Architect Laurie Farmer feels that the arrival of the SARIO investment agency has given investors someone to take complaints to.
photo: Ján Svrček
"I had some students there, I got the exchange rate wrong and couldn't afford to live, so we set up together and soon got some good clients like Citibank, British Airways and Tesco," he remembers.
After a brief return home, he came back to Slovakia full time in 1998 to set up Spiller Farmer, a property advisory firm which helps investors through what can be a fatiguing and confusing real estate acquisition process.
Farmer spoke to The Slovak Spectator on March 13 about the burgeoning possibilities for investors on the national real estate market, and about the barriers they still face to acquiring land quickly.
The Slovak Spectator (TSS): What's kept you here for nine years?
Laurie Farmer (LF): The aggression in the market, basically. It's very interesting to see all this movement. When you imagine that 10 years ago there wasn't even a master plan for Bratislava, now there is and there's a new one coming up at the end of the year. It's very interesting architecturally to see how Bratislava will change with its relationship to Austria.
TSS: What kind of advice are you giving investors about the real estate market?
LF: Fairly positive advice. My feeling is that investors coming to the market now should get involved in projects very early on, which is unusual because in Budapest and Prague, you can buy real estate which is leased, while to get that product in Bratislava you would have to get it early on. You can't wait until the project is finished, because there will be too much interest in it. The big thing in the market now is big corporate investors who want to buy income-producing property - they're now searching heavily for what they can buy.
TSS: What advice would you give the government, if you were asked?
LF: They should streamline the planning and building permit process. Certainly in Bratislava, there's a question about centralisation and decentralisation: one theory is that the Magistrat [the Mayor's Office - ed. note] should take more control of Bratislava, but my feeling is that they should have less control, and maybe we would all be better off with our investors.
TSS: The central government has come up with a plan to build industrial parks around the country, where investors will be able to acquire land without having to go through a long and expensive process of searching for it, buying it from many owners, installing infrastructure and so on. Is this as positive a development as the government is making out?
LF: If there were more opportunities for quick construction, the industrial market would move forward. The biggest problem is land acquisition - it just takes too long to put the land together, which is why they need to build some strategic locations that are prepared in advance, like every other country has, not just locally but also in Britain, Germany and the US - they help the government achieve its unemployment or strategic investment goals. So the [industrial park proposal in the] Malacky region [30 kilometres to the west of Bratislava - ed. note] needs to be resolved, central Slovakia (maybe somewhere around Žilina) needs to be resolved, somewhere around Prešov or Košice, and finally down around Lueenec. If those four locations were resolved in terms of land and planning, it would allow people who need a production facility to just get on and build it. The risk in any construction programme is not how long it takes to build, but how long it takes to get the permits. In projects that we've been involved in, that can take up to four years. For an industrial project, it's just not worth it, although it's maybe all right for a commercial project to do with investment, if they have the patience.
TSS: In projects of this size, with so much money and land involved, there have to be downsides - either corruption, or political disagreement over land use and so on...
LF: From the government's side, I don't see any risks, because unless they do it, it's very difficult for these companies to actually access the market. And if they can't access the market easily, they probably won't come. We saw this last year with the big fiasco over [US auto parts producer] Textron, with the huge fight over the location of [French auto parts producer] Plastic Omnium. We're even dealing with industrial clients now that are finding it difficult to locate, and we've had projects where we've had a great site, a great location for the client, but when it comes to electricity, it costs so much for the electrical connection, given their power needs, that they can't go there. All that would be solved if there were some strategic locations - obviously, people can go elsewhere, but that's their own development risk, isn't it? But at least they have an opportunity, and there's no excuse any more for not satisfying their own objective in being here. Four strategic locations in such a small country - I think that's pretty good.
TSS: That's fine for the government and big investors, but what about the citizen? We've seen in the past, for example with the Plastic Omnium deal, that the government was prepared to expropriate private property to win 'strategic' investment deals. Do you think this is fair?
TSS: Why not?
LF: Because I think expropriation of property should really be reserved for strategic infrastructure, for example if the government wishes to build an airport, a motorway, a sewage system, railway line... in these cases, expropriation is satisfactory. But I don't think the intention was to threaten people, or maybe better put, to 'suggest' to people that they could be expropriated because it was such a strategic investment. I believe this was done because of development interest more than strategic interest. If you read the documentation the government has for the Malacky area, and you were a private owner who had a small farm allotment, you could be persuaded that you might face an expropriation claim. Obviously, legally that's not true, but we're not dealing with people who have the ability to hire expensive lawyers, are we? We're dealing with people who live in villages and enjoy their lives there rather than working in the big city.
So I think it's unfair, and would be detrimental to the market, to see expropriation. The state has enough of its own land. Let them use that, and not the property of private people.
TSS: It's interesting, if you look at a map of the Malacky area, to see that Plastic Omnium built on private land when just across the highway there is this massive area owned by the Defence Ministry. Why didn't they build on state land?
LF: That's the big question. Why would hundreds of small landowners be put together, why would someone spend all that time doing it, why would the government spend all the infrastructure money to connect it all up, when only a few hundred metres away there are thousands of hectares owned by the state?
TSS: Do you have any theories on why this happened?
LF: Maybe because it was faster this way than to appropriate state land, or because the end user wished to be in that specific location, which would be strange when we're only talking about several hundred metres. I'm baffled, really. Unless it was the decision of the private development company that's doing it that way. But as the government heavily invested in this as well, it is interesting that the state didn't use its land but instead troubled private people for theirs.
TSS: You have your own industrial park project in that area, don't you?
LF: We have sourced the funding for an industrial park for Malacky which is in the state army region, and the land is just waiting for transfer from the army. The funding that's being made possible not only covers the infrastructure for the site but also land acquisition and construction. The value of the investment is up to five billion Slovak crowns ($107 million). Whether the whole site will be developed in one go is a question, but it's good the funding is available. The land costs are higher, incidentally, than the land costs in Lozorno [the Plastic Omium site].
TSS: Who do you hope to attract there?
LF: Light industry, there's a proposal for NASA to have some sort of facility there, basically assembly and manufacture. We hope to be able to manage the sale and the liaison process with foreign investors, while the actual construction and so on will be through tender.
TSS: How will public administration reform, and the devolution of power to the regions, affect foreign investors?
LF: Whether the government gives more power to the local authority is one issue that needs to be dealt with, and then if the local authority has the facilities to manage that extra authority. I think they're struggling in this - they do their best, but their facilities are very limited. What is important is that there is some kind of accountability and responsibility. It's all right to give local authorities more to do, but you have to specify who is responsible, and at the end of the day if something goes wrong, who is accountable. That is never clear, and should be made clear to the foreign community, so when they bring money into a community they know who they should be talking to.
Sometimes it's rather like flies around the honey pot, that when any investor comes they just get swarmed, because obviously it's attractive that money is being invested, and everybody is trying to do something to earn some money, but I think the objective needs to be fulfilled first, which is to locate where that investment might be, and the local authorities need to work diligently to make sure the work is done properly and fairly. At the moment there are very few places where it's done diligently, and 'fairly' is also a big question.
TSS: You've been involved with local governments all across the country in looking for sites for your clients. Is corruption more of a problem at the local level than at the federal level?
LF: I think people have seen a big difference with Mr. [Alan] Sitár and what he has done [as the head of the national investment agency SARIO - ed. note]. It's now possible to discuss difficulties that have occurred with him, and you can imagine that if investors feel they have to talk with someone at that level, their problem is often a big one. But he's been superb.
There's not a sufficient volume of projects in the regions for the process to be complicated, but in Bratislava it's a disaster. It's unbelievably complicated.
LF: One problem is management - the City Council has so many mixed ideas that it's very difficult to vote through any proposals. Communication between investors and the Magistrat is difficult. It's much easier with the regional offices. It's very clear what the regional parts of Bratislava want, and they are pro-active, but as soon as it ends up back at the Magistrat it just ends up in a spin. I'm not sure why that is - one theory says it's professional sabotage for other people's benefit, administrating things so much that there's never an end to it. But there's no evidence of any misdealings, I think it's just a question of management, or the fact the Magistrat in Bratislava just has too much to do. Perhaps it should delegate its work to the regions and not do what it's proposing to do, which is to take more control.
TSS: If you're just an average investor and you don't want to pay any bribes, you just want to get the job done as quickly as possible, do you still have a chance?
LF: Yes. It's probably easier in the regions than in Bratislava. In terms of our development programmes, Bratislava is the worst-performing. Just take a look at the other cities, what's being constructed there, even Košice - ignore the big office schemes, take the industrial and retail sectors, even the residential sectors, some of the regions are far more advanced than they are in Bratislava. That shouldn't be the case, because everyone wants to invest in Bratislava.
TSS: How much in all of this is due to the recent U.S. Steel investment?
LF: They've obviously had a big impact. If that hadn't gone through, Košice would have probably collapsed, because it's the biggest employer in the country. Now it's there, the city should thrive, people will have more disposable income, they'll want to have a better standard of living, and construction, banking, industry will pick up... it will take some time, but Košice will eventually catch up Bratislava. It's clear things are picking up - housing projects, industrial parks proposed both on the border with Hungary and in the Prešov region which are being pushed through by private enterprise and the local authority, which they wouldn't be doing if they didn't see the interest.
TSS: Is any region doing it particularly well?
LF: Well, there's Martin, the Žilina area, Košice...
TSS: So everywhere except Bratislava?
LF: Everywhere except Bratislava.
19. Mar 2001 at 0:00 | Tom Nicholson