"A Strong Investment Case"

Covid-19 is now almost four years behind us – yet its effects on the real estate sector remain significant. However, the market turnaround must come eventually. The Vienna Opportunities Bond aims to capitalize on an imbalance in the real estate market.

BondGuide: Mr. Urbanek, let’s start with a few words from you about yourself, please.

Urbanek: I am a trained lawyer specializing in real estate. I initially entered the real estate sector through my purely advisory work. Over the years, my responsibilities expanded, and my network grew larger and larger.

BondGuide: … to the point where you eventually asked yourself if you could be the investor, I assume.

Urbanek: That’s quite accurate. Over the years, I had already established access to the relevant market – and now, there is a unique special situation at play, at least here in Vienna. That’s how the idea arose to raise external investor funds through a capital market initiative – namely the bond issuance.

“Now is slowly but surely the time to build a portfolio of attractive existing properties.”

BondGuide: How can the market anomaly be addressed and tackled with the Vienna Opportunities Bond?

Urbanek: In Austria, too, we had crisis years in the real estate sector beginning with Covid-19. The changes were drastic. But now we’re almost in 2025, and the recent trends like inflation and rising interest rates have already reversed – they’re headed in the right direction. In Vienna, little to no new housing was created during these years.

And we’re talking about our capital city here. Rental prices are rising due to the tight supply and high demand, while prices for existing properties have continued to decline. That’s the market anomaly. Therefore, now is slowly but surely the time to build a portfolio of attractive existing properties.

BondGuide: Timing is everything, after all, as I’ve learned, the return lies in the purchase. Are you perfectly on time, slightly late, or boldly early?

Urbanek: I believe we’re rather early. So far, I see few market players moving in this direction. Developers, as you know, have been under considerable pressure in recent years – having a good connection to insolvency administrators certainly doesn’t hurt. Meanwhile, there’s selling pressure from capital providers invested in real estate, often banks or mezzanine capital providers. Many simply want to draw a line under some of their investments, even if that comes with losses or a haircut on existing loans.

“Many capital providers simply want to draw a line under some of their investments, even if that comes with losses.”

BondGuide: What are the differences between the real estate crisis we’ve seen in Germany over the past two years and Austria – are there any?

Urbanek: The issue is practically the same in Austria: Nonprofit developers completely stopped their construction activities at the beginning of 2023, followed shortly by private developers. Forecasts for 2025 suggest that only about 40% of demand will be met through new construction. By the following year, we’ll face a significant shortage amid massive excess demand. Construction should ideally start now to provide relief in a year. But as you’re likely aware from Germany, that’s not happening at all.

BondGuide: Which segment of the real estate market do you want to focus on? Likely residential, but are there opportunities elsewhere as well?

Urbanek: Our primary focus is on Vienna – it is by far the largest core market. Around 50% of Austria’s population lives in and around Vienna. Within that, the typical small multi-family house, known as a “Zinshaus” here, is our target. There could theoretically be thematic and geographic opportunities outside this focus, but they would have to be very compelling. There’s also new office space in Vienna – but companies are just moving to newer, nicer buildings, leaving the older ones empty. New versus old. With some effort, viable office vacancies can at least be converted into apartments. However, this stopgap solution does not nearly meet the demand created by migration to Vienna.

“Eight properties are secured through agreements – we would purchase them with the proceeds from the bond. Gradually, we would add more properties.”

BondGuide: Are you planning to completely build your portfolio from scratch, or are there already properties in the pool?

Urbanek: It’s not a blind pool in that sense. Eight properties are secured through agreements – we would purchase them with the proceeds from the bond. The preliminary work has been done. Gradually, we would add more properties.

BondGuide: The bond volume is set to reach up to EUR 50 million. Based on my calculations, this could amount to about EUR 150 million in investment funds. How far off am I?

Urbanek: Essentially, we don’t expect the issuance proceeds to come all at once but rather step by step. This allows us to approach one property after another. In terms of value, this would create a property pool of up to EUR 200 million. More conservatively, with lower leverage, you’d be closer to your estimate of EUR 150 million.

BondGuide: Financing is surely a mix of the expensive bond – at 10.0% p.a. – and other facilities. How does it work out so it’s still profitable?

Urbanek: Banks currently offer financing rates between an optimistic 3.0% and a less favorable 4.0%. In Austria, variable interest rates are common, so financing costs could decrease further as ECB key rates fall. As I said earlier: All the trends are pointing in the right direction, and one of them is the financing rate for bank facilities, which should continue to decline from its late 2022 peak.

“If extensive renovations were required, it’s not for us. Many properties in Vienna can’t even be renovated due to heritage protection.”

BondGuide: What does the CFO say about the coupon rate of the debut bond?

Urbanek: With the mix of the bond and bank lines, we’re looking at an overall rate of around 6 to 7%. There’s a buffer in place. The cash flow comes from rental income. And if that’s ever not sufficient, we could sell a property. Preferably, of course, after a value increase from minimally invasive measures like a new kitchen or bathroom. If extensive renovations were required, it’s not for us. Many properties in Vienna can’t even be renovated due to heritage protection.

BondGuide: Leaving the prospectus aside, is there a single external risk that you would say causes you concern and is beyond your control?

Urbanek: Naturally, international conflict hotspots also worry us. Even if they don’t have a direct impact, they may indirectly affect consumer behavior. Additionally, Austria is traditionally more closely tied to Eastern European countries than Germany, for example. That said, life can’t come to a standstill, and capital seeks its investment opportunities. With the opportunities in Vienna’s housing market, I believe we have an extremely strong investment case.

“The cash flow comes from rental income. And if it’s ever not sufficient, we could sell a property.”

BondGuide: Mr. Urbanek, thank you very much for your time and your interesting insights – and, of course, best of luck.

The interview was conducted by Falko Bozicevic.