Jan Cienski in Warsaw -

Guests invited three years ago to the exclusive launch of Orco Property Group's Daniel Libeskind-designed Zlota 44 tower that was supposed to become an architectural icon in Warsaw lined up to put money down on the spectacular glass-fronted apartments before they disappeared. They would have been better off running for the exits.

The building promoted by the Franco-Czech property developer still stands partially finished, and the project has become a symbol of a company that has suffered some of the worst blows in the post-boom Central European property market. "We definitely went through a crisis. It was an encounter with the fragility of the company," says a confident-looking Jean-Francois Ott, Orco's founder and CEO, during a recent interview at one of his Warsaw hotel properties.

The company, listed in Paris, Warsaw and Prague, has seen its share price plummet to a fraction of its high before the crisis and has spent almost a year under protection from creditors in French courts - a status called sauvegarde that Ott hopes will give him enough breathing room to start rebuilding his company.

New foundations

Ott founded Orco in 1991, and the company rode the real estate boom that transformed Central Europe from a wasteland of grey concrete apartment blocks into one of Europe's most promising investment markets. However, along the way Orco's ambitions grew out of all proportion to its abilities. Instead of concentrating on easy-to-sell residential developments and lucrative office and commercial properties that could generate a steady cash flow, the company became seduced by ever-grander real estate schemes.

One of the most prominent is Zlota 44, but the company also became entangled in a bid to build an exclusive hotel in Croatia that many experts felt was not well positioned for the market there. Another controversial project was a Budapest office tower designed by celebrity Iraqi architect Zaha Hadid - a building that has now been cancelled. Finally, Orco has committed to an enormously ambitious bid to develop a 27-hectare wasteland of abandoned rail yards in the Bubny area near the heart of Prague. The site currently stands empty. "It's a good example of a company that should have grown within its means - it simply grew too fast," says a real estate industry insider.

From its base in Prague residential developments, Orco branched out into offices and retail, and its geographic reach spread across Central Europe to Germany. "We are diversified geographically and by segment. It was my hope that this would prove to be a source of strength, but I was wrong," admits Ott. "I thought that problems would not hit all regions and all sectors at the same time - I was wrong."

The problem was that Orco focused mostly on acquiring assets to which it could add value. That model broke down the day after Lehman Brothers collapsed on September 15, 2008. In that new world, banks were much more sceptical about financing or refinancing more speculative assets in non-prime areas. Only completed projects in prime areas could hope for much financial support. Added to that, Orco suddenly found that it was almost impossible to sell assets at anything approaching a reasonable price.

Then, Orco's share price collapsed, breaching debt-to-equity covenants. A downgrade by Moody's Investors Service, the rating agency, triggered an early repayment of some bonds. "To save its business, Orco committed about 100% of its cash," says Ott. "I could either try to sell my best assets or try the sauvegarde. When I looked at the alternatives, I thought I would lose a bit of my image, but I would save my company and renegotiate with bondholders."

Currently, Orco owes its lenders about €1.5bn and has €447m in bonds coming due. But in January, Orco failed to persuade bondholders to accept equity for debt. A controversy there is the 13% in warrants held by Ott that he plans to exercise. "My personal target is to rebuild my stake," he says, referring to the fact that the crisis saw Ott's personal stake in the company shrivel from 12.5% to 1.6%.

Ott's efforts to save Orco while retaining control have aroused the ire of minority shareholders, who worry that he is not acting in their interests, and provoked a management rebellion, which Ott stifled by getting rid of almost all its senior executives. But on February 9, he won a minor victory when a Prague court ordered SOS Orco, a group of the company's disgruntled minority shareholders, to pay Orco about €100,000 in a suit brought by the company for repeatedly disclosing misleading, defaming and false information concerning Orco. "SOS Orco lost media attention months ago after it failed to prove it represents the alleged 20% of shareholders," says Komercni Banka.

Ott is now trying to persuade the French court to accept a restructuring plan that would push the bonds' due dates forward by a decade. He is also refocusing the company to concentrate on its main markets like Warsaw and Prague, as well as some unglamorous but well-earning modest office developments in Germany. "We want Orco to focus where it has critical mass," he says.

With the property market stabilising, Ott is hoping to buy enough time to rebuild his finances and re-start some of his projects, including Zlota 44, which will be a relief to the people who bought 80 of the building's 200 flats during Warsaw's recently ended property boom. "We have been through the hardest part of the storm," says Ott.