“There are now residential properties on the market with attractive prices”

Urbanek Real Estate GmbH aims to build a portfolio of multi-family houses in Vienna. Following price declines in recent years, there are once again attractive existing properties on the market, as CEO Ing. Mag. Dr. Christoph Urbanek explains in an interview with BOND MAGAZINE. The properties are rented out and provide an immediate cash flow. Dr. Urbanek also expects rents to continue rising.

BOND MAGAZINE: Urbanek Real Estate GmbH is issuing a bond. What are your plans for it?

Dr. Urbanek: Vienna is one of the most livable cities in the world. There is a high demand for residential properties, especially due to migration to Vienna. In recent years, there have been several crises: COVID-19, inflation, rising interest rates. I have been specializing in real estate, banking, and finance law as a lawyer for many years. There are now attractive existing residential properties on the market again. Due to rising construction costs and interest rates, new construction activity has significantly decreased, and the demand for housing is very high, just like in Germany. We believe now is the right time to invest in residential properties. We want to take advantage of the attractive market environment to build a portfolio of appealing apartment buildings. The bond will help us scale our business. We have already secured some existing properties that we can purchase in the short term. If necessary, we will also renovate them. And if it makes sense, we will sell them again.

BOND MAGAZINE: You primarily want to buy apartment buildings (multi-family houses), correct?

Dr. Urbanek: Yes, we want to invest in apartment buildings. We have already secured eight buildings that we can purchase in the short term.

BOND MAGAZINE: In Germany, single-family homes, which are often not energy-efficient, dominate the market. There are not many attractive multi-family houses available. What about in Vienna?

Dr. Urbanek: The freely accessible market in Vienna is also limited. Not much is listed on online platforms in Vienna. You need good market access. I have been specializing in real estate law as a lawyer for many years and have a large network. This network allows us to access “off-market” deals. Some properties are offered by mezzanine capital providers or banks, while others come from investors looking to divest their holdings.

BOND MAGAZINE: As a lawyer advising property owners, are you also allowed to buy their properties? Are there any professional restrictions?

Dr. Urbanek: Yes, that’s correct. There must be a corporate separation. We have different companies, the law firm and Urbanek Real Estate GmbH, where the investments are made. As lawyers, we naturally do not advise on properties where we act as buyers.

BOND MAGAZINE: What are the key details of the bond?

Dr. Urbanek: We are offering a bond with a term of 7 years, issued at a price of 100%. The volume is up to 50 million euros, and the denomination is 1,000 euros. The coupon is 10% per annum and will be paid monthly at the end of each month.

BOND MAGAZINE: Apartment buildings don’t yield rental returns of 10% per annum. What is your strategy? Are you leveraging additional bank financing to average financing costs of 5-6%?

Dr. Urbanek: We aim to build a portfolio of existing properties. After renovations, we can sell the more attractive properties. Purely from rental income, the necessary returns would not be achievable, and I agree with you on that. Therefore, we rely on a second revenue stream from property sales. We are currently benefiting from favorable purchase opportunities. The properties are rented out, providing immediate cash flow. Additionally, we expect rents to continue rising, similar to Germany. Financing costs have decreased slightly, bringing buyers back to the market. We also use bank financing, which in Austria often has variable interest rates. Currently, we are at around 4% annually. However, we can achieve slightly higher loan-to-value ratios than in Germany, over 70%. The financing costs you mentioned, 5-6%, are realistic on average.

BOND MAGAZINE: When buying off-market, you avoid broker fees but still have property transfer tax and ancillary costs. What is the property transfer tax in Vienna?

Dr. Urbanek: The property transfer tax in Austria is 3.5% – uniform across the country. There is a registration fee for the land register of about 1.1%, plus notary fees. If we don’t pay a broker’s fee, ancillary costs amount to about 6%. In the case of a share deal, costs are even lower, as the property transfer tax and registration fee do not apply. Then costs range from 1-2%.

BOND MAGAZINE: You cannot fully acquire the company in a share deal?

Dr. Urbanek: You can acquire up to 95%; another entity must acquire the remaining 5%. Urbanek Real Estate GmbH can purchase 95% through a share deal, while an SPV owned by Urbanek Real Estate GmbH could acquire the remaining 5%. This is possible in Austria and is a common practice.

BOND MAGAZINE: What is your acquisition profile? What types of properties are you looking for?

Dr. Urbanek: We are looking for multi-family houses that are about 100 years old with good structural conditions. There are many such properties in Vienna. The facade, windows, and roof should require no renovation. Inside, balconies can often be added. Adding them to the exterior is often not possible due to heritage protection. Many multi-family houses have three floors: elevated ground floor, first floor, second floor, and a third floor – thus four rental floors. The elevated ground floor often includes retail spaces. Many apartment buildings range from 1,000 to 2,000/3,000 square meters.

BOND MAGAZINE: How can investors subscribe to the bond?

Dr. Urbanek: Investors can subscribe on our website at https://urbanek.wien/anleihe. Settlement will take place at the end of the subscription period in late January 2025. Monthly interest payments will start in February, which is very appealing to investors. We also receive monthly rental income.

BOND MAGAZINE: How do you plan to repay the bond? You currently do not have significant equity. Will you sell the properties gradually?

Dr. Urbanek: There are various options. We can sell the properties. If it makes sense for investors, we can also offer a new bond before maturity to refinance. When investments perform well, investors often want to continue. Additionally, we could refinance at better terms if we already have an established portfolio.

BOND MAGAZINE: Thank you for the interview.

The interview was conducted by Christian Schiffmacher.