Kapitel: Everything we do, we do as if for ourselves
Source: Äri-IT Spring 2021
In almost a quarter of a century, the Estonian-owned company Kapitel has become one of the largest real estate companies in the Baltics, with the first projects in Central Europe also in their portfolio. Their goal is to continue geographical expansion alongside new development projects – now their IT solutions are also fully ready for this.
When shopping in Viru centre, probably no-one wonders about who owns this huge complex. Or when staying at the Tallink City or Nordic Forum hotels. Or when stopping by the Delta Plaza and Sõpruse business building. Or when ending up at the Spice centre in Riga or Panorama centre in Vilnius. In all cases, the answer is the same: the owner is Kapitel.
Kapitel, formerly known as E.L.L. Kinnisvara, is a sister company of Merko Ehitus. They focus on office buildings, shopping centres and hotels, and the company itself plays the role of developer, investor and manager. Kapitel recently entered the logistics real estate field by buying a 50% stake in a company that owns a nearly 60,000 m2 logistics centre in Rae municipality, where Smarten Logistics is the anchor tenant.
While many of the buildings developed in the early years of the company have been sold, Kapitel is now focusing on a long-term strategy – managing the entire development process and then remaining the owner of the developed projects. Sufficient funds have been collected and the biggest source of income is the solid cash flow from office buildings, shopping centres and hotels. It is true that, when tourism was interrupted last year, hotel attendance dropped drastically, but Kapitel decided to use this time to renovate both of the hotels located in the centre of Tallinn. The hotels will be opened again in the spring in the hope that tourists will return to Tallinn this summer.
The company operating under the name E.L.L. Kinnisvara adopted the new name and brand Kapitel in 2017, which reflects both a strong position in the Baltics and expansion into new markets. To diversify risks, their geographical reach has expanded considerably and Kapitel already owns their first office building in Prague, and the company continues to search for projects suitable for the portfolio in Central and Western Europe. Unfortunately, the plans have been heavily affected by the restrictions brought about by the pandemic.
There are around two dozen projects in several countries in various stages of development, most of them office buildings. The construction of the Liivalaia quarter will soon begin in the centre of Tallinn at the intersection of Liivalaia and Juhkentali streets, where the total investment of Kapitel is over 100 million euros. The quarter with a rental area of nearly 36,000 m² consists of three interconnected buildings, including the tallest office building in Estonia. In the summer, the construction of the first stage of the Riga Elemental Skanste office complex will begin, which consists of two interconnected 10-storey office buildings with a rental area of 21,000 m². In addition, Kapitel is developing the seafront property at 10 Kalasadama street next to Linnahall in Tallinn and continues to develop a new plan for the area between Smuuli road and Narva highway on a property measuring more than 11 hectares.
THE GOAL IS STABLE LONG-TERM GROWTH
What is it that has allowed Kapitel to survive in crises and grow internationally?
Rait Pallo, who worked in the top management of Swedbank Estonia for many years, and who has been managing the cash flows of Kapitel since 2018, does not need to think for long: ‘The key to the growth of Kapitel lies in their organisational culture. Everything we do, we do as if we were doing it for ourselves. We are focusing on a long-term strategy, which means that, as a rule, we remain the owner and manager of the projects we have developed for at least ten years, being a daily partner to our tenants. It is for this purpose that we adhere to particularly high standards in development so that the value of the property persists as long as possible and the business environments we create function as well as possible.’ According to Pallo, every real estate company can maximise income in the short term, but tenants are not dumb and can immediately see if and how much the landlord contributes to their well-being. Kapitel has reached a point where 70–80% of tenants extend their contract for the next period. The main reason for leaving is that it is not always possible to offer suitable spaces at the right moment to clients that have grown.
‘The secret of Kapitel’s survival is, in short, focusing on strong and long-term rental relationships,’ observes Pallo. He adds that the title of the most competitive real estate company in Estonia, which Kapitel was awarded last autumn for the third time in a row, as well as the title of the most competitive small and medium-sized company in Estonia awarded last year, also help them grow.
UNIFIED ENTERPRISE RESOURCE PLANNING SOFTWARE IS A NATURAL PREREQUISITE
Kapitel’s subsidiaries operate in five countries – in addition to the Baltics, also in the Czech Republic and the Netherlands. There are a total of 33 companies in the group, since, as is usual in the sector, each property is a separate company. This ensures that both the company and the banks have a clear overview of the revenue and expenditure of each object.
This is made possible by a unified enterprise resource planning (ERP) software application, the implementation of which began in 2015. The choice was then made in favour of Microsoft Dynamics NAV, and the very next year, in 2016, the first units started to work with it daily. By 2018, the entire company operated on a single ERP system, and in 2020, the introduction of its latest version, Business Central, began.
‘If different ERP software systems were in use in each country, gathering the group’s data would be a real nightmare, both in terms of management and financial accounting,’ Pallo thinks. ‘A single software program is a completely different universe for managers and accountants – they can’t imagine doing their work any other way.’ Anne Junolainen, the Group Business Controller, adds that using a single software program also ensures consistent data quality in every country.
Both admit that the implementation of the new version went surprisingly well, especially when compared to 2015, when the implementation of the new software was started from scratch. Then the technological innovation required a great deal of blood, sweat and tears, and not everyone could handle it – a few employees left the company. According to Pallo, at first people are in the denial phase, which can’t be skipped. ‘It is important to get the person through it quickly. If they can overcome it and still want to use the new thing, there are usually no insurmountable problems. Although in some cases, unfortunately, the denial lasts until the end – you just have to accept it,’ he admits.
Junolainen also agrees: ‘The most important thing is to help employees understand why it is necessary to make the change and what the final benefit is. Since some employees temporarily have to put in double time, they want to understand what they gain from it. Secondly, help must be quickly available so that colleagues located further away from the head office dare and can ask for it if necessary.’
According to the original plan, during the last year, Kapitel’s chief controller had to spend a large part of the version change period in Latvia and Lithuania, but COVID-19 changed the plan and so the representative offices of the countries communicated online instead. 2020 was just a special year from that perspective.
ANNE JUNOLINEN, KAPITEL GROUP BUSINESS CONTROLLER: PROCESS UNIFICATION SHOULD ALWAYS BE DONE TO A REASONABLE EXTENT
In 2015, we implemented the version of Dynamics NAV that was then available, but in 2020 we switched to the latest version, MS Dynamics 365 Business Central. In Estonia we went live on 17 August last year, in Latvia on 21 December, and the version change in Lithuania is planned for the end of March this year.
The change of technology in the past five years is clearly noticeable. The new version is more convenient and has better functionality. Thanks to the web capability, the software can be accessed from anywhere, including on mobile devices. Nowadays, it is hard to imagine not having this possibility. The previous version, which did not have this option, was behind the times.
The version change has gone quite smoothly so far. I agree that it is similar to when you start driving a newer model of the same car brand. You can do it, because everything is basically the same, but you will notice immediately that there have been updates. I have the same feeling with Business Central – quite similar to the previous version and very user-friendly, but some modules and functionalities have been further developed.
One of the advantages of Business Central is that it is relatively easy to complement it with developments that suit your needs. Some additions to Business Central had to be developed separately for Kapitel. This was mainly because we use the real estate module developed by the Lithuanian company Softera, whose standard solution has not been sufficient considering the specifics of our company. The Business Central’s real estate solution Soft4RealEstate had to be further developed, primarily because of the special features of shopping centres. For example, rent based on the size of the rented area is customary in office buildings, while rent based on turnover is also used in commerce, and the collection of information from tenants must be as simple and automated as possible.
A big part of a version change is always the unification of company processes, which we also worked on quite a bit this time around. But there is always a question of finding the reasonable limit. Sometimes it is more reasonable and cheaper to change processes, to review what, why and how things are done.
Sometimes, however, a decision has to be made based on the fact that it is easier to develop additional functionality or introduce a new module to the software than to start changing the processes established in different countries.