The developer had hoped to pay back the loan via hotel revenues
A luxury five-star Sofitel hotel was to arise on one of the most prestigious addresses in the Czech capital. But it was not to be. The lot on the corner of Mikulandská street and Národní třída, the avenue that runs from the Vltava River to the edge of Wenceslas Square, is still an unassuming parking lot, belying the fact that it is the most expensive plot in Prague.
With the financial crisis, plans to develop the site were dropped and the plot was to be sold at auction. But before it came under the gavel, the sale was called off by PPF Banka, which had provided a loan for the property’s acquisition. A buyer has yet to be found.
The developer Ditrich paid the city of Prague Kč 184 million for the 783 square meter plot back in 2005. At the time, real estate brokers had predicted a price freeze for years to come. The firm later bought the Schönkirchovský palace next to it for Kč 180 million. Ditrich planned to invest more than Kč 1 billion to erect a new building and connect it to the baroque palace, with the hotel under the Sofitel brand to be operated by Accor.
Theory vs. Practice
According to the blueprints, the five-star hotel was to have 170 rooms, a hall that could seat 300 people, suitable for conferences, concerts, and exhibitions. Construction was to begin in 2008. But the market saw these plans as too grand with the onset of the real estate crisis, which contributed to lower hotel occupancy rates. Ditrich sought an investor in vain.
The Czech daily E15 reported that in early 2010 Ditrich was in negotiations with an Abu Dhabi investor. “With the current crisis, it is difficult to find an investor. The one we’re meeting with now, however, is a member of the royal family of the Abu Dhabi Emirate, and he has no money concerns. We were to meet, but the term has shifted,” Ditrich board member Michal Větrovský told the daily two years ago. The developer Ditrich had intended to pay back the loan with revenues from the hotel; instead, it found itself subject to a lien by PPF Banka.
However, negotiations failed to bring results, and PPF Banka, which had provided the loan to buy both the plot and the palace, lost patience. At the end of 2009, Ditrich owed Kč 304 million including interest while the value of the assets was assessed at Kč 341 million. The developer had intended to pay back the loan with revenues from the hotel; instead, it found itself subject to a lien imposed in September and under execution, and court bankruptcy executor Juraj Podkonický’s expert opinion put the value of the real estate at Kč 190 million.
The plot and palace were to be put up for auction on March 29 with the starting bid set at Kč 227.5 million. But on the very day it was to take place, PPF Banka moved to have it cancelled. Czech Position asked the bank to comment on whether it wanted to merely push back the auction date or if it had other plans, but answers were not forthcoming, with spokesman Milan Tománek citing confidentiality. But Ditrich board member Jan Tuček made it plain: no bidders were expected at the auction, but the developer wants it sold.
An extract from the Land Registry shows that Ditrich is still listed as the owner, but PPF Banka continues to have a lien on the plot and palace, and is not in an enviable situation. If Ditrich goes under, the property, as collateral for the loan, will be forfeited. And that is the most likely scenario — as auditor Lenka Petrovičová said in Ditrich’s 2009 annual report, “no potential buyer could be found ready to pay” the Kč 341 million at which the value of the assets was assessed. Subsequent annual reports were not published in the Commercial Register.