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act BSWW advises Echo Investment on bond issue

act BSWW assisted Echo Investment S.A. with the issue of bonds.

The scope of the law firm’s services included negotiations with investors, preparation of the issuer’s corporate documentation and a review of the agreement with the issue agent.

The law firm’s team was led by Łukasz Piekarski, Partner. He was supported by other members of the bonds team.

Echo Investment is Poland’s largest developer, boasting vast experience  in the residential, retail, office and hotel sectors of the real estate market. The company is listed on the Warsaw Stock Exchange.

act BSWW provides comprehensive legal advisory services related to debt financing. The law firm has prepared legal documentation for and advised on over 450 debt financing transactions worth a total in excess of PLN 5bn.

Has the pandemic changed office leases?

Not until long ago we seemed to be living on what was referred to as a “green island.” The economic boom might have seemed unstoppable. Companies kept growing, recruiting and expanding their office premises. Developers were reacting accordingly by building, constructing and delivering new office units to tenants.

If this article was a blood-chilling thriller, the next sentence would be something along the lines of “and then the mysterious SARS-CoV-2 virus struck, with the pandemic arriving and changing everything.” But this is not a thriller; we are focusing on facts, and there are two crucial facts to consider here.

The first one is that the pandemic has indeed struck. At first, it seemed that the story of the new virus would resemble that of bird flu – it will come, stay for some time (though many people would be inclined to believe that this does not concern them as the virus is only somewhere in Asia, and nobody really knows anyone who contracted it), and the whole thing will blow over as soon as the parliament adopts a new act, and farmers, miners or nurses (*delete as applicable) hit the streets. But this was not the case. The pandemic and the ensuing restrictions have become an intrinsic element of our daily life. We wear face-masks, wash hands more frequently than ever and avoid overcrowded locations.

The other fact is that the pandemic has indeed influenced much more than just the commercial real estate market. It has affected the economy in general. There were many different reactions at the beginning – from anxious and cautious (“OK, we are suspending all processes, let’s take a deep breath and keep monitoring the situation”) to more balanced and methodical ones (“Chill out, nothing is really going on, the HQ has made a decision, and we have secured financing – we will complete the project as planned”).

After the initial dust has settled, it is worth making a broader analysis of how heavily the pandemic has weighed (or will weigh) on office leases.

The first conclusion that comes to mind naturally is that if tenants are more cautious in their decision-making processes related to long-term lease agreements, and the demand for office premises is consequently lower, the market will respond by reducing base rents. It is hard to make any long-term predictions but one thing is for certain: we should not expect any bargains in buildings that are being delivered now.

Developers have incurred specific costs to prepare the investment projects as they are offered to tenants – they acquired land, developed buildings of a pre-determined standard (and for a specific price), and secured external financing whose conditions impose minimum requirements with respect to rent rates.

Secondly, it is not a groundbreaking statement to say that we have all learned to work from home to some extent. Many companies have found that this works perfectly fine, and the office, as we know it, will no longer be necessary. The pandemic has also affected the financial condition of numerous enterprises. Tenants are wondering if their pace of growth will stay the same or whether they will have to reduce headcount. We can safely say that the pandemic has forced companies to rethink their needs, leading to a drop in the area of leased premises.

We do not know what is going to happen. All that matters is here and now; anything else is just an option.

An option, that’s just it. Tenants are now increasingly looking for greater flexibility of the space occupied.

Needless to say, solutions ensuring such flexibility have always been used in lease agreements. We have frequently seen different expansion options with respect to a given building or complex (reservation right, option to lease additional space, priority right). However, such rights/options tended to apply to specific premises, over a definite period, and under pre-determined conditions. Right now tenants seem to be looking for greater freedom in that regard, and lessors are usually willing to accommodate such needs.

An increasing number of tenants want to be able to reduce the lease area after some time or even to be given the break option. However, developers are less willing to compromise here. Moreover, not that long ago, such solutions involved a certain fee for lessors, which was supposed to compensate for the lack of profits in the long run. Now the focus has shifted to cancellation of redundant incentives that were given to tenants with respect to the originally intended (i.e. longer) lease term (without entirely disregarding the compensation factor, though).

The flexibility sought by tenants is not limited to the lease area or term. Increasingly often, it applies to the manner in which tenants can use the leased space – from fewer restrictions on sublease, through interior arrangement, to a change in purpose (e.g. from office to retail or the other way round) and flexible management of incentives offered by the lessor (e.g. conversion of the fit-out budget into rent-free periods and the other way round).

Has the pandemic itself made an imprint on lease agreements? Do both lessors and tenants expect lease agreement to include provisions that govern the impact of the epidemic/pandemic (or coronavirus, specifically) on their contractual rights and obligations? Well, it seems that after the initial shock, when both parties (and their advisors) felt the instinctive need to address these issues in agreements, it turned out that (as is ever the case) this had done more harm than good. It is better to terminate the agreement or make an additional sacrifice than to insist on pandemic-specific provisions. Even more so that adequate provisions governing the parties’ liability or force majeure are sufficient, and there is no need to address COVID-19 specifically.

Two questions remain. Are typical clauses, such as the right to get a rent discount or terminate the agreement, negotiated more fiercely now than in the pre-pandemic times? Will the current trends become a permanent feature of the office property market? I am going to respond like lawyers often do – it depends. And though it is hard to say what the future holds, one thing is for sure: as of now, the market favors tenants, and it seems that this situation will persist at least until the end of the pandemic or until a drop in the supply of office spaces (which might soon turn out to be one of the pandemic’s outcomes).

act BSWW advises Globalworth on lease agreement with Allegro

Allegro has leased nearly 2,100 sq.m. in Lubicz Business Center in Kraków, a complex owned by Globalworth. The new office, which will be accommodated primarily by engineers who take care of the platform’s technological growth, will be ready at the start of next year.

Lubicz Business Center is made up of two A-class office buildings located close to Rondo Mogilskie, the Old Town, Kraków Główny Railway Station, Galeria Krakowska shopping mall and academic campuses. Both buildings have been awarded the BREEAM certificate (category: Management) with Very Good rating.

“When planning the upward extension of almost 2,100 sq.m. of new office space in Lubicz Business Center, we were positive that this option would generate a lot of interest among potential clients. We have held numerous talks and meetings, and today we can share great news that Poland’s largest e-commerce company has selected our building for its new office that will be used predominantly by the technology staff,” says Julie Archambault, Senior Leasing Manager at Globalworth Poland.

Comprehensive legal advisory services with respect to the negotiations and execution of the lease agreement were provided by Alicja Sołtyszewska, legal counsel, Partner at act BSWW.

“We are proud to be Globalworth’s trusted legal consultant that is routinely invited to cooperate on new projects. It was a pleasure to handle this transaction,” says Alicja Sołtyszewska.

Globalworth is a leading real estate company, concentrating its operations on Poland and Romania, two largest CEE markets. It acquires, develops and manages commercial assets, with a strong emphasis on the office sector. Globalworth has a real estate portfolio valued at approx. EUR 3bn, managed by a team of over 200 professionals working mostly from Warsaw and Bucharest.

Allegro is a shopping platform created in 1999. It is visited monthly by over 20 million clients who can shop for products offered by more than 117,000 businesses. Allegro has its registered office in Poznań, with offices in Warsaw, Toruń, Wrocław and Kraków. The company employs over 2,400 people.

act BSWW advises on structuring of bond issue program for extension of Municipal Solid Waste Incineration Plant

The law firm was supporting the investment funds managed by Pekao TFI S.A., which developed – in cooperation with Bank Pekao S.A. and Pekao Investment Banking S.A. – the structure for the program involving the PLN 2.5 billion issue of bonds of Miejskie Przedsiębiorstwo Oczyszczania w m. st. Warszawie sp. z o.o., aimed at financing the modernization and extension of the municipal waste incineration plant, as well as the construction of a waste segregation plant for Warsaw.

The project was handled by Sebastian Sury and Matylda Juzala (Partners at act BSWW), and supervised by Piotr Smołuch (Managing Partner and Head of Bonds).

The strategically important project, involving the renovation and extension of the incineration plant, as well as the construction of a waste segregation plant, will see the emergence of two new technological lines for municipal waste combustion within the next three years. Following the completion of the works, this is going to be Poland’s biggest facility of this sort, while also being among the largest ones across Europe. It is supposed to combust over 300 tons of mixed waste annually, and generate energy for more than a dozen thousand households.

We perfectly realize that this project is of crucial strategic importance for the city. Warsaw has been waiting for it for years. This makes us even prouder to be given the opportunity to contribute to its success,” says Piotr Smołuch, Managing Partner at act BSWW.

The facility is going to be eco-friendly as it was designed in line with top environmental standards related to waste management.