Tishman may pull out of Kraków in 3 months

Tishman Speyer Properties (TSP), a U.S.-based developer, is threatening to withdraw from Kraków's "Nowe Miasto" project within three months unless a dispute with the state is resolved and the venture can move forward, said Witold Gadowski, a spokesman for Kraków Mayor Andrzej Gołaś.

"If negotiations last more than two or three months, Tishman is likely to withdraw," Gadowski said.

The $750 million entertainment, office and shopping development, in the works since 1996, hit a snag last month when the Infrastructure Ministry failed to agree to the deal by a Dec. 31 deadline after a Polish newspaper criticized the price for land - zł. 29 million ($7.34 million) - as being too low. The complex would be built next to the city's main train station, property that is owned by Polish State Railways (PKP).

But Gadowski said the Kraków government, a co-investor in the deal, is hoping for a positive outcome to negotiations this month to resolve the dispute.

"We are waiting for PKP's (next) move," he said. "It would be a shame and a great loss for Kraków if all the effort put into this investment failed."

If the deal fails to materialize in the next few months, a lawsuit against PKP could result, the government and TSP said in a joint statement. "Gmina Kraków and TSP do not exclude taking legal action in order to execute the agreed conditions, which were included in preliminary notary deeds," the statement read.

Torben Nielsen, TSP's director for Central and Eastern Europe said, "Our reaction to PKP's breach of contract was anger and astonishment. It's outrageous that a major state company feels that it can disregard binding agreements and factual obligations."

The project's future now looks uncertain, despite the fact that Nielsen said the company would remain commited to ensuring development of the project.

"(TSP's withdrawal would be) a blow to the city," Gadowski said. "Any investment, whether zł. 100 million ($25.3 million) or zł. 500 million ($126.6 million) around the railway station does needed." He added that 4,500 jobs would be lost if the development does not materialize.

TSP has suffered a string of setbacks while trying to secure rights to the PKP-owned property. "(Interior Minister) Marek Pol stopped the investment after reading an article in NIE magazine without checking to see if there were any factual mistakes in the story, which is rather irrational for a state official," Gadowski said.

The move forced a renegotiation of the contract's terms in the final days of December. The final decision for the price for land was left up to PKP, which demanded an additional zł. 120 million ($30.4 million) investment within seven years for parking facilities and zł. 60 million ($15.2 million) within five years for underground parking at the railway station.

For its part, TSP had wanted to conclude the deal last month according to preliminary conditions set in May 2000 - which did not specify sums or deadlines.

"They (PKP) should have raised these conditions long before and not at the very last minute," Gadowski said.

By Dec. 31, TSP finally agreed to invest zł. 20 million ($5.1 million) over 20 years in parking and underground facilities - more than 10 times less than the zł. 224 million ($56.7 million) pledged in an official letter dated Dec. 21 and sent to the Infrastructure Ministry, the prime minister's office and other central offices.

"It's hard to guarantee investing such a large sum when nothing is final, and there are still issues concerning Poczta Polska and Pekaes land, where TSP doesn't have permits," Gadowski said.

According to PKP's official statement, "the board of PKP informs that TSP … desisted from including in the contract … a commitment to invest zł. 224 million ($56.7 million) … pledged earlier to the vice premier and minister of infrastructure … and therefore the PKP board cannot conclude the final contracts for sale and lease."

Krzysztof Celiński, president of PKP, wrote in the announcement that investing zł. 20 million ($5.1 million) within a five-year span is unacceptable and raises doubts about the real will to invest based on earlier promises.

TSP justified its stance by claiming "PKP didn't fulfill the legal conditions of the tender in 1998, the framework contract from 1998 and preliminary notary agreements from May 2000, and refused to conclude the contracts for perpetual usufruct of land and the lease of parking and underground space."

TSP has been working on the "Nowe Miasto" project for nearly five years and is two and a half years behind schedule. The company has injected more than $15 million in the project and because of that it is unlikely they would withdraw now, according to a property source who asked not to be named.

"Now they have to be more cautious, adjust their plans to reality and approach it in a more thoughtful way," said the source.

Ania Staniszewska