From Poland Today weekly newsletter “Business Review +”.
The ailing European developer Orco Property Group has finally admitted what most market observers have known already for quite a while – what a spectacular fiasco the Złota 44 residential high-rise has been for the company. In the full year financial report, published last week, Orco said it would sell the project, leaving its completion to the new owner. “The luxury residential project Zlota 44 was exposed as a major financial failure for the Group in the fall of 2013. There are many causes of this situation, including lack of bank financing due to covenants default, termination of the general contractor, unsuccessful sales re-launch on the local Warsaw residential market. Therefore, late in 2013 the Board of Directors decided to terminate this strategy, suspend the works and later to sell the entire project as is and not to complete the development. On 26 March 2014, a short term option was granted to OTT Properties (an entity related to the former management) to acquire the project; no new losses would be generated for the Group in case of exercise of that short term option,” Orco said.
Designed by the Polish-born celebrity architect Daniels Liebeskind, Złota 44 were meant to become Warsaw’s new landmark, but so far it has been nothing but a disappointment, both for the developer, as well as most Varsovians, as the final look of the sail shaped edifice only remotely resembles the sleek glass structure they remember from the drawings Orco distributed prior to obtaining the residence permit back in 2007.
Złota 44 aimed to be the most luxurious apartment building in Poland, offering a wide range of additional services and facilities available exclusively to its residents, including a 25m indoor swimming pool, sauna, and spa. Located between the Palace of Culture and the Central Railway Station, the 192m high tower were to become Europe’s second-tallest all-residential skyscraper, with 54 storeys and 251 apartments. However, its completion has been delayed several times and sales of apartments have been rather disappointing.
Meanwhile, Orco ended up on the verge of bankruptcy with Czech billionaire Radovan Vitek rescuing the collapsing business with an equity boost. Last year, its revenue decreased to EUR 146m from EUR 245m in 2012. The loss in fair value adjustments on investment properties and the impairments of development assets recognized in the income statement amounted to EUR 193m over 2013 with the Złota 44 project alone being responsible for EUR 121m worth of impairments. Orco’s net loss amounted to EUR 227m last year, compared to EUR 42m in 2012. Its gross asset value stood at EUR 1.035bn last year, down by EUR 313m from the prior year, largely due to a like-for-like drop in assets’ value.
Let’s hope the sale is more than just a financial engineering exercise and results in a new owner with the right ideas and enough money to get the place finished. This farce has gone on long enough.