Reform Plaza and Center sold to investor group

A group of private investors from the United States and Switzerland bought 51% of Turkey's Reform Company late last month for an undisclosed price, putting an end to the rumors regarding the sale and future of two Warsaw buildings - Reform Center and Reform Plaza. "I can confirm that the deal has been closed," said James D. Foley, director of the real estate department at Arthur Andersen consultancy, adviser to the seller in transaction. "It was not a straightforward sale of assets. We had to negotiate partnership structure, all the issues of multiple properties, troubled performance, unfinished construction and plenty of surprises." To attract investors, it was also necessary to secure a new construction credit, which was provided by BIG Bank Gdański, Reform's creditor in the past. Jacques Tourel, CEO of World Trade Center Warsaw, from the investor group, said the new owners have secured all the equity to finance completion of Reform Center and to improve Reform Plaza. "The group plans to change the image of the buildings," he said. "It will change the names, market approach, design and management." He declined to reveal how much has to be invested. A specialist team of U.S. consultants is already working on these projects, he added. "These were troubled buildings that were not going anywhere," Andersen's Foley said. He added that with the new investors the situation would improve.

Going up Chris Grzesik, a managing director of the U.K.-based consultancy King Sturge, said the buyout is a positive thing since it indicates that the building could be successful. "This location is good and this office building has potential but it also requires a number of improvements," he said. "First of all the elevators." The 31-story building has four elevators servicing office floors, two for the building's retail area and an additional cargo lift. The investors are planning to add three panoramic elevators within the next six to eight months, as well as improve the building's management, security and facilities. "It will change the identity of the building so that soon it will become a desirable address," Tourel said. For the time being, Grzesik said tenants shouldn't pay more than $18 per square meter in Reform Plaza, whereas the current rent level runs $18-$25 per square meter for office space, depending on the unit size, and up to $40 for retail space, plus a $4-$4.50 per square meter service charge. The 40,000 net square-meter Reform Plaza, located on Aleje Jerozolimskie at the edge of Warsaw's Central Business District (CBD), is 55% leased. Tenants include the publishing houses Wprost and Business Press, Dresdner Bank and French cosmetics chain Sephora. Tourel added that there is a significant interest in the building and in the near future he sees it filling up and rents increasing accordingly.

Reform Center Reform Center, slated as a giant mixed-use project combining retail, leisure and entertainment on Aleje Jerozolimskie in western Warsaw, is still under construction. The investors are hoping to finish the interiors within the next 15-18 months. "We'll knock all the competition down," Tourel said. "It will be the biggest regional center in Poland and in Central and Eastern Europe." Plans foresee 185,000 square meters of space. Grzesik said that even though the project is massive, it will be hard to compete with already existing shopping centers and downtown's Złote Tarasy, provided the latter project overcomes legal obstacles and is completed.

Stormy history The two Reform buildings have been subject to rumors and speculation since construction began. The buildings were marked by poor marketing, property sources agreed. When Reform Plaza was completed in 1999, the asking rent was $39, which dropped by half two years later, with actual transactions reaching $16-$17. Last August, Israel's Adgar Investment & Development was seriously considering purchasing Reform Plaza for about $70 million but the deal fell through due to "ownership issues." (See Lokale Immobilia Aug. 20-Sept.2, 2001.) Reform Center was originally slated for completion in December 2000, and then December 2001. The structure is ready but it's waiting for interior finishing and tenants. More than two years ago pop singer Michael Jackson's representatives said they were interested in developing an indoor amusement park at the site but the plans failed to materialize. According to a source who asked not to be named, it will take years to reposition the two projects on the market. "I think it will be about two to three years to change the image of the Reform projects," the source said.