Going, Going, Gone? – Qualified success for the City of Krakow with land plot sales.

It is well-documented that the City of Krakow has had tough times balancing its budget and this has not been helped by the poor results in recent years when it has come to land that the City has tried to sell at auction in order to bolster its finances… During the crisis years there was marked absence of investor interest in plots and buildings that the City was proposing for sale which was not helped by the hangover of high valuations of such pieces of real estate, based on assumptions from the heady years of 2006 and 2007 when the Polish property market seemed unstoppable.

The tide began to turn though towards the end of 2012 when a daughter company of the Swedish development company, Skanska, purchased a 1.5ha site next to the Chopin Hotel on Rondo Mogilskie for almost 26mln PLN. An office building of well over 20,000 square metres gross leasable area will eventually be built on the spot once building permits are finalised. Previous auctions for the land had scared off potential buyers thanks to the over-inflated prices: firstly 43mln PLN and latterly 34mln PLN which was also deemed too dear for investors to show up.

Despite this strong finish to last year for the City, 2013 has seen a mixture of results for Krakow in terms of land auctions.

Disappointingly the long-awaited auction by the City of a 2.5 hectare plot not far from IKEA on Rondo Ofiar Katynia was cancelled mere hours before it was due to take place at the end of October. The site on which the former Motel Krak still barely stands was due to bring in at the very least another 26mln PLN for Krakow. There had already been interest in the plot and the tender deposit had been paid by at least one company when the auction was suspended just one day before the proposed auction.

An heir for part of the plot (just 4,000 square metres out of the total 25,000 square metres) had surfaced at the very last minute to lodge a claim which was enough to prevent the city from going ahead with the tender. The plot is destined for commercial use: hotel, office or retail (although not a shopping centre) and it is thought that around 50,000 square metres of gross leasable area could eventually be built there. It remains to be seen how the City will resolve the legal issues affecting the plot and when it may be put for sale again.

On a more positive note a recent auction held at the beginning of November for a 1.7 hectare land plot located close to the former Forum Hotel between the streets of Dlugosz, Spiska, Orawska and Przedwiosnie attracted strong interest from a variety of large Polish residential developers. Representatives of stock-listed companies Echo Investment and LC Corp (controlled by Poland’s 3rd and 4th wealthiest men, Michal Solowow and Leszek Czarnecki respectively) were present along with a handful of other bidders including Cieszyn-based developer, ATAL, and local Krakow-based developers Semaco and Newberg.

The bidding started at 20mln PLN and – with a concept to build there around 18,000 – 20,000 sq m (approximately 350 apartments) – it was expected that the plot would fetch up to a maximum of 30mln PLN. The bidding was intense with two parties bidding aggressively to try to win the tender towards the end. The auction was eventually won by the relatively unknown, Vousoka, at a price level of more than 38mln PLN. The Cyprus-based company are known previously for buying a shopping centre from Echo Investment in Belchatow (near Lodz) in 2011 for 44mln PLN. The firm was unavailable for comment after the auction and it remains to be seen what their exact plans are for the plot.

The City has sold a variety of other smaller plots throughout 2013 bringing in umpteen million PLN more to the City’s coffers. It has, however, failed to sell another prime plot on ul. Karmelicka. The 0.8 ha plot, which found no interest at auction at a 36mln PLN level earlier in the year was once destined to become a Hilton hotel and multi-screen cinema when previously in the hands of now defunct Irish developer, Howard Holdings. It is rumoured that the American developer, Hines, is currently working up plans to construct a 5-storey office and retail complex on the site complete with multi-storey parking for up to 800 vehicles with a total area of around 25,000 square metres although it is perhaps not clear how Hines intend to work with the City on this or whether there may be another auction date set which would enable Hines to purchase the plot.