Update from the originator:
|Collateral||1st rank mortgage|
The object is the premises (214.4 m2), with the address of Dārzaugļu street 1 - 50, Riga. The building was commissioned in 2006. Our office space is located on the 5th floor. The Dārzaugļu street 1 building is adjacent to the office building (class B/B-) “Zemitanu Office”, initially commissioned in 2002 and additionally renovated in 2010. The office space is fully rented out to a local company and comes with instant cash flow.
The building, in which the office space is located, is not fully visible from the streets with heavy traffic, also the pedestrians flow along the Dārzaugļu street is minimal. Moreover, the windows are both facing the courtyard as well as the facade of the building so that the noise of the surrounding streets is not heard. So everything is made for the most efficient spending of working hours of the tenants. The premises are equally suitable for an office and the residential function. The two buildings form a common yard with additional parking space available to users of both buildings. In addition to parking places in the yard, there are multiple parking spaces in front of the house (which are free of charge). There is a security post in the common areas. For tenant convenience, the building is equipped with several elevators.
The property is located at the edge of Riga city centre, close to the Zemitāni railway station, which is one stop from the Riga Central railway station. Nearby, there are multiple commercial institutions, educational institutions (both schools and kindergartens), gas stations, various institutions of a service/business nature, business centres, pharmacies, as well as other infrastructure objects. The surrounding buildings and the area were largely formed before the war (stones and brick; wood), as well as along the construction of residential and office buildings during the second part of the 20th century.
The location of the property is well developed with both social and transport infrastructures. Public transport to the centre and the living neighbourhoods is provided by buses, trolleybuses and trams. The nearest public transport stop is Kr. Barona and Pērnavas street, which is about 50m and 100m from the building. At the proximity of around 30 minutes’ walk would be the Riga Central Station as well as the Old town district.
Monthly rental income starts for our investors when the property gets fully funded.
The investment property is an office space with a total area of 214,4 m2, located at the edge of Riga city centre. Our office is located on the modern buildings on the 5th floor and is fully furnished. The office space is rented out to a local IT company who provide services for banks, with a 1-year contract which has been extended year after year for the past 3 years. Despite the COVID-19 pandemic, tenants continue to use the office space, following all the governmental rules and are not thinking of changing it in the nearest future.
The modern office space in the edge of Riga city centre comes at 770 EUR per m2, which is below the market and leaves room for capital growth. At that price level, the rental contract will yield our investors 8% net income, that will be paid out monthly. The property will be managed by our partners in Latvia, who will guarantee 8% rental yield for our investors for the next 3 years. Our strategy with this property is to maintain the cash flow for that period and in the meantime, find a profitable exit opportunity to provide our investors with at least 10% capital growth.
The office market has continued to demonstrate consistent activity in all three Baltic capitals, resulting in the Riga office market to experience the largest stock increase in the last 10 years. High demand for modern office space led to a slight increase in rents during 2019. At the end of 2019 rents for A-class 6 offices ranged from €13.00 to €16.00 per sqm and from €8.00 to €13.00 per sqm for B class offices. Several exclusive office buildings are even asking top rents of €17.00–€18.00 per sqm with additional charges for utilities and services.
The office segment is particularly appealing to investors, accounting for 50% of the €230m transaction volume in 2019. Also, Western European investors are showing interest in Riga. For example, at the end of 2019, VIG Fund, an investment company owned by Vienna Insurance Group AG, acquired three office buildings totalling 20,000 sqm from Baltic RE Group. The entry of VIG is one of the first major investments by a Western European company in the Riga office sector and one of the largest investments in the Latvian commercial property market during the last few years.
Despite the fact that Riga´s real estate market and the overall economy is slightly behind Tallinn, but it develops at a rapid pace. When compared to other Baltic regions, in our opinion Riga has the most room for real estate market growth for the next few years, as well as a lot of potential to become the capital of the Baltic States, taking advantage of the situation while delivering suitable quality real estate projects.
COVID-19 impact on Latvia
The impact of the COVID-19 virus is manifested in many sectors of the economy and real estate.
Latvia has been one of the countries leading the COVID-19 response, with the second-fewest deaths per capita in the European Union. The residents were exceptionally agile in developing solutions to challenges presented by the crisis: the remote governing and education have been made possible, and the first nationally-endorsed contact exposure notification app has been instituted.
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