How A Retail Investor In Texas Became A Believer In The Potential Of Poland

A business partner approached Texas-based developer Chad Hagle three years ago with an intriguing proposition: Ditch your U.S. business and bring retail parks to Poland. 

It was an offer many American investors would have refused. But for Hagle, the U.S. retail market had lost much of its allure, and the potential to capitalize on exponential growth unfolding in Eastern Europe was enough for him to take the plunge.

“I’ve thought for a long time, is it possible for me to jettison the U.S. economy and take the skill set that I’ve developed for 25 years as a programmatic developer to another economy with greater growth potential?” Hagle, CEO and founder of Aventine Development Corp., said at a June 4 Bisnow event.

“By visiting the Polish market, I was able to identify parameters that were much more favorable than we see here in the U.S.”

Hagle has deep roots in the U.S. retail market. His family owns Tricor International Corp. in Florida, a firm that has developed around 20M SF in secondary and tertiary markets over the last 50 years. Hagle himself has helped some of the nation’s biggest retail brands, including 7-Eleven, expand their real estate portfolios in states like Texas and Florida. 

But after the pandemic, Hagle began to question whether the juice from the U.S. retail market was still worth the squeeze. A dearth of new construction, elevated costs and fierce competition for existing space challenged retailers. Meanwhile, developers grappled with the rising costs of capital and construction.

European nations were hardly immune to those challenges, but certain economic and geopolitical trends had begun to boost returns, particularly in the East. The Polish economy has experienced uninterrupted growth since the Iron Curtain was lifted in 1989, with GDP growth of nearly 150% outpacing any other country on the continent. 

Poland has led the European Union’s retail sales volume for the last 20 years, and its leases are indexed to inflation, protecting rent growth, Hagle said. The nation is also experiencing a massive population influx due to the 1.5 million Ukrainian refugees living in the country, causing large cities like Rzeszów and Warsaw to see their populations increase by 50% and 15%, respectively. 

“That phenomenon [of cost increases] is worldwide — you don’t escape that from leaving the U.S. economy or the Texas economy,” Hagle said. “But, as my father taught me, growth makes up for a lot of mistakes. And when you see the amount of growth going on in Central Europe, there’s room to absorb a lot of those cost increases.”

The average European shopping center yield was 5.9% at the midpoint of 2023, up 55 basis points compared to the same period in 2022, per research from Savills. The firm expected the yield to reach 6.1% by the end of last year.

Rental growth has helped boost profitability, with retail parks posting a 13.5% increase year-over-year in the first quarter of 2024, according to Cushman & Wakefield. The average shopping center in the U.S. saw asking rates increase by about 4% during the same timeframe. 

“Because of this repricing, the retail segment is just perfectly well-placed again,” Savills Head of European Research Lydia Brissy said. “We've got really high yield, and that is attracting investors.”

Aventine’s Central and Eastern Europe investment thesis rests on the fact that nations like Poland are extremely undersupplied in terms of modern convenience retail parks, or centers that include uses such as grocery, drug, pharmacy, quick-service restaurants, discount retail, home improvement and more.

Today, there exists just one grocery-and-drug-anchored center for every 25,000 people in Poland, Hagle said. Aventine has identified roughly 800 sites primed for this type of development, yet challenges around raising capital have thus far stymied the ability to meet demand.

There is a small pool of investment capital to draw from for development in Poland, Hagle said. Foreign investors have plenty of money, but many harbor concerns around the geopolitical unrest unfolding in the Ukraine, he added.

“A lot of people won't touch Central Europe at all,” Hagle said. “But I've been 20 minutes from the Ukraine border, and I might as well have been sitting in Austin, Texas. It is the most stable, quiet, structured country in the world.”

Hagle hopes to sell investors on what he describes as a “retail renaissance” unfolding in Poland. Consumer demand for retail centers in secondary and tertiary markets has accelerated since the pandemic as citizens look to shop close to home rather than take the train into a city center.

Developers began building more parks when interest rates were low, and as a result, Hagle estimates there are about 100 convenience retail parks in the Polish pipeline. But many of those projects will likely never break ground, he said, due to a shift in sentiment around return potential.

“Even though the yields today in Central Europe are higher than what we see here in the U.S., they used to be even higher,” he said. “Everyone there is looking somewhat negatively at the current state of the market, but it’s better than it is here, and it’s better than it is in Western Europe.”

Aventine’s strategy is to acquire and take many of those “half-baked assets” across the finish line. Hagle also plans to develop greenfield sites that will produce even stronger returns down the road. 

Over the next decade, Hagle hopes to develop three retail parks and 10 quick-service restaurants per year on average. Aventine is already in predevelopment on multiple assets in Poland but is looking to raise another $30M to fast-track the rest of the pipeline.

“We could go from working on two or three projects going into construction in the next six months to five or 10, very easily,” he said. “We have enough pipeline and quality of assets that we would pursue the next wave all concurrently.”

U.S. investment in Poland has been on the rise, with the country comprising 12% of all foreign contributions. But many Americans still harbor misconceptions about doing business in Central and Eastern Europe, prompting Hagle and a group of investors to create a platform that will help foreign investors buy and sell institutional quality assets. 

He knows this will create more competition, but it will also help open up access to capital sources that don’t currently exist, which is key to executing his growth strategy.

“The more investment that’s coming into [Central and Eastern Europe], particularly from the U.S. and Western markets, the better the market is going to perform and the more luck we are going to have in the work our company is doing,” he said. “Until then, it’s arm-wrestling and grinding.”