Ádám Székely, Managing Director
“Turning a family business into a structured organisation is a huge challenge”, said Ádám Székely, the company’s Managing Director, who said that a critical size had to be reached for the organisation to be well-organised. “Family businesses improvise below a certain level, and you can’t bring in professionals into a business like this to plan for 5-10 years in a set structure. This HR strategy is also a chicken and egg problem, because you need good professionals for rapid growth but, without good growth potential, it’s difficult to recruit them”, he added.
Infogroup was founded in 1990 by Ádám Székely’s father, Dr István Székely, together with other investors: the founder had previously worked in the real estate market at the relevant ministry. By the end of the decade, the group had built around 1,500 homes, a significant achievement at the time, making it one of the top 10 largest residential real estate developers in Hungary. Then, in the 2000s, they opened up to commercial real estate: they bought a former pig farm near Polgár, which is still part of the portfolio today, but under the name of Polgár Industrial Park, offering an established industrial park environment. In Budapest, they also acquired an industrial facility on Bartók Béla út, which was the basis for the development of one of the group’s key development branches, the development of modern office buildings.
By 2003, the company, with revenues in the billions of forints, had grown to the point where reorganisation was necessary, and Ádám Székely arrived from the banking sector. “The group had taken on too much, and the processes weren’t properly followed. We sold real estate as part of a portfolio clean-up, and we stepped back to a size from which we could kick back again”, said Ádám Székely, who is now CEO. They were then financially stronger when the 2008 crisis hit them, and they were able to weather it with a good cash-flow. Later, in addi- tion to the development of the Bartók Udvar office building, the Group’s portfolio was further expanded with industrial real estate in Polgár, Tiszaújváros, Karcag, Miskolc (Szirmabesenyő) and Kecskemét.
The Group’s strength as a real estate developer is its ability to see the entire real estate lifecycle, from agricultural land to operating industrial facilities, with all their operating issues. In addition to industrial, logistics and office real estate, the company also has hotel investments; that is, it is active in several segments, following similar principles.
“If one looks at the whole value chain, it’s easier to identify opportunities in real estate projects, given that real estate development is a very capital-intensive business and it’s difficult to make big profits quickly, so the rate of growth is relatively limited. However, if you look at the whole process, from acquisition to exploitation, you can identify the products that have the potential for a better return. This is the key to accelerating the growth of the company”, the CEO pointed out.
In the real estate business, products are relatively standard, so operators not only compete on products but also on location. Competition is about making the right investment decisions, in the right locations, and choosing the right solution. “When there’s a rush, smarter ones step aside, even if there is demand but too much supply. This explains why we’re not present in the industrial real estate sector in Budapest, for example. We think it’s a very good market but, for a company of Infogroup’s size, there are more opportunities for value creation in the countryside.”
The company’s market strategy is also somewhat different from the general one: a typical developer builds and sells real estate, realising a high return on a relatively low investment every two years. By contrast, Infogroup keeps the real estate it builds in its own ownership and rents it out. This strategy is a reflection of the current capital market where, according to Ádám Székely, it is not possible to sell at good prices compared to the international environment. By retaining real estate, however, very good value can be created while the developer has a strong portfolio that provides stability and a full range of professionals who cover the complete spectrum of services. As a result, they have weathered the pandemic well: without major developments, but with a good financial year, thanks to the existing portfolio.
Ádám Székely also considers it an important characteristic of the company that its activities are not limited to one direction, as is typical of many market players. Most consider it an advantage if a company specialises only in the development of industrial or office facilities, because then it does not fritter away its energies. “I’ve always thought that we don’t fritter away our energy as much as we learn from being present in multiple segments. At the level of business activity, these are somewhat interlinked, and the 2020 crisis has shown that standing on one leg, so to speak, doesn’t pay off”, he added. Infogroup currently also has hotel exposure but, despite the pandemic, this did not nega- tively impact annual profits due to its strong industrial presence, which performed better than expected.
However, the company has diversified its activities, not only in terms of region, but also in terms of categories. In the office market, they are mainly dealing with category A buildings, but they also see potential in category B, and the latter can perform better in some situations.
The real estate market has low cash-flow generation, with yields below 10%, while capital exposure is high due to highly capital-intensive investments. “We’ve had to mobilise a lot of funds, but we’ve built up the right competencies over the last 30 years: we have a portfolio of six banks to finance us (we have good relations with practically the whole market) and we have about 10 private investors with whom we work at the project level. In May this year, we also completed a very successful bond issue”, said the CEO, who said that, if the company reaches the required level, an IPO could also be an option.