From white elephant to gold mine

The history of the skyscraper began ten years ago, when Luxembourg-based developer Orco bought a site at ul. Złota 44/46 from Concorde Investissement. The plot, which included a functional but failing shopping centre under the name of City Center, changed hands for EUR 9.75 mln. It became clear from the very outset that something unique was to be built on the site and expectations soon soared as high as the planned 192m skyscraper, when Daniel Libeskind was eventually entrusted with the design work.

Ups and downs – but mostly downs

Finally, in November 2006, the launch of the sales of the 251 apartments in the building was officially announced. The project was intended to be a showpiece not only for the Warsaw but also of the entire European real estate market. A year later the building permit was granted and in March 2008 Besix, the co-contractor of the tallest building in world – the Burj Khalifa in Dubai – started the construction work on Złota 44. It seemed that a project carried out by an experienced developer, built by a famous property mogul and with the finance in place simply had to succeed. However, just a few months later, as we all know only too well, the global financial markets melted down. What happened next for the Złota 44 development could easily be turned into a film script: the developer was plunged into crisis, neighbours protested, litigation that dragged on, the suspension of the construction work, accusations of blackmail... these were only a few of a whole series of problems that befell Jean-François Ott (the founder and main shareholder of the project’s developer, Orco Property Group). However, he did manage to put out most of the fires that had broken out around the Warsaw project andso , at the beginning of 2011, construction work on the building was able to resume with a new contractor – Italian company Inso. A year later the building was topped off and the whole of Warsaw could then watch the façade being assembled – although the final effect had a somewhat mixed response from the public. Meanwhile, Orco was already preparing for the furnishing of the interiors of the show apartments, which were revealed with great pomp in autumn 2013. This was also when the sales of the apartments re-started. Nevertheless, this turned out to be the swan song for Orco’s efforts to turn the project into a success, when the queue for the apartments patently failed to materialise.

Baby please don’t go

There was also a struggle taking place for the control of Orco itself. Jean-François Ott’s position was usurped by a younger rival, Czech real estate tycoon Radovan Vítek. The latter did not have the same emotional attachment to the Warsaw project as the founder of Orco and when he finally took control of the company it could only mean one thing – Złota 44 was to be put up for sale and the sooner it was disposed of, the better. At the end of 2013 the supervisory board of the company decided to suspend work on the project and sell it at the stage it had reached. This triggered a conflict with the general contractor, who, having been removed from the project, argued that it had actually been financing the construction of the project – to the tune of app. EUR 20 mln. However, Ott did not want to let go off his Warsaw baby so easily. He embarked on a search for the funds that would allow him to purchase it, and at the end of March 2014 Orco provided Ott Properties with a short-term option to buy the Warsaw skyscraper. However, his initial attempts to bring in investors to back up the purchase ended in fiasco – while at the same time, other players were already expressing an interest in the project.

Buyers be quick!

However, the liabilities on the project owed to Pekao bank, which had financed its construction, now stood in the way of the sale. Without repaying these Orco would have been unlikely to secure a buyer. So companies from Vítek’s CPI group bought Orco Germany for EUR 55 mln and the funds were then used to repay the debt accrued by the project. Having wiped the slate clean with the bank they could then move to the endgame with the interested parties. As it turned out, BBI and Amstar were quicker off the mark than the others. Negotiations ended in late June, allowing the lawyers to start their work on the final papers. Orco was advised by the Dentons law office, while Hogan Lovells acted as the consultant of a company set up by Amstar and BBI. “We had about two months to finalise everything, including the due diligence for the project. It was very hard work under a lot of pressure,” recalls Justyna Szwech, a legal adviser at Hogan Lovells. A number of entities were involved in the transaction: two on Orco’s side with BBI, Amstar, Amstar’s fund registered in Bermuda and a Luxembourg-based company on the buyers’ side. “Contrary to how it might seem, this was a very typical transaction. The fund – actually an American fund subject to US laws – operates in Europe via Luxembourg-based companies, and it was one of these that bought Złota 44. The transaction involving the purchase of shares in the Polish project was concluded between three Luxembourg-based companies. On the seller’s side these were: Property Group SA and Endurance Residential Asset S.a.r.l, and on the buyer’s side Skyline Residences S.a.r.l. – a joint venture set up by Amstar and BBI Development. The contracts were concluded in  Poland under Polish law and were centred around Polish company Złota 44 sp. z.o.o. But the companies involved were all Luxembourg-registered,” explains Justyna Szwech about the complexities of the deal.
As the lawyers in Poland were finishing their work on the terms of the contract, Amstar was already raising the funds for its first Polish investment. On August 21st the company registered a fund in Bermuda, which secured USD 107.8 mln from investors, thus allowing the purchase of Złota 44 to be finalised. The news about the sale of Złota 44 for EUR 63 mln spread rapidly across the Polish, European and global information services at the end of August – and Michał Skotnicki, the president of BBI Development, is even today still unable to conceal his satisfaction about the deal. “It was us who suggested a joint project to Amstar and we are very pleased to have entered into a partnership with such a prestigious entity. And we have to remember that this is Amstar’s first investment in Poland.”

Behind the facade

Every Varsovian knows what Złota 44 looks like, but its three-layer façade covers up a multitude of daunting commitments and challenges that the new owners will have to face. The previous owner failed in its attempts to achieve this and lost app. EUR 80 mln on the project. “The construction process was suspended so many times that the former investor had to sell the project. A fresh start was needed. This is probably the most important thing in terms of the marketing. A new developer and new money – and I would like to remind you that the project was purchased with own funds not on credit,” says the president of BBI, who is fully aware of the challenge he has taken on. There will be no shortage of work for the lawyers, either. “The buyer decided to purchase the project with a certain level of risk and with the awareness of the procedures it will involve. When entering this specific situation and taking on the majority of the risk, all of this had to be factored in to their evaluations,’ adds Justyna Szwech. “At a certain point Orco changed its strategy and decided to sell the project. This also led to the termination of the contract with the general contractor and problems with the bank that financed the project. The issue with the bank has been taken care of. The new owner has also taken on the job of attracting buyers. But the relationship with the general contractor still needs to be resolved. Orco itself has taken on some of the risk. The limits of the responsibility and the procedure to be implemented when the transaction was closed were among the things that were specified,” explains the legal adviser from Hogan Lovells.

New visionary, same vision

The building itself still needs to be completed. Bank loans will be necessary for this task. “Some of the installations and the façade, where several panels are missing, need to be finished. The reception area, the lobby and the entire eighth floor still need to be done. The work will take 4–5 quarters and then we will start handing the apartments over to buyers. The work, which is to be carried out until all the communal areas are finished and state building inspectors give their officially approval, could cost app. PLN 130-140 mln,” estimates Michał Skotnicki, who immediately goes on to add that these are not all the costs. “It needs to be remembered that we still need to finish the apartments to a high standard. We are working with renowned studio Woods Bagot to achieve this. This proves that we will not be cutting any corners to save money on the finishing work. The apartments will be finished, but we are leaving a certain scope of the work to be consulted over with the buyers. The need for the finishing work to be done has to be offset with individual buyers’ needs. We are also in touch with Daniel Libeskind, who is supporting us in our intentions,” he adds.

Testing times ahead

Next year will be the time when the new owners’ ideas will collide with the reality of the market. However, they are confident about the prospect. “The target group are affluent buyers from Warsaw and other parts of Poland who need a well-serviced top standard apartment in Warsaw for themselves or for their children, as well as foreign buyers. The location of Złota 44 and its standard mean that it is a very convenient solution for people who want or need to live in the city centre,” argues Mr Skotnicki, who at the same time makes it quite clear that he will not be selling the apartments at any price. “We are planning to sell at top price levels for Warsaw, slightly above the price of the competition, even though we have yet to draw up any detailed price lists. We are giving ourselves 3–4 years to sell all the apartments. Around 20 pct of the apartments have already found buyers, but they were sold by Orco. Another 220 units still need to be sold. This is not that many. Still, we have not ruled out a slight increase in the number of the apartments,” says the president of BBI. He insists, however, that Złota 44 will be both lit up and lived in in 2016. ν