge decline. The level of investments in residential, logistics, and supermarkets stay the same if not higher. 

The key points outlined by Mathieu de Bruin are the following: 

  • COVID has accelerated the existing trends being on the line. The lockdown is shifting and adjusting the market to the things, which are doing fairly well. It is not something completely new that is happening. It is about what has already happened but people did not notice. Now it is getting more obvious.
  • The crisis is a driver for future growth. To compare it to Ukraine, we can recollect a situation after Euromaidan. It was a big step down in the economy and business activity. But if one can look at specific business in the real estate sector afterward and in a couple of years, there was tremendous activity. Kyiv built many residential and other types of real estate, which combined a 15-year volume before that period. 
  • ESG (environment, social, governance) is on the agenda of every international investor who wants to show their stakeholders that they are taking care of it. There is a growing awareness that at the end, it will lead to a better performance of the company’s results. For 15 years, it has been something that you have to do. Nowadays, with solar and wind energy, you can have a normal return. And, if you can make a normal return, it all makes sense to apply it. 

ESG as whole combining sustainability, inclusiveness, diversity in companies, social responsibility, state policy. There are many topics that are covered by three letters. 

The investor is interested in how all these will be applied in Ukraine. On the one hand, Ukraine is not part of the EU, where a lot of such things are formalized. On the other hand, it’s very difficult to realize and to implement certain things in the EU as things go slowly there. It becomes even easier to realize certain ambitions because Ukraine is not constrained by prescriptions from Brussels.

Anyway, Mathieu believes that people in Kyiv and Ukraine as a whole made a lot of the same steps as in Western Europe. Some of them are absolutely comparable if not better as a whole. 

Wolfgang Gomernik also shared a positive vision of the current environment potential for Ukraine and says that it was the most successful year in less than 44 years of the Group of DELTA in all the countries where the company operates, and Ukraine is not an exception. 

In Wolgang’s opinion, the only bottleneck in Ukraine is human potential in all aspects. Hiring is now key, and hiring proper people with a proper culture is key. 

“People, a new generation is coming in, coming back and interested in Ukraine. Our share of Ukrainian investors, partners, clients increased tremendously last year and will further increase”, says Wolfgang. 

Moreover, international investors, which have already been active in Ukraine, still stick to Ukraine and new companies may consider the country for their projects. 

“I talked yesterday with an amazing company from Great Britain. They are ready to roll out data centers. Once Ukraine will be more connected to the EU it is just a matter of 1-3 years to set up a data center of around 15 000 sqm. in Ukraine”, adds Wolfgang. 

Things that are driving DELTA at the moment mentioned by the company’s CEO are the following: 

  • Residential.  There is a new term created by DELTA called ‘hoffice’. It is a combination of home and office. It will change completely the way people will live and interact. 
  • Logistics and industrial property. In less than 10 months driven by COVID, the robotics and artificial intelligence connected to the property has been increasing tremendously in all areas. Slowly robotics will take over the tasks, which eventually humans will never do again. 
  • Office and headquarters development. Centralized offices are now pushed back together creating the home base for cultural development, for interaction, for human potential development.
  • Taxonomy. This year, they have been talking about such a term as the taxonomy in European Union. Taxonomy means that investors, companies, and financial institutions have to define the environmental performance of their economic activities. DELTA is approached by huge funds in Germany, Austria for assessing their portfolio from all over Europe including Ukraine how they perform from an environmental point of view. 
  • Urban mining, which means the company uses existing infrastructure, existing buildings, reshaping them, finding ways for their existence. It is very important in the EU today. 

In Ukraine, there is a perfect example of urban mining in Ivano-Frankivsk. It is Propmprylad.Renovation, revitalization of the old post-Soviet factory implemented successfully by Yuriy Fylyuk and his team. Moreover, the project reflects most of the trends and opportunities already mentioned by the speakers. That’s why it forces the sophisticated large international players who pay attention and get global support from a number of continents.

According to Yuriy Fylyuk, among the key fundamentals of the projects are

  • ecosystem across art education, economical development, and urban development;
  • combination of various functions from offices for new companies to accelerators, incubators, business school, art center, event hall, and even supermarket;
  • combination of various stakeholders from business representatives to civil society representatives, which can work in synergy together. It is unique for Ukraine that Promprylad.Renovation is a home for the Investment department of Ivano-Frankivsk city council. 
  • crowdinvesting as an addition to the ordinary sources of financing is one of the most important for the project. As of today, the project has 770 co-investors and over 30 national and international partners, including Toronto-Kyiv, DELTA Ukraine who are among the speakers today. 

Yuriy believes that such a community-building approach is very important for the project. First of all, it makes it more sustainable and crisis-proof. And the COVID situation proved it was true. For the present time Promprylad.Renovation stays in a very stable economical situation with a 100% occupancy rate, 100% rental rates. Moreover, starting from the 2nd half of 2020, the company sees the increasing demand from investors, tenants, and new partners, sometimes even unexpected. 

Even though projects speak for themselves, in the context of Ukraine investors such as the Wimmer Family Office remain a little bit cautious and waiting for a more stable situation both in a political and legal environment.

At the same time, Aida Feriz adds that being a family office with a personal attitude/feeling, the company is project-oriented with a focus on the people behind that. 

The drivers for the company are stability with some possible exceptions; 20% IRR on the project, and in terms of sectors it should be residential, mixed-use, or luxury hotels. 

“We are currently investing in the hotel in the Maldives. We can’t call the market mature, but they handle COVID very well and the whole world was there. We know that luxury is not going to be affected as badly as other markets”, says Aida. 

Stability and residential are also in the focus of the next speaker Joerg Baehren, who believes that the coronacrisis situation forces people to improve their living conditions by moving into other bigger apartments. The second reason for such an approach is the possibility for a fast and easy exit from a project. 

“You buy land, you build apartments, you sell them out. If you go for a long-hold strategy you usually do not do that when you are abroad. It is far away and very complicated”, says Joerg.

Among key trends mentioned by Joerg are

  • among the most promising sectors in real estate are residential and logistics, which is a global trend including Germany.  Investors still go for offices. Retail and hospitality remain complicated industries. 
  • in terms of investors’ moods,  nowadays the real estate players go to more stable and long-hold investments. So, it is not only about the buy and sells strategy, which they implement in some markets such as India.
  • ESG and impact investing. Some investors event restructure their portfolios following ESG criteria.

To sum up, we see that investors changed their strategy by being more cautious and more pragmatic. Of course, Ukraine as never before should demonstrate global players’ stability and the right steps towards overcoming crises and challenges. Though, we see also that as never before people, the project itself, creativity together with desire and ability to go in line with pro-European standards, including ESG criteria, are the most important signals for the global business community which allows attracting more attention. Though, I believe we should combine actions, which go first, with words speaking louder in global media, organizing more events like this, and becoming an integral part of the global agenda at MIPIM and other International industry events. 

prepared by Anna Nestulia

Eng

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