Capitalica Asset Management will look for the new Contractor for the Construction of the Business Complex Verde in Riga after Merks Has Breached the Contract
Upon the breach by the Latvian construction company Merks of its obligations under the signed contract regarding the construction of the business complex Verde in Riga, the contract worth 48 million euro is terminated. The employer, i.e. the Latvian company of the fund managed by Capitalica Asset Management, has notified the contractor about the termination of the contract at the employer’s initiative. The employer is considering referring the matter to arbitration for the payment for the contractual penalties and damages, which might exceed 3 million euro. Following the resumption of the call for tenders for a contractor, the start of the construction works has been postponed for a couple of months, until October, but the project is still planned to be completed on time as agreed, i.e. in 2023; meanwhile, the first stage is planned to be completed in the second quarter of 2022.
“All terms and conditions were agreed during negotiations, and the contract was agreed and signed. Unfortunately, having signed the contract, Merks performed only its minor contractual obligations, but simultaneously it tried to re-negotiate the terms and conditions of the contract it had just signed. This resulted in the delay in starting the construction works and posed a serious risk of a potential modification of the main terms and conditions of the project in the future at the contractor’s initiative. We treat such actions as a fundamental breach of the signed contract. In order to manage project risks to the maximum extent and to protect the interests of the investors, we have decided to terminate the contract for work and to find a new contractor that is able to perform its obligations,” commented Andrius Barštys, CEO at Capitalica Asset Management.
The call for tenders for a new contractor started today. We are planning to complete the tender procedure and sign a new contract for work in September; the start of the construction works will be postponed until October, accordingly. “However, the deadline for the construction and fitting out of the offices will not change; the first stage will be completed in the second quarter of 2022,” said Andrius Barštys.
The contract with a general contractor Merks of 17 June is worth 48 million euro. The construction of the green business complex Verde is funded by the European Investment Bank (EIB) in the amount of 22 million euro. This funding was approved from the investment package for combating climate change as the business centre has been planned as a nearly zero-energy building.
In total, it is planned to invest more than 65 million euro in the project. The construction of Verde is also financed by commercial banks and real estate fund Capitalica Baltic Real Estate Fund I, to which Latvian and Lithuanian pension funds, other institutional and private investors have invested.
“When implementing the project, we particularly asess the responsibility we have assumed and our obligations towards the European Investment Bank, institutional and private investors; therefore, we cannot continue the construction of the complex with Merks due to the risk of uncertainty this company poses to the project,” commented Andrius Barštys.
According to him, much time has been wasted due to Merks’ avoidance to perform its contractual obligations. Due to the postponed start of the construction of the complex and the need to speed up the performance of works, Capitalica Asset Management is planning to demand the Latvian construction company Merks to pay a contractual penalty and compensate other damages.
The area of the business centre Verde and its parking lot will be 45 000 square meters; accordingly, it will be one of the biggest business centres in the capital of Latvia. “A” class complex of two business centres Verde will be located in the centre of Riga, on a 1.3 ha plot of land in the promising Skanste district.
Verde will belong to the real estate fund Capitalica Baltic Real Estate Fund I managed by the company of the SBA group Capitalica Asset Management. Latvian and Lithuanian pension funds managed by INVL Asset Management and other private investors have invested into this fund. According to audited data, Capitalica Baltic Real Estate Fund I earned 4.4 million euro in profits in 2019.
Capitalica Baltic Real Estate Fund I, established in 2016, also manages business centre 135 in Vilnius, business centre Kauno dokas in Kaunas and shopping centre Luizė in Klaipėda. Its controlling shareholding (70%) belongs to one of the biggest Lithuanian capital business groups SBA, and 30 percent of the shares belong to Fox Holdings, the company owned by Andrius Barštys.
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