Rental apartments – business for the father, housing for the son

Enormous demand for new flats has brought you more than double the year-on-year profit. In the annual report, you state that the year 2020 is one of the most economically successful in the company’s 27-year history. Does the ride continue this year?

M.S.: Yes, in the first half of the year we sold as many flats in Prague as in the whole of 2020. On the other hand, the stock of flats on offer on the market fell sharply, by about 40 percent year on year. In previous years, it used to be at least 5,000 apartments, and even that was not enough, now there are just over 3,000. As a result, prices are rising.

Is it also caused by the building authorities operating in a restricted mode due to coronavirus?

They have been working in it for about five years now…

Do you place real hopes for speeding up the permitting procedure in the new Building Act?

Certainly, it is an effort to simplify the whole process.

The pandemic era brought additional complications to builders in the form of rising material prices. How does it affect you?

This is a huge problem, investors now do not know in advance what price construction companies will give them for contracts. Trigema also has a construction company within the holding, so we build our own projects. But at some point, now it’s getting a little better, the subcontractors sent us a quote in the morning, in which they wrote down a sentence below: the offer is valid until 3 pm. You can’t work with that much. Our investment lasts for years and we get a price offer that lasts from morning to afternoon.

How is the construction budget made under such conditions?

Poorly. Suppliers automatically include a risk premium in this. And where are we sure that with the constant growth of inputs, we will build at the prices we have calculated in our budget?

This makes the return on investment in rental housing more expensive, and developers, including you, are now starting to build more. At the same time, rental prices are either stagnant or not rising at the same rate as the prices of flats sold for ownership. Still, will the construction of rental apartments pay off?

The time has come for the rental market to finally start operating. The purchase prices of flats have “torn off” and people will no longer be able to reach them, even if they take out a mortgage. In addition, the monthly mortgage payment will be much higher than the rent.

Did you expect that market developments could take this direction so quickly? Until a few years ago, developers did not rush into the construction of rental housing.

At all. The covid signed a lot on it. A lot of uncovered money has been printed that is losing value. And so even small investors understood that real estate has almost the only real value that will grow with the market. Rental housing will also strengthen thanks to the fact that institutional investors and large companies that have previously invested in shopping or office centers have become interested in it. About a sixth of new apartment sales now go into the hands of institutional investors. At the same time, some investors are no longer interested in the net annual rental income, but rather speculate that the apartment will receive some ten percent in value every year.

Your son, like many of his peers, lives in rent. Is the trend towards rental housing also a generational issue?

I would say yes. The generations that follow us have and will have different ideas and priorities. They already rent cars, rent bikes and skis. Life is actually “easy”, you have some income and some rental costs, it is easy to calculate.

You are entering the rental market with the Fragment project, which you started building in Prague’s Karlín last autumn. At the same time, it is the realization of the first housing project in which you collaborate with the artist David Černý, your joint studio Black n´Arch is part of the Trigema holding. Why David Černý?

It is the connection of the builder with the artist. The fragment will be anything but conservative. By fragmenting the mass, ie by dividing it into repetitive module blocks, a structure will be created which will have a fragmented impression from a distance, while it will be clear at close range that it is a logically assembled whole.

The fact that David is a bit of a controversial artist is one thing, but he understands our building and technical needs. He is able to adapt his installations and other works to them, which not every artist can. He collaborates on our key projects. We were the first to build a robotic wine bar CyberDog in Nové Butovice, followed by Fragment, now the Distillery is starting up and we are preparing a Top Tower.

At what stage is the implementation of the reconstruction of the Zlíchov distillery now?

In August, we fully launched the reconstruction of the brewery, which is the central building of the old distillery, which is listed. We started to demolish the whole area towards the first stage. In the autumn, we will start rehabilitating and securing the construction pit. In January, we should start building the first stage of about 250 apartments. In total, the project includes 600 apartments and 4,500 square meters of commercial space. The total investment costs are four billion crowns.

The reconstruction of the Zlíchov distillery has begun.  Facades come out of 3D printers

Two years ago, you stirred up the waters of Prague with the idea of ​​building the tallest building in the Czech Republic in Nové Butovice. How is the work on the 135-meter “wrecker” from the Black n´Arch workshop?

At that time, we presented the Top Tower study, we are currently working on its project for a combined zoning and construction procedure and we are consulting it with the relevant state administration bodies. We have a signed memorandum with the city district of Prague 13, we have the support of the municipality.

Is the expected height of 135 meters in line with the draft Metropolitan Plan?

The draft Metropolitan Plan from 2018 did not take this amount into account, but the Council approved the proposal to change the zoning plan, which is currently underway. If approved, it will be written into the Metropolitan Plan.

In addition to Fragment, you are now building apartments and terraced houses in Braník. What else are you going to do?

We are preparing the construction of several hundred flats in Pilsen, where we completed the V Zahrádkách project last year. We are preparing other projects in the Invalidovna locality, in Stodůlky and Nové Butovice.

Let’s turn to Vít Soural, project manager of the Flat Zone startup. You focus on systematic data processing. Trigema has thus shifted from quarterly analyzes of the residential market, which are also done by some other developers, to a more accurate picture of the real estate market. Who is the information for?

VS: We are developing a new building aggregator for end users who are looking for housing. In the search engine, they will find all development projects for sale and rent throughout the Czech Republic. Access is free.

What does the project make money on?

The business model is based on advertising for developers, if they want to make their offer visible here. The second method of monetization is an analytical platform for corporate clients – developers, investors, banks, property managers, who thanks to our data can do comprehensive analyzes of the residential market, both in the segment of new buildings and second hand, including leases, now also include rent apartments from institutional investors. We offer a comprehensive estimate of sales prices before they are registered in the cadastre. Large developers such as Metrostav Development, Karlín Group, V Invest, Geosan Development or Skanska Reality use our application to analyze their investment plans.

Real estate start-ups are getting stronger.  It ensures the evaluation of apartments and contactless operation of offices

Isn’t it a problem that Trigema is also a developer, ie one of the competing players in the market?

Flat Zone is a startup project that we separated from Trigema. The fact that the competition works with numbers is an indication that they are correct. When Trigema started collecting data ten years ago, its primary motivation was to cultivate the market. Every investor or entrepreneur in any field collects market data. He then works with them and evaluates them. We decided to turn data collection and analysis into a product that would solve the many problems that Trigema had for many developers some time ago. Our long-term vision is that through the Flat Zone we would like to gradually create a complete database of all real estate in the Czech Republic above the real estate cadastre and digitize the entire process of purchasing real estate.

How do you want to achieve this?

We follow how similar projects work in the world. There you will find not only information about current sales prices, but also about the amount of rent. I think that our goal is achievable within a few years.

It is said that you are going to expand abroad with the Flat Zone.

We plan to enter Slovakia this autumn. We will start with an overview of all development projects and later we would like to add a service for companies. As in the Czech Republic, we collect data from publicly available sources. Then we want to go to other countries in Europe.

Where specifically?

Probably to Poland, we analyze the markets in each country and we will see.

Vít Soural (24)

He holds a degree in Cass Business School and a master’s degree in international real estate and planning from UCL in London. He is the project manager of the Flat Zone company, which was established within Trigema and focuses on the collection and analysis of data on the Czech residential market. His hobby is music, which he is actively involved in.

Marcel Soural (56)

He graduated from the Faculty of Civil Engineering of the Czech Technical University. He is the director and sole shareholder of Trigema, founded in 1994. Trigema is a development group with its own construction company and a company for building management and facility management. Wife Veronika is the head of Czech Photo, which organizes Czech Press Photo and Czech Nature Photo competitions.

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