Property Management

We bring the market to your doorstep

The „Moving Market” visited BFI Office Building

 On 26th of June Moving Market opened in BFI Office Building, which is a unique initiative for the market’s organizers as well as for the office building operators. The Moving Market, which is brought to life within the framework of the Community Producer Program, moves upon request into office buildings or other headquarters for a few hours. The busy office workers can get to know the producers directly and buy fresh and quality products in their workplace – which are normally available only on the market. The goal of the program is to provide an opportunity for primary producers, family farms and small farmers to sell their products through the latest and unused sales channels and the quality producer goods will really get there where there is demand for it.

“We were sure that the initiative will be beneficial for all parties involved and the first time organized market’s popularity at BFI came even beyond expectations.” – said Dániel Pintér, head of PM division at Eston International that ensures BFI office building’s operation. He added: “Beyond the operation of the managed buildings we try to improve their rental indexes, i.e. their market position. We continuosly put into practice our countless creative ideas to achieve this just like we did with this idea too. Further to this initiative, theater ticket sales, mobile car wash service and donation take place in the BFI Office Building. Our goal is that the tenants not only use the property for teir business but inhabit it, thus a real community place can be created.”

A successful year for the BFI Office Building PM with Eston

A good place to work is a good place to rent

A successful year is behind the BFI Office Building, located on Fehérvári út, which is managed by Eston since 2013. As a result of the owner’s efforts, as well as due to the highlighted leasing activity a market average level of occupancy is reached, representing nearly 100% increase in tenancy.

Owing to the recent remodeling and development works in the house, tenants may conduct their businesses in a lively and active building. In order to present such effectiveness, the new property manager needed to come up with novelties that support and add color to the the daily lives of the workers and boost the activity of the community in the building.

“We endeavored, beyond the nowadays commonly implemented selective garbage collection and energy saving methods, to introduce new ideas that stop the monotony or contribute to the daily operation of the companies. In the recent year we successfully expanded the building’s service range by features that connect to the office-work (state of the art, fully equipped meeting room available by the hour, carwash) and by a special CSR field as we organize blood donation several times a year. Nevertheless, we regularly host cultural events and other gatherings in the renovated lobby area.” summarized Dániel Pintér, Head of PM at Eston.

Adorján Salamon, CEO of Eston, is also satisfied with the accomplishments, and believes that “The leasing activity could not be this effective in the BFI House if, besides taking over the property management, we did not concentrate on the improvement of tenant satisfaction as well. With our team work we managed to well exceed 80% occupancy in the building, which, to the great satisfaction of the property owner, is above the market average for the first time.”

Background information

The ’A’ category BFI House is situated in a nice green surrounding offering modern air-conditioned office spaces on four levels. The 8,500 sq m building with its spacious atrium and reception area gives a warm atmosphere. The offices are suitable for smaller or medium size companies on open or closed layouts. The excellent in-house restaurant and café, the on-site facility management, the secured underground and open air parking spaces and the inside storage facilities altogether contribute to the tenants’ comfort.

Eston International, that celebrated its 20th anniversary in 2013, provides full range of property solutions to its clients, in all segments of business real estate. In addition to Eston’s agency, appraisal and consultancy services, the firm has already been involved in integrated property management since 2012. The company’s scope of activity spreads to all segments of commercial real estates from offices to warehouses and from retail units to investment and development properties. Eston International is a member of the Hungarian Real Estate Association (MAISZ) and the Budapest Research Forum (BRF); in addition to several professional awards (“Real Estate Agency of the Year”, “Best Cerean”, “Real Estate Appraiser of the Year” and BBJ’s “Best Real Estate Agency”) Eston was presented with the title Business Superbrands for the fourth time in 2013.

Innovation is the future

Eston and Rendszerinformatika joint project acknowledged

On the 6th of February in 2014, the “Office of the Year” awards were presented by the Iroda.hu group. More than two hundred professionals attended the ceremony, organized for the fourth time; the winners were awarded following a two-stage evaluation (public voting and evaluation by an independent jury of professionals). The winner of the Innovation Award 2013 is the Cloud Office concept, a joint project of Eston International and Rendszerinformatika, which was introduced in the Eston managed Panorama Office Building.

The core of the Cloud Office service is that the office building is connected to the highest IT density data center; thus, every workstation is connected to the data center and performs its operation there too. The concept grants the possibility of planting the IT service units outside the office building, enhancing cost efficiency and system security at the same time.

“The Cloud Office provides outstanding service levels and superb price to value ratio for tenants. Besides, the project delivers competitive advantage to the office building, which, in this fierce market environment is very important.” – said Dániel Pintér, head of the Eston PM Division. He added: “It is our pleasure that the new service we worked out with Rendszerinformatika is now recognized by the profession; furthermore, we believe that by exploiting the synergies that form the base of the concept, namely real estate knowledge and IT competence, we are able to bring added value to our clients in the future as well.

According to the involved parties, Cloud Office, which simplifies the IT operation and improves cost efficiency and system security, may become popular in formerly delivered (5-15 years old) office buildings, and mainly in the sphere of smaller office tenants (mostly under 1,000 sq m).

    

Background information

Eston International, that celebrated its 20th anniversary in 2013, provides full range of property solutions to its clients, in all segments of business real estate. In addition to Eston’s agency, appraisal and consultancy services, the firm has already been involved in integrated property management since 2012. The company’s scope of activity spreads to all segments of commercial real estates from offices to warehouses and from retail units to investment and development properties. Eston International is a member of the Hungarian Real Estate Association (MAISZ) and the Budapest Research Forum (BRF); in addition to several professional awards (“Real Estate Agency of the Year”, “Best Cerean”, “Real Estate Appraiser of the Year” and BBJ’s “Best Real Estate Agency”) Eston was presented with the title Business Superbrands for the fourth time in 2013.

Rendszerinformatika is Hungary’s first IT fleet management company, where all IT resources are available in one place. They provides simplified, more transparent, secure and rewarding platform for the IT background that is needed for a seamless company operation.

New Year, new assignment, new colleagues at ESTON

Eston won new PM assignment

ESTON’s Property Management (PM) Division has lately won a new assignment for managing an office building portfolio from 1st January 2013. The assignor is a foreign property fund, who assigned Eston to handle a volume of more than 20 000 sq m property portfolio. The property advisor is not doing only PM (property management) services but also FM (facility management) too.

To properly handle the increased volume of work, Mr Dániel Pintér took over the leadership of PM Division at Eston from 1st January 2013. Dániel had previously been head of office leasing team for 6 years at Eston, where he not only succeeded in providing complex office solutions but gained significant experience also in project management, office fit-out, portfolio management and operation too. Now with this expert, Eston PM-clients gained a single-contact advisor where they only need to keep contact simply with one person.

In this deep-frozen market of commercial properties, keeping your tenants and satisfying their requirements at highest level have become more important than ever. Within these circumstances, where client-centred attitude is key, we see proprietors having greater trust in a consultant, who knows well both tenant market and the landlord’s or operations sides as well; someone who ‘understands the tenant’. With our agency background, Eston guarantees this comprehensive know-how and close contact for the assignors.” – says Dániel Pintér, Head of PM Division at Eston.

Supervision of Eston’s Office Leasing Division has been taken over by Mr Tamás Pál as of 1st January. The professional has 12 years of sales experience (7 years in property business) and he has achieved success in several transactions within the especially tough economic environment of late years. With Tamás’ contribution, not only the most optimal buildings have been found but also significant savings have been earned for tenants, to support them in long-term, profitable operation. Some of Tamás’ references: Heineken Hungária, Chio Magyarország, Bosch Siemens, Vodafone, Carnation.

Eston sales team – constantly unchanged despite of the crisis – has further expanded: Mr Gergely Kendelényi joined the office leasing staff as senior advisor. With the specialist having more than 10 years of professional sales experience, Eston’s office broker team has grown to 6 people, which is one of the largest sales divisions in domestic agency teams.

It is a pleasure to have started the 20th year of the agency with an ever expanding, professional and dynamic team. Within these market conditions, where keeping and serving clients in an appropriate way has become more essential, to deeply know tenants, to comprehend landlords expectations, and to have customer-centred attitude, mean guarantee for our clients to keep returning to us again and again.” – states Adorján Salamon, Chairman-CEO of Eston International.

Industrial market analysis Q1 2012 (BRF)

The Budapest Research Forum (BRF) which comprises: CBRE, Colliers International, Cushman & Wakefield, DTZ, Eston International, GVA Robertson and Jones Lang LaSalle now reports its Q1 2012 industrial market data.

The size of modern industrial stock in Budapest and its surroundings totalled 1,806,350 sq m at the end of Q1 2012 (after a minimal stock correction from Q4 2011). In the first three months of the year no newly completed building came to the market, which mirrors the first three quarters of 2011.

The total volume of lease transactions so far this year totalled 47,694 sq m. This level represents a 47.2% decrease over the previous quarter and is less than half the amount recorded in the same period last year.

Fiege’s 19,135 sq m renewal was the largest deal of the quarter, accounting for 40% of the quarterly total tenant activity.  New leases equated to 28.2%, and expansions 10.9% respectively. The 6,300 sq m pre-lease transaction which will be realised in a BTS building due for completion later this year accounted for 13.2% of the total Q1 2012 total leasing activity.

22 industrial transactions concluded in Q1 2012, however, only two of these exceeded 5,000 sq m. The average transaction size was 2,167 sq m. Logistics parks showed demand for 44,208 sq m which provided 92.6% of the total leasing activity, with an average deal size of 2,600 sq m; while city-logistics demand amounted for 3,486 sq m with an average deal size of 697 sq m and accounted for the remaining 7.4% of Q1 2012’s take-up.

Mainly due to the lack of new completions on the market vacancy rate is 21%, which is a 1 percentage point increase compared to Q4 2011. At the same time the occupancy levels of Logistic Parks decreased to 79.6% and City Logistics increased nominally to 73%.

To conclude net absorption was negative in Q1 2012 accounting for -3,362 sq m which is mainly due to the large areas that vacated during these first three months.

Note on the methodology:
BRF analyses modern industrial properties located in Budapest and Pest County, completed after 1995 for letting purposes, comprising a minimum of 2,000 sq m space in terms of city-logistics or minimum of 5,000 sq m space in terms of logistics park warehouses. The industrial stock excludes owner occupied buildings.

Download full report.

‘See-saw’ – The art of keeping tenants

‘To keep tenants is the key consideration of the almost sure survival. Many have said, many have known, but for those who want to implement these, the understanding of the rank of tenants’ needs is an essential ingredient, and have to be handled with care.’- says Zoltan Petrik, Head of Property Management at Eston International.

Those who want to keep their tenants in have to be prepared to put the resounding phrases into practice nowadays. The task is not easy as due to continuous rationalizing or rather worse downsizing, many decide to shrink their leased space or simply vacate it. This could also happen by taking legal consequences for stepping out from definite term agreements.

Landlords who act with understanding have to allow for all these possibilities, but in many cases it may not be sufficient. The role of Property Management (PM) companies being in charge for properties became crucial in this process. The sector was responsive to it and become the pulling force of the current real estate market.

According to Zoltan Petrik, one of the key factors of the PM services is the elimination of bad habits: ‘You need to think together with tenants, approach them proactively and put an end to the ‘I am the owner, while you are just a tenant’ thoughts. Those, who are able to rationalize all the cost elements of the lease structure either on the service or on the maintenance side, have far more chance in the negotiation process, as in a particular case they have such reserves/surplus which could be used to compensate the decrease in rents.’

It also needs to be seen clearly apart from these that the quality of service from the book reading habits of the receptionist, through handling minor parking problems up to adequate cooling in the offices was never as ‘valuable’ as nowadays. If a tenant is not quite pleased with the day-to-day services, then a reduction in rents will be insufficient to keep it. Comfort, as an idea is not included in the annual rental conditions of tenants, although at a given case it could be really important at a meeting of the board directors where decisions are made about moving.

Quantifiable cost rationalization, increase in time spent on tenants and perfect services. These could be solutions for keeping lease agreements alive besides the openness and flexibility of the Landlord. In an ideal case a good Property Management Company should know these well. Representing Landlords’ interests, but in such way which is interpretable for tenants as well, speaking their language, and showing measurable advantages. You have to give in to tenants’ demands as the worth of a continuous income stream has multiplied nowadays, although it should not be overlooked either that a good Landlord together with a well-prepared Property Management Company makes an unbeatable couple. A good Property Manager is able to assure real fundamental to this.

What you should know about property leasing

Lease financing has become quite common nowadays. The growth of leasing on the property market is based on the fact that with leasing there is no need to tie up considerable funds in high-value properties. According to our experience with financing, companies often fail to consider property leasing because they only have limited information regarding their leasing options. The following is an overview of the main issues surrounding property leasing, presented in order to assist you in your decision-making regarding property investments or acquisitions.

In the Central European countries that joined the European Union in 2004, lease financing became an important investor and consumer tool. Leasing provides a solution for small and medium businesses with low capital looking to start business activities in a variety of economic sectors. It can be a solution for the acquisition and operation of property investments and property purchases as well. In Hungary, the volume of investments financed through leases saw a substantial increase over the last 10-12 years, increasing from a value of HUF 6 billion to over HUF 1,000 billion by 2003. Within this figure for all leases, the lease financing of real estate increased to over HUF 68.8 billion, making the share of this sector in the whole of the lease market almost 7 percent. The figure for lease-financed properties in Western Europe exceeds even 30 percent. This indicates that property leasing as a financing method is not yet widely used in Hungary.

Due to a favourable economic environment, the further expansion of the lease market can be expected, and banks should be strengthening their activities involving “lease assetsâ€? for small and medium-sized enterprises.

Property leasing

Property leasing is typically the financing form used by major international companies when building larger commercial real estate projects such as shopping malls, hotels, production plants, logistics centers, and warehouse halls. However, smaller firms can also use this option, which is fundamentally different from borrowing, for the construction or purchase of properties for their own use. Essentially, if a company is not ready (or able) to pay the full price for a property, it can select a bank or a leasing company to help with the financing.

As a first step in a property development project, the bank (or leasing company) concludes a sale and purchase agreement with the investor (developer). Through this, it purchases the real estate property, enables the construction of the building (construction can be undertaken by the leasing company/bank or by the developer), and gives it over for use by the buyer under a lease arrangement. If construction is not required on the property to be leased, the property is transferred to a company established explicitly for this purpose. Afterwards, the leasing company buys 100 percent ownership in that company. (This solution is advantageous since after acquiring ownership, neither the lessor nor the lessee need pay duty on the property obtained.) In both cases, the client acquires the ownership of the property upon the expiry of the lease contract. Until that time, monthly payments (or similar periodic payment) are made to redeem the financing amount, with accumulated interests.

Types of leases
Those who opt for a property lease can select from a variety of financing schemes, as described below:

Financial lease:

The lessor purchases or builds upon the selected property, and concludes a leasing contract for its use for a fixed period. The property will be entered into the accounting records of the investor, who becomes entitled to charge depreciation on the property, but the actual owner of the property until the end of the leasing period is the lessor. The leasing fees include the principal and interest, and the interest can be accounted for as costs.

There are two types of financial lease, depending on the way in which the ownership rights are acquired:

  • Closed-ended: the transfer of ownership takes place automatically at the end of the leasing period. The lease fees to be paid contain no VAT, as the whole of the VAT is paid lump sum by the client after the acquisition of the property. The duty for the acquisition of the property is paid by the lessee at the beginning of the leasing period.
  • 

  • Open-ended (optional): Here, the acquisition of the property does not take place automatically, but the lessee receives an option right to appoint an eventual buyer, that is, the lessee may decide whether or not he intends to purchase the property at residual value. An optional financial lease may be recommended in cases where, at the time of concluding the contract, the client has not yet made a decision about the purchase of the property at the end of the leasing period. As opposed to a closed-ended financial leasing scheme, the lessee pays only the VAT charged on the initial capital at the time of the conclusion of the contract, that is, the VAT on the principal is paid in instalments. The duty is paid by the owner only at the end of the leasing period.

Operating lease:

This is most similar to a rental agreement. It is an off-balance sheet form of financing, therefore, it is quite common among multinational corporate groups active in Hungary. A company founded by the lessor specifically for this purpose purchases the property and leases it to the lessee. Operating leases are popular, because 100% of the rent can be accounted for as costs, and the property does not appear in the balance sheet of the lessee (tenant), but it can be used without limitation and even rented out to a third party. This scheme maintains liquidity, considered so important in the international business world, and it does not influence return indicators. The redemption of the capital is subject to VAT, refundable in line with the legislation currently in effect. The duty for the ownership transfer is payable in advance.

Special property lease, sale and lease-back:

With sale and lease-back plans, companies transfer their own properties to the lease company and immediately lease these back from it. In such a transaction, the seller and the lessee are the same person. Sale and lease-back is a special form of lease, since at the end of the leasing period the ownership rights return to the client.

In addition to financing, companies that provide lease services offer many other services as well, such as assistance with checking construction plans and budgets, with negotiations with companies carrying out the implementation and the conclusion of the agreements, or even with maintaining contact with the competent authorities. They can also contribute to the formulation of the bidding rules for suppliers, the administration of the bidding process, the insurance arrangements for the property, the management of the property during the leasing period, and they also offer services covering taxation, accounting, and legal advice.

Advantages and disadvantages of property leases

When selecting a leasing plan, it is necessary to take into account the related advantages as well as the potentially negative factors. According to our experience, these can be summarised as follows.

Advantages of a lease:

  • it frees-up equity, since the lessee only pays for the use of the given property,
  • the plan can include several additional services,
  • since it cannot be considered a loan, it does not deteriorate the liquidity of the lessee, does not influence its creditworthiness, and in the case of further investments, it does not burden its line of credit,
  • a lease offers the investment project and its financing from a single source,
  • the interest portion of the lease fee and the depreciation charges on the property diminish the corporate income tax base, and at the same time, it is a highly predictable amount,
  • the lease fees follow money market developments,
  • the investor receives a turnkey property where it can focus on its core business (“built-to-suitâ€? scheme),
  • in the case of a closed-ended lease, the investor/buyer can take advantage of the option right at the end of the leasing period, a decision can be made about an extension or the acquisition of ownership,
  • in the case of an open-ended scheme, the company can take advantage of the possibilities offered by the Duties Act,
  • in the case of an operating lease, further advantages are provided by off-balance sheet financing, by an improvement in the balance sheet indicators, and by the fact that the taxation and accounting problems occur not at the lessee; in addition, the whole of the leasing fees can be accounted for as costs.

“Disadvantagesâ€? of a lease:

    

  • in a closed-ended scheme, the VAT obligation for the whole of the purchase price is incurred at the beginning of the lease period, i.e. it is suitable for those who are obliged to declare regular VAT and are usually in a net payment position, and who also have the resources to pay the whole of the VAT,
  • 

  • in an operating lease, leasing fees are not subject to VAT, and at the end of the lease period the transfer of ownership does not take place automatically, the property is sold by the lessor at a residual value which is higher than in the case of an open-ended financial lease,
  • 

  • the duty on the transfer of ownership in connection with a leasing scheme make this financing form more expensive. However, this is compensated by the simpler credit rating process due to a reduced risk for the bank (the rating of the lessee is less important, because the financing company is the owner of the property throughout the leasing period).

Lease financing has several advantages over borrowing. In the case of a property lease no other collateral is needed, since the collateral for the financing is the leased property itself. One’s own contribution is minimal (20-30%), and financing without a contribution is even possible. A lease contract is a long-term arrangement (up to 22 years).

In summary

Projects that are implemented using lease financing are a solution for anyone that lacks ready resources, and of course, wishes to save on taxes. To make a comparison: the monthly rental fees calculated for a property with office space and a warehouse facility to the value of HUF 500 million is about HUF 6 million, however, if the same property is leased by a client with a good rating (without requiring any contribution from its own assets) for a period of 15 years, the monthly leasing fee will remain below HUF 4 million. As we can see from this example, the difference is huge, and leasing can save you several hundred million forints over the whole of the lease period.

We hope that this short summary proves useful for the financing of your property investments and purchases.

Neither this study nor any of its parts can be considered an official offer: it serves information purposes only. We assume no material or other responsibilities regarding the use of the information supplied.