THE LURE OF POLAND: JUST 0.5 SQUARE FEET OF RETAIL PER HEAD

It’s not just major REITs such as Simon Property Group and Mills Corp. that are building new centers in Europe. Polimeni International, a small, private company, has been quietly pursuing development there as well. In mid-2002 Polimeni, a Garden City, N.Y.-based developer with about 2 million square feet of retail and office space in the mid-Atlantic, opened the Lakeside Galleria in Konin, Poland. The 269,000-square-foot center is anchored by a HyperNowa hypermarket, a Nomi home improvement store, and a Film-Art cinema. In March Polimeni formed a €135 million ($160 million) joint venture with investment fund Heitman Central Europe Property Partners II to develop more retail entertainment centers in Poland. SCT spoke with Philip Okun, Polimeni International’s president, about the challenges of building on foreign soil.

SCT: What brought you to Poland?
Okun: It was based upon a discussion I had with my brother, who is in the environmental industry. He was working with a customer who owned some land in Poland, and he asked if I would speak to him, because the gentleman felt the land would be suitable for a shopping center development. We went to see the site in Poland, more out of curiosity than anything else. As it turned out, the site really wasn’t suitable, but we felt the country had tremendous potential. This was in 1998. We decided that we would give it a year or two in terms of research, based upon the reception that we got in Poland. For example, we met with a governor who showed us a map and said, “We’d like a shopping center here, here and here,” which is pretty refreshing compared to the United States. It got our attention. The ratio of retail space to people is so incredibly low, virtually nonexistent [less than half a square foot per person, according to the company], that we felt a tremendous potential. [Lakeside Galleria in] Konin opened in 2002. We’re breaking ground on two more, [and] possibly a third over the summer.

Is the development process different in Poland?
The process is not that much different. You probably have — if it’s possible to believe — even more bureaucratic red tape, being that it [is] a former Communist country. The difference is, at the end of the day, they do want the project done. You’re not dealing with tremendous layers of opposition. You’re just dealing with … some incredibly arduous processes. The only real objections you get, which is totally expected, are from the smaller local retailers that are concerned that a shopping center will compete with their businesses. That argument falls onto deaf ears, for the most part. Although they can make some noise and they can slow the process down, the reality is that at the end of the day, the constituents win because they end up with greater variety, lower prices, more options. If anything, the politicians end up looking good because they provided something new for the people who live in the city.

We also try to include some sort of recreational or entertainment aspect, which is a little bit different than in the United States. Over there, there is a real shortage of recreational and entertainment things, so we try to add something to those centers. In Konin we have a movie theater in the center. We also provided on the site, free of charge to the city, a soccer field, tennis courts, basketball courts. The center is on a lake, so we put in a boat dock. We really try to create a real recreational atmosphere in addition to the retail.

What are the pros and cons for a small, private company doing this?
The big REITs are more concerned with annual rate of return from the get-go. I don’t feel they have the desire to put in four years to get a whole program going with no return and a large capital outlay, which initially it was. It doesn’t create returns on their investment, which is what REITs need to do to create cash flow and dividends. The biggest advantage to being small is that it is just easier for us to work within the system. We don’t have 10 layers of decision-making. You need to be very flexible and able to adjust very quickly with very fast decisions.

Have you learned Polish yet?
Very little. That is one tough language. And that has been the single biggest problem: the communication issue. We’re so used to negotiating face-to-face, talking face-to-face, in the States. There it’s so much more difficult, because you have to do everything through translators, which slows the process. You don’t get to get your own feel not only for what the person is saying, but how they’re saying it, how they really feel. You lose that.

— DH