Colony in talks with Europe's Orco

Colony Capital is in talks to acquire a stake in Central European property company, Orco Property Group, which has filed for bankruptcy protection.

In a statement, Orco said Colony was planning to inject up to €25 million of equity in the company by the end of the second quarter through a subsidiary, CoLOG. The capital would be in partnership with Orco’s founder and chief executive, Jean-François Ott.

A further €140 million is expected to be committed to the firm once the bankruptcy protection process, known as Procédure de Sauvegarde, were completed.

“These negotiations are being undertaken in the context of the management’s financial and operational restructuring plan and also aim at allowing the company to continue, under the best conditions, certain property developments adapted to such plan,” said Orco.

The company filed for bankruptcy protection in March. The Procédure de Sauvegarde provision enables a solvent company, whose central interests and decision-making activities reside in France, to pursue operations normally while restructuring. The protection lasts six months but can be extended. Orco began restructuring earlier this year.

Orco’s “first priority” has been to refocus the business on core activities, including retail and office development in cities such as Prague and Berlin.

As part of the restructuring exercise, Orco is retrenching from its Russian logistics business and from hotel investment. Capital expenditure has been cut from €630 million to €280 million, and €104 million of loans have been recalled. Staff numbers have also been slashed by almost half, with more job cuts planned. Orco said it planned to have just 300 staff by 2010 – less than half its headcount two years ago.

In a letter to shareholders’ in April, Ott said the Central European real estate markets had posted their first fall in 10 years and that the firm had suffered its first reduction in value of its portfolio in 18 months. He also told shareholders the firm was renegotiating debt and focusing on its most profitable projects as well as controlling costs. In an interview with Reuters, he also insisted there would be no “fire sale” of assets.

Orco is still facing shareholder discontent over its predicament, and incurred criticism earlier this year for delaying publication of its 2008 full year results. Morgan Stanley is a shareholder in Orco Germany, with a share of almost 30 percent.

Orco, founded in 1991, is a significant player in European real estate based with €2.7 billion of assets under management. It is listed on the NYSE Euronext, as well as on the Prague, Warsaw and Budapest stock exchanges.