A unique luxury residential project in the very heart of Warsaw designed by a renowned architect, with a marketing strategy developed by a world-class guru – what could possibly go wrong? Everything, apparently. Poles must not be as keen on ‘keeping up with the Joneses’ as you’d think
by Beata Socha
T he project was plagued from the get go. It was announced in 2007 as the pinnacle of luxury and prestige for Varsovians, designed by Polish-born American architect Daniel Liebeskind in the shape of a 192-meter tall glass sail. The scheme’s construction was halted in 2009, after reaching the 17th floor, mainly due to the developer’s financial difficulties related to the global crisis.
On top of that, the company had problems with a court decision suspending the building permit for the skyscraper. The dispute ended favorably for the developer, and construction was re-launched in January 2011. A year later the tower reached its full height, but that’s where Orco seems to have run out of luck.
“There were many reasons for Złota’s failure. When the investment was launched, the crisis followed soon after,” Bartosz Turek, an analyst from Lion’s Bank explained. “Plus, unlike the Sky Tower and Cosmopolitan, the project was financed mainly on credit. There were problems with the contractor and administrative decisions. All of that created delays and incurred more costs,” he added.
The firm decided to re-market their apartments, hiring Roger Black as a consultant and creative director, a renowned British marketing consultant specializing in the premium residential segment. His strategy was to make the apartments even more expensive than they already were, rising their price from PLN 18,000-40,000 per sqm up to 25,000-65,000 per sqm, a whopping 50 percent bump.
The logic behind it was to appeal to the most well-off Poles by creating a “conspicuous consumption” effect, posited by economist Thorstein Veblen, who wrote in 1934 that “In order to gain and to hold the esteem of men it is not sufficient merely to possess wealth or power. The wealth or power must be put in evidence, for esteem is awarded only on evidence.”
When asked about the risky strategy in July of last year, Roger Black told Lokale Immobilia that “Polish people are cosmopolitan people, they are educated and travel around the world and then take all that wealth and education back with them to Warsaw. This building is to start a new generation of buildings in Warsaw.”
He wasn’t too wary of the nearby Cosmopolitan apartment building, saying that “There’s no competition between Złota 44 and Cosmopolitan. … Buyer potential is infinite.”
Apparently it wasn’t, and the unfinished project wasn’t selling well. Thus far, only about 25 percent of units have been purchased, despite launching three marketing suites on the tower’s top floor.
“The minimum price in Złota 44 was PLN 24,000, while the average price in the Cosmopolitan building, only a stone’s throw away was PLN 25,000. And these two projects were natural competitors,” said Turek.
Needless to say, the plan to turn Złota 44 into a status symbol for the most affluent Poles backfired. Some say it was the market – 2013 was still a year of cautious calculation and thrift in Poland, some say it’s not in Poles’ nature to go after goods that are arbitrarily priced well above their market value. After all, today’s Polish magnates rarely come from money – they had to earn their status and position, and squandering millions on overpriced apartments is not the way they did it.
And then there was also the issue with the facade, which the developer decided to cover with laminate instead of glass, and Liebeskind’s “sail” increasingly became called a white-and-blue “zebra.”
“The project’s prestige decreased, it was increasingly ridiculed, and in the meantime the prices went up,” Turek said.
In December 2013, Orco terminated the agreement with the general contractor. It waited until the facade on the upper levels was finished, which left only the bottom two floors to complete, plus the entire interior to fit out. The developer claimed it would finish the construction on its own. But that was little more than wishful thinking.
The investment was proving to be a giant financial sinkhole. Orco said that it had to set aside €193 million for impairments and valuation adjustments in 2013, with the Złota 44 project accounting for €122 million of that sum.
Finally, the developer decided to cut its losses and put the entire unfinished project up for sale. A purchase option was granted to OTT Properties, a company related to Orco’s management board. But that was not the end of Orco’s tribulations.
Only five days after announcing the sale plans, Orco said it received notice on the termination of loans for the financing of Złota 44. The company had to pay back PLN 189.7 million within 30 days, a tall order for the loss-ridden developer. That’s when Orco Property Group came to the rescue of its subsidiary responsible for the Złota 44 debacle.
“OPG will try and amass the funds within the allotted time frame, mainly through selling its liquid assets,” the company wrote in a statement. Soon afterwards, OPG signed an agreement with Bank Pekao to acquire loan receivables and collateral from Orco, its subsidiary.
A world of possibility
What will now happen with the blue-and-white high rise right smack in the center of the capital? Will it have to wait another few years before it is completed?
“A new investor will come, finish the scheme, change its pricing policy and maybe also change its function. A part of the building could be used for hotels, and if the technical conditions allow it, it could also be used for offices, as there are few locations in the center with small units, say 50-100 sqm ones. Finally, some of the apartments could become condos,” Turek said.
“There is demand for what can be done in this space. Look at the Cosmopolitan. It launched 2-3 years after Złota 44, finished earlier and has already sold some 50 percent of its total space,” he added.