Anna Wasilewska-Dąbek: Paweł, you have been in the business for 25 years. I heard from your team that you are the one who supposedly knows what came first, the chicken or the egg?

Paweł Sztejter: (Laughs) My entire adventure in the residential market did indeed start a long time ago, in fact at the very beginning of the market itself. It was 1994 when I learned that there was an advisory group for the World Bank, namely US AID, the American International Aid Agency, and the Ministry of Construction, whose task was to support this market during the transformation period. Professor Jacek Łaszek from the Warsaw School of Economics was looking for employees for this undertaking. At that time, I had started working for Shell Poland. After completing the recruitment process, I received a probationary contract and my own computer in the highest, most modern office building in Warsaw, Intraco.

Such an appointment must have been something really big in the early 1990s.

It was. It was important for me too, until I found out that there was an opportunity to work in the World Bank advisory group. As my contract was coming to an end, I went for a meeting where I met Jacek Łaszek and Kazimierz Kirejczyk. l remember it so well. To my absolute amazement, after a 45-minute interview with Jacek and Kazimierz, I heard the question “when can you start working”, and I answered that I could start the following Monday.

What encouraged you to give up a promising career in favor of working on a practically non-existent market?

The matter to my mind was absolutely clear. I had the opportunity to do something important and completely new! So, I swapped an air-conditioned office for old chairs and boxes that we sat on at the beginning. As part of the grant, the Ministry gave us several desks from the Gomułka era and several dilapidated computers. But I felt that I was starting something that nobody in Poland had ever done before - I was co-creating the residential market. Knowing of course, where my new colleagues were with their experience - albeit small - and where mine was.

Today, Professor Jacek Łaszek is one of the most famous figures in the real estate academic world, and Kazimierz is a member of the Management Board at JLL.

Indeed. Jacek is a professor at the Warsaw School of Economics (SGH), but he also leads a real estate market team at the National Bank of Poland, whose task is to provide the President of the National Bank of Poland with the information necessary to make decisions including those connected to Poland's residential market. Today, Kazimierz is undoubtedly both the most recognized authority on the residential market in Poland, and an extraordinary person. It is not surprising, therefore, that for both of us, 25 years of uninterrupted work on a daily basis has passed relatively unnoticed…

At that time, the Polish market was in a phase of economic and social transformation and required thorough reforms. Where did you begin?

At the beginning of the 1990s, American consultants shared with us their knowledge on both how a free market residential sector functioned abroad and what it meant to be a developer. We did not have any models in Poland back then, so we listened to them and translated this knowledge into something suitable for the Polish reality. We trained housing cooperatives and construction entrepreneurs. We explained that a developer is an entity that has to buy land, build apartments on it and then sell them at their own risk. We showed entrepreneurs what the developer business was all about, where the risks were, how to analyze the product financially and how to analyze it market-wise. We trained nearly 1 500 bank officials who were dealing with housing financing for the first time. Together, we carried out projects related to the introduction of the first mortgage loans, doubly indexed and therefore resistant to inflation that was hitting 30% at the time.

The project was funded by the US AID and the World Bank and lasted until 1997, a total of six years.

Yes, Poland had been attaining knowledge and experience for six years and had established new standards thanks to funds from grants that expired in 1997. Therefore, as a team, we had gained an abundance of knowledge but still had a feeling that there was a lot to do. Together with Kazimierz Kirejczyk, Grzegorz Żochowski and Richard Quigley, one of our American colleagues, we decided to continue our work, but on a commercial basis.

You decided to launch your own business?

This is how REAS Sp. z o.o. was created. The beginning was very hard. The four of us worked in a rented flat in a villa on Racławicka Street, and our clients were mainly housing cooperatives and TBSs (Ed. Communal Building Society). We worked a lot for the National Housing Fund (KFM was liquidated in 2009), and we supported the Polish Association of Developers which was established in 2002. Since 1998, we have been conducting pioneering research on the residential market. For the first few years the company was practically non-profit-making, and I supplemented my very modest salary with savings from working for the World Bank. Nevertheless, in those very harsh conditions, we set ourselves the goal of becoming the leader in terms of advisory services on the residential market as the market was developing.

And you did. Congratulations.

We were developing slowly. In the first few years our work consisted mainly of research and analysis, as well as consulting in the product planning phase and advisory on obtaining funding. We were gradually introducing new services as well. We provided developers with ideas for expansion, and we introduced the first foreign developers to the market, taught them how our market operates, and made the first real estate appraisals. There were good times and bad times. The 2002 crisis was a moment when we were most definitely stuck in the doldrums, but in 2003 the wind picked up and off we went. Our colleagues from the World Bank project, Dr. Edward Kozłowski and Dr. Władysław Brzeski, joined us as partners. By 2007 we were already such a major brand that we signed a strategic partnership agreement with JLL. Actually, from the very beginning of REAS' existence we managed to develop a leading position in terms of residential market consultancy. Thanks to this, we had the potential to attract young, well-educated co-workers to REAS, who shared with us the joy of being a pioneer in areas of a developing market. We have never ceded this position and I hope that this will remain so under our new colors.

I have read that the market monitoring program you started in 2000 is the most complete research program on the residential market in Poland. Apparently, even public administration bodies use it to make decisions.

We pay a lot of attention to analyses, and for these we need data. Indeed, our market monitoring program is unique, and thanks to the work of a team of very experienced market researchers we have knowledge of tens of thousands of investments carried out in Poland over recent years.  We have always tried to be one step ahead of the competition. For example, in 2007 we decided to invest our time and resources in rental market research. At the time, it was a segment that “officially” did not exist in Poland. Moreover, everyone said that it would never work. After five years, the first company willing to invest in this segment entered the market. We had the best and most extensive database of rental apartments, which allowed us to provide effective advisory services on this market. This is still the case today. There are 975,000 flats in Warsaw. Public statistics show that about 4% (40 000) of all apartments are rented out, when in fact our database shows there are more than 120 000 such flats.

And what conclusions have you drawn from this number of 120 000?

That popular opinions are not always correct and that it is worth looking forward and, based on good knowledge, able to ascertain what the market will look like in a few years' time.  Ten years ago with the exception of REAS, no one seriously saw the residential rental market as a sector that would attract a lot of international capital. We, on the other hand, had prepared a series of informative reports and presentations and started traveling around the world, meeting large investors and presenting them with the growth prospects of this segment in Poland. After a few years, our range of competences had extended to include advisory services for the first investments in Poland. However, one has to remember that it is still a relatively early phase in the development of this market.

Success or failure?

Not a full success as yet, but definitely not a failure (laughs). It takes a while, but it is still much faster than in the 1990s, when we waited for the first developers to appear. So we are used to the fact that the processes of change on the residential market are slow. I am convinced that the residential rental market will rapidly develop in Poland. We already have experience from the first few transactions of investment funds purchasing entire residential buildings and today we are working with over a dozen funds interested in investing in Poland. For the biggest players, the main entry barrier is the lack of large portfolios of rented apartments.

So, the biggest funds are waiting for less conservative investors to build such portfolios?

Yes, they are. In Poland, a fund cannot buy an existing portfolio of apartments from another fund because in practice there are no such portfolios. It also cannot, as is the case on the German market, buy existing cooperative or municipal resources, because they were dispersed in the privatization process of housing resources at the beginning of the 1990s. This means that the only way to build portfolios is either to negotiate with developers and buy new buildings from them in “forward” contracts, or to purchase a development company and build apartments on one's own. We facilitate these talks and negotiations between both parties.

This is not the only “new” segment on the residential market that you are working on?

That's right. We are also very active in the condo hotels and holiday apartment sector as well as the newly emerging co-living segment. However, we are especially active in the student housing.

But it is said that demography is inexorable, and the number of students is falling. Does it hinder the development of this segment?

Contrary to what might be assumed, this is in fact good news for big cities. After a huge increase in the number of students, which took place in the 1990s as a consequence of social changes and which had echoes of the post-war baby boom, the number of students in Poland decreased. These two phenomena overlapped, with the student population increasing from about 400,000 in 1990 to two million in the first half of the last decade. This growth resulted in small towns experiencing an influx of private universities. Demography, however, is inexorable and a demographic drop duly arrived. So today these universities are not able to support themselves. If a university in a small town in Mazovia was profitable by accepting 200 students but today this number is only 150, it doesn't seem viable to maintain the institution. The school closes and the students go to study in the nearest major academic centre, for example in Warsaw. They would prefer to stay in a dormitory, but there are no places to stay. Renting an inexpensive flat is also very difficult - there are nearly one million flats in total in Warsaw, and the population of students is currently a quarter of a million! On top of it, this number will begin to grow rapidly again at the end of this decade. The potential of the private student housing sector is huge, and we not only advise investors but also look for projects that developers can build for this market.

A year ago you decided to join JLL. Why?

In terms of providing market consultancy for developers on the residential market, we have achieved virtually everything that could be achieved in Poland. We work with more than 350 out of 680 developers present on the residential market, and our clients are responsible for building nearly 80% of apartments in the largest cities throughout Poland.  Currently, the main area of the company's development is the transaction area. Our clients - investment funds - understand that we are their key business partner in Poland, because we not only have extensive knowledge and very good contacts with developers, but most importantly, we understand this business better than anyone else. However, the REAS brand, despite the fact that it had a great deal of knowledge and experience gained over 20 years, was not sufficiently recognizable for investors from London, Munich or New York. Much has changed since we became part of JLL, one of the strongest brands in the world. A very persuasive argument for us joining JLL was the company's development strategy that is currently being implemented in the living sector.

And, once again, you are sitting in the highest office building in Warsaw (editorial note - Warsaw Spire), so history repeats itself! (laughs)

Yes, but the perspective is completely different. You might not believe it, but in 1994 our office was located on the corner of Łucka and Towarowa Streets in the RUCH building, which later became the building of IPN. And today in its place, SKANSKA has built the brand-new Generation Park office adjacent to Warsaw Spire.  So history has really come full circle, both literally and metaphorically.

And what can you see from this perspective?

That the changes on the market are getting faster and faster. This can be seen from my window when I look across Wola. Post-industrial areas have disappeared very quickly, with modern flats and office buildings taking their place. The business and functional centre of Warsaw is moving more and more from the areas surrounding Rotunda to the areas surrounding the Rondo ONZ and Rondo Daszyńskiego roundabouts. Prices of flats are rapidly going up, thousands of flats in the buy-to-let sector, owned by private investors and investment funds are on the Wola market. The co-working WeWork company is now established and planned co-living projects will appear soon enough. We have new dormitories on the way and a plot of land on which a senior housing project will soon be developed... In short, this is a different real estate world.

What do you believe in today?

I believe that the market will change very quickly. It is likely that the market will consolidate, and the activity of foreign capital will increase. I believe that we have years of development of the rental and student housing market ahead of us, and the next revolutionary change will come with the ageing of our society. So today we devote a lot of time for preparing ourselves for work in the “assisted living” segment. I am also convinced that modern technologies will have a strong impact on not only the way we build and use flats, but also on the way we work.

What gives you the most satisfaction at work?

Different things at different times. The fact that we have the opportunity to deal with topics that no one has ever dealt with before. A good example is the mentioned senior housing. It is fun to do what I know best. So, I can share my knowledge with our customers on the one hand and with our younger colleagues on the other. I like to watch our team gain new experiences. At REAS, we have been working hard over the years to ensure that the people we work with feel comfortable at work and can develop their skills. Although it's a new place and a new name, this is still what I am most proud of. And of course, I am very pleased to hear from our clients that we have made a big contribution to the development of today's mature residential market, that we are doing a really good job, and that they still need us.

Thank you for the conversation.