Diversifying into less risky assets. Buying property to secure collateral for financing. Building the premises that ideally fit your business. There are many equally good and pragmatic reasons to get into real estate. But there is one other, often overlooked reason. A reason whose logic you understand only once you try it. And that reason is… satisfaction. Pure satisfaction that comes from either building something beautiful and functional or from seeing a run-down construction being given a new life. Even though there absolutely is pleasure in creating products, offering services and earning profits from other businesses, the satisfaction real estate brings is on a somewhat different level. In this article, I wanted to briefly share my thoughts on the sector, based on my personal experience rather than business research and reports.
I don’t remember where exactly I heard the saying “architecture is the only art form you can’t escape”, but I can absolutely relate to it. The cityscape you see through your window, the buildings you pass on your commute, the office space you work in – they all make their slow and silent impact. On everyone, for that matter. When you develop a beautiful property or refurbish an old one, you have the chance of making the city a more pleasant place to be, live and work in.
I am happy to say that I have already made my first steps into that direction. It all started in 2016, when we used the opportunity to buy an office in the Vilnius Central Business District. It wasn’t in perfect condition, but we refurbished it, and 5 years later, it’s still there. The reasons I decided on purchasing this first commercial property were driven by business logic, and the aesthetic appreciation and satisfaction came later.
The experience was interesting enough to repeat it. So, in 2017, we added another office building to our portfolio. It was in much worse condition than the previous one and had been on the market for quite some time. Although strategically positioned next to the airport, it had a very cheap valuation. The buying decision was almost intuitive, as for that price you couldn’t even build the walls of a new building in that or other areas. And it’s there where I got really bitten by the “making it better” bug. Refurbishing the place and adding a nice parking lot ticked many boxes. And the market voted with their wallets, as we had the premises rented out soon after refurbishment.
In 2018, we added a warehouse by the Vilnius-Kaunas intercity highway, a location perfect for the logistics needs of our trading business. In addition to looking good on the company’s asset balance sheet, operating from buildings you own adds another layer of security to any operations.
Everything was going pretty smoothly by this point. We had certain challenges with every piece of real estate, for sure, but then came 2019. We bought a building formerly owned by a huge TelCo provider, with an ambition of repeating our successes. Since the building was old, it had a lot of neighbours and layers of history (including a Soviet era bomb shelter). It would have probably been much cheaper and easier to build a new building than refurbishing something like that. First, you get all the plans on paper. Everything needs to be redrawn. It’s hard to retrofit windows, heating, water and other solutions. In addition, we were “lucky” to buy the building before the pandemic, which meant a prolonged refurbishment process. And you know what? Despite it being a challenging project, I’m very happy to turn something crumbling and unusable into something that fits the modern face of Vilnius.
So, now my desire and plan is to build the next piece of real estate we own from scratch. And there’s a difference between leasing/buying one of the newer real estate projects and building one yourself. A massive difference. You can actually add value and make decisions that might not necessarily be the most economically feasible, but those that increase the pleasure the building provides passers-by, tenants and yourself. Large see-through windows? Sure. Spacious open areas? Why not. A fountain in the middle of the courtyard? Maybe, if you’re into that sort of thing.
Of course, constructing a new building in most of Europe comes with a whole list of environmental requirements. While I agree with some, the requirements are far from perfect. Although the difference between A and A+ energy classes is not negligible, in certain contexts it feels more of a “feel-good” difference, much like with EV cars. Sure, operating an A+ office and driving an electric car feels good, as you get a sense of saving the environment. But that’s only if you never take into account the materials used. If saving the environment is what you’re after, refurbishing something already built is way more environmentally friendly.
Finally, although the construction and operation of real estate should put profit and business logic first, I would love to see more creativity in the way developers approach construction. London is one of the cities that sees more collaboration between businesses, architects and authorities, and there we see a flurry of buildings that both function well and please the eye. If more cities followed London’s example, I believe we’d see less cookie-cutter solutions and more buildings that both blend in and stand out.