Station-to-station

It is worth being a regular visitor to railway canteens. Why? They must feed you well if the head of TriGranit eats there or at least recommends doing so while waiting for the next round of the negotiations with the public partner of a project in Poznań. But this is not the only developer I encounter at the PKP (Polish State Railways) offices on this October day. I find myself talking about PKP’s cooperation with investors with Paweł Olczyk, a PKP board member and the real estate management director, and Barbara Topolska, the general director of Neinver Polska. The projects they are carrying out together include a pioneering station and retail scheme in Katowice

Ewa Andrzejewska, ‘Eurobuild CEE’: What is the first thought that comes to mind when you hear the world ‘developer’, Mr Olczyk?

Paweł Olczyk, PKP board member and real estate management director: Hmm…a partner in business. At least this is how we treat the developers we are in negotiations with, and the negotiations concern a few projects already underway. So far, we have finalized two of them. One contract was agreed with Hines for the construction of an office building on Al. Roździeńskiego in Katowice. The second project is for a railway station combined with a shopping centre, also in Katowice. Out of 16 companies we were in talks with in October 2007, we chose Neinver, and have signed an investment contract with them. The project is ambitious and the execution time is very short.

What do you associate with the name PKP, Ms Topolska? My first thought is the dilapidated east railway station (Warszawa Wschodnia) in Warsaw, which I used to frequent at some point, and where it is better not to go after dark.

Barbara Topolska , the general director of Neinver Polska: And mine is: this is a public partner which has a lot of investment land in its portfolio. Neinver is a developer on the lookout for investment locations. So we are 
hoping that the Katowice project is only a prelude to our further cooperation.

Paweł Olczyk: Let’s not demonize the railways stations. They are admittedly undercapitalized. When the railway was being reformed in 2000, it was thought that the company would manage without any help from the budget. We are often presented with examples from Germany, France, and generally countries from Western Europe. I am, on the other hand, under the impression that it has not been properly understood how railway investment works in such countries. These countries did not leave the railway at the mercy of the free market to finance its development, including the modernization of railway stations. For example, the German government spent EUR 3.5 bln on the railway station in Berlin. We have not received such a subsidy for many years.

So you have had to approach this issue in a different way, and look for a business partner. What are the conditions for your cooperation with Neinver?

Paweł Olczyk: We will establish an SPV company, which is to modernize the railway station facility. The shares correspond to each party’s contribution. PKP is providing land with an area of 3.2-ha.

How much has the property been valued at?

Barbara Topolska: This is still an open question because we will evaluate the land at the point of the actual launch of the project. It will be the market value.

Which details have already been firmly established? Is it clear for example when the first hole will be dug on the building site?

Barbara Topolska: If all administrative activities go according to plan, and so far we have been meeting our schedule, the construction should be launched in Q2 2010. In May 2012 we are planning to complete the railway station and the retail section, and the shopping centre by the end of that year.

What other obstacles do you have to overcome?

Barbara Topolska: Consultations must be made for these types of projects with the local authorities, so that they comply with the local land development conditions. Our negotiations with the city council are coming to an end; we have recently closed the transportation issues. We are currently preparing documents needed to submit an application for the building permit.

Is the area included in the local site development conditions decision?

Barbara Topolska: No decision has been taken over this, so we will be applying for a decision on development conditions and then we will act in accordance with the guidelines of the city council and the resolution which the voivodship then has to pass.

How will the partners share the roles in this enterprise?

Barbara Topolska: We are to 
deliver a new railway station for PKP and the city, which will be administered by PKP. It has been agreed that both PKP and Neinver will each own a stake in the retail section. After the project is finished, the shopping centre can be sold to another entity so that both parties can profit.

Paweł Olczyk: From our point of view, we will gain a new railway station, which will be similar architecturally to the old, existing one. We will therefore preserve ‘the socialist brutalism’. The famous, controversial calyxes will be reconstructed, but the concrete used to make them many years ago turned out not to be of the best quality, so it would not be possible to keep them in their original form. We will also be gaining an underground bus station for municipal buses and long-distance coaches. The new station will become a true transport hub. Besides, this we will improve the appearance of this part of Katowice, returning it to the pedestrians, which currently have problems with access to the railway station due to car traffic.

Mr Olczyk, you mentioned earlier in the case of the office building project to be carried out with Hines, difficulties in obtaining the finance for the new enterprises. How will this Katowice project be funded?

Barbara Topolska: As is the case with all our projects, the finance will come from our own resources and a bank loan. We are already holding talks with the banks about this. Despite the crisis, due to the location and the exceptional features of this project, banks are interested in supporting us. And from a business point of view, we can see the effects of the first months of commercialization – the first contracts have not yet been signed, but negotiations with the key tenants are in the final stage.

How substantial will Neinver’s own contribution be?

Barbara Topolska: This will depend on the final cost of the facility. The market is in our favour because construction costs have dropped. The value of the project assessed at its first stage amounted to EUR 240 mln, including the financing costs. We believe that the figure will be lower at the beginning of next year. The loan to cost standard in the case of retail project finance is 40:60.

Do you have a plan ‘B’ in case you do not manage to overcome the financing gap? Banks have not been too willing to give their money to new projects recently. They prefer refinancing, which is safer…

Barbara Topolska: We have had quite good experiences with financial institutions. Three months ago we closed the financing issue for the Wrocław Futura Park project with Berlin Hyp. We are also closing the financing for a shopping centre and a retail park in Kraków. This shows that good, well-commercialized – 30 pct in our case – projects can justify themselves. The money is more expensive, but it is out there.

This railway station revitalization project has dragged on for many years. I remember talking about it in 2005 when PKP selected Polish Transport Holdings for the final negotiations, and then the talks were called off. Is there anything that could jeopardize the plans now?

Barbara Topolska: The most important thing for us is obtaining the building permit. We do not expect any problems with the commercialization.

Paweł Olczyk: Maybe if some old ancestor rose from the dead and claimed the land… But seriously, some protests might occur, but we have tried to address the issues of all potential objectors, so we hope that nothing like this will happen.

So we are not going to revisit the Polish Transport Holdings case?

Paweł Olczyk: That was a company which was located in one room, with no ability to carry out this project. In this case we have followed the correct procedures. Many companies have applied, and some of them have dropped out due to their own issues or because they fell short of our expectations. They all wanted to build car parks above the railway lines, and did not take into consideration the fact that we do not have the so-called “layered law” in Poland, which would allow us to split the project into a number of levels. I saw such a project in Malaga; it belonged to Riofisa and RENFE – the Spanish railways.

You mentioned the Spaniards from Riofisa. This company was selected for negotiations over the Warszawa Wschodnia project.

Paweł Olczyk: Yes, they were – but unfortunately it turned out that they were not able to take on such a contract.

Does this mean that the station will remain as it is?

Paweł Olczyk: No, it does not. We will modernize it using PLN 55 mln from the state budget and our own funds.

So you will not return to negotiations with developers?

Paweł Olczyk: We will return to negotiations because we own plots of land along the railway lines next to ul. Kijowska that we want to make use of. Things have all got a little complicated because the city council abandoned the idea of building the so-called Świętokrzyska route, which means that there will be no ul. Nowokijowska. The nearest underground station on the second metro line will be located further away from the station than we would like it to be. We might sell these plots of land all the same, but we would like to have a local development plan in place first. We have to exchange plots of land with the authorities. We will exclude them from the so-called closed areas, and then the local development plan can be created, for which the preparations have already started. To sum up, I think that the middle of 2010 will be the right time to think about selling the properties in question.

What is the status of the project in Poznań, where the Integrated Transport Centre is to be built on the site of the existing central railway station? Apart from a railway station with covered railway lines, a bus terminal will also be built as well as a link to the Poznań Fast Tram (Poznański Szybki Tramwaj). And, on the surface above the platforms, buildings connected with trade: a shopping centre, an office and a conference centre, hotels, recreation centres and car parks….

Paweł Olczyk: There are currently two potential investors left: TriGranit and HB Reavis. I think that one partner will be selected by the end of the year and then it will be clear when the contract is to be finalized. In my opinion, it is possible that the railway line will be built before 2012.

You are the author of the famous – at least among football fans – statement that the Euro 2012 matches will not be played at railway stations but at stadiums.

Paweł Olczyk: I do think so. And I don’t think I am mistaken. But you want to know what we will manage to accomplish in terms of railway stations before Euro 2012. The list of stations to be renovated before the championships is long. We will complete Wrocław with EU funds, and the main railway station in Kraków, where, by the way, you could actually play a match as there is 14,000 sqm to be built and you only need 10,000 sqm for a match. Anyway, in Kraków we will build app. 3,500 sqm of retail space. We will modernize the railway station in Gdynia and Warsaw’s central station. We will renovate 30 other railway stations across Poland with state funding by 2012.

And what about Warsaw’s west station (Warszawa Zachodnia)?

Paweł Olczyk: In this case, the negotiations with the selected investor, Nexity, are also in progress. Here we face a problem connected with the Warsaw market, i.e. difficulties with office space leasing and – as a result – with securing the finance for a scheme of this kind. I do not know whether our assurances that we will occupy a few thousand square meters there will change anything, but we have declared a willingness to rent offices there anyway because the upkeep costs of the building we are in now are very high and comparable to leasing costs.

Is PKP so patient that it will wait for concrete information from the partner?

Paweł Olczyk: Yes, we are – especially taking into consideration the fact that we do not own the railway station in the case of Warszawa Zachodnia. The existing one is the property of PKS. We own a 16-ha plot of land alongside Al. Jerozolimskie where we want to build a station, office buildings and a hotel. According to UEFA, this station will not play a very important role in the tournament, so we are quite relaxed in this respect. In the near future there will be a new, large railway station built on the other side of the railway line, on the side of the district of Wola, where we own several hectares of land.

You have been employed by PKP since 2002 and have worked in its real estate department since 2005. What has changed in negotiations with developers since then?

Paweł Olczyk: We only started to approach developers in a coordinated way in 2007. Prior to this there were some isolated contacts, but without any coordination. What has changed recently is the fact that we are not launching any new projects. We are discussing them with everybody, and provide information about our plans, but we are focusing on our projects in progress, of which there are many in Poland. We are also cooperating on projects with boroughs such as Sopot, which is currently engaged in a selection process to find an investor for a project involving the railway station. We are in discussions over this, but these are taking a long time. Some people say that talks with the railways are always time-consuming, but I think that they take longer with local councils. And coming back to Sopot, at the beginning of H2 next year, or perhaps in Q3, the investor will be selected. It will be the same in the case of Gdańsk Wrzeszcz station. We also own some land there. The Targ Sienny and Targ Rakowy revitalization projects in Gdańsk, which involve the extension of the SKM (Fast Commuter Railway) line, the construction of a new stop and the covering of the railway lines – again, some of the land belongs to PKP. Local authorities sometimes think that it is enough to push the railways a little and they will give the land away, but it is not really like that. We have had very good cooperation in Łódź, but this is despite the fact that originally the mayor demanded taking the area of Łódź Fabryczna station away from us and handing it over to the municipality. It was not legally possible, and caused some unnecessary friction at the same time. However, we reached an agreement in the end.

How has the crisis affected PKP?

Paweł Olczyk: We are currently putting up for sale properties with a combined value of app. PLN 500 mln and we will add to this land with an estimated value of PLN 50 mln by the end of this year. We have already sold property worth app. PLN 130 mln. However, it used to be the case that we were selling properties worth around half of our total offer, so normally we would have received PLN 250 mln from this year’s sale. By comparison, in 2008 we wanted to sell land with a value of PLN 200 mln and we managed to finalize transactions worth app. PLN 98 mln. We intend to increase the pool of properties for sale every year. An interesting thing is the fact that we are currently in talks with an investment fund association about setting up a real estate fund for developing our properties. Certificates should be available on the open market in the future. ν