In the context of the pandemic and its containment measures, the commercial tenant has not been able to adapt to the circumstances in order to receive full support and fulfil its obligations to manage the historic Mežotne Palace complex. Currently, the previously leased Mežotne Palace will cause losses to the state, therefore other scenarios of sustainable viability must be assessed, not excluding the transfer of property to local governments or sale in accordance with the law - by public auction, SRE Board member Andris Vārna points out.
Out of the total of about 1,200 manors and palaces in Latvia, three are under the direct management of SRE - Riga Castle, which has long been used for public functions and receives state support, while the Mežotne and Igate complexes have so far been leased to private individuals.
“Us, together with municipalities, will have to find a further solution for the long-term use of the Mežotne Palace complex, assessing the necessary long-term investments, their return and related risks, and possibly make a decision to sell this property to investors for future development,” A. Vārna says.
In the conditions of a pandemic, more and more hotels, manors and other exclusive properties are currently for sale in Latvia. In general, manors and palaces in the Latvian real estate market are sold in very different technical conditions, thus the range of offer prices is huge. In some cases, when acquiring historical property, EU funds are attracted for property renewal.
The Mežotne Palace complex on the banks of the Lielupe is one of the brightest examples of classicist architecture in Latvia, which is made even more remarkable by the harmonious landscape around it, intertwining the castle itself, the beautiful park and the adjacent River Lielupe. Real estate “Mežotnes pils” in Bauska region, consists of land with a total area of 89.6 ha, castle with an area of 2,118 sq.m., administrative building - with an area of 1,813 sq.m., sports hall with extension, garages of 647 sq.m. and engineering structures - squares, paths, stairs, swimming pool, fountains, a monument in the park and bridges with a total area of 5633 sq.m. Part of the property is located in the nature park area (~ 15 ha), while the rest of the real estate (~ 74.5 ha) is located in the landscape protection area. The arrangement of the palace complex according to the preliminary estimates of SRE requires capital investments in the amount of approximately 4.39 million euros, which includes the renovation of the palace building, administrative building and sports hall, as well as the arrangement of internal engineering networks in accordance with modern requirements.
Since October 2017, the castle complex and park has been leased. In the conditions of a pandemic, in accordance with the support mechanisms adopted by the government last year, SRE has provided rent reductions in the amount of 9.3 thousand euros to the lessee for 5 months in 2020. Taking the entrepreneur's debts to the SRS into account, the lessee was not entitled to receive the discount set by the state in the rest of last year and when the debt reached 43.35 thousand euros, SRE was forced to terminate the lease agreement in April this year.
Taking into account the fact that the pedestrian pontoon bridge over the River Lielupe, which was renovated in 2018 by SRE, connecting Rundāle Municipality and Bauska Municipality, has been included in the palace complex, to which the tenant has so far provided the maintenance of the bridge, the placement of the bridge in the spring and excavation in the autumn, SRE has made a proposal to Bauska and Rundāle district councils to evaluate the possibility of taking over the pontoon bridge into use and management free of charge to one of the local governments. The further fate of the historical property is decided without excluding the transfer of the property to the municipality of Bauska or Rundāle or its sale in accordance with the procedure prescribed by law - by public auction. Meanwhile SRE will continue to ensure the non-deterioration of the technical condition of the building and the preservation of the historic building. This includes minimal cleaning of the territory, technical security, installation of video surveillance and other systems, real estate tax and insurance. To ensure the preservation of the building, additionally during the winter period heating will be kept to a minimum. It is estimated that the maintenance costs of Mežotne Palace will cause the state losses of about 70.5 thousand euros per year.
The previously leased Igate Palace complex near Limbaži, managed by SRE, consists of buildings with an area of 3290 sq.m. and a plot of land with an area of 89260 sq.m. - farm buildings with garner, manager's house, brewery and barn and parade buildings with manor house, servants' house and park. Next to the manor house is a romantic landscape park from the late 19th century with ponds and ancient watermills.
The complex was leased until the autumn of 2019. The tenant fulfilled the obligations specified in the agreement and maintained the property. Following the owner's decision to move outside Latvia, SRE took over the property in the autumn of 2019 and continued management of the real estate. Auctions of lease rights were started in search of a new tenant of the complex, however, none have been found so far. Maintenance of the technical condition of the property costs the state 129,000 euros per year. According to the preliminary estimates of SRE, the arrangement of the Igate Palace property requires capital investments for the construction of a residential house with a roof, a basement and a barn with a hay barn for the conservation or renovation of buildings in the amount of about 287,000 euros. Such investments, as in the case of Mežotne Palace, can be made by the state in buildings with a clear purpose for future use.
“Evaluating the long-term development opportunities and the necessary investments to Igate Palace (manor complex) near Limbaži, a decision was made to sell the property, creating an opportunity for new development of the complex. SRE will start property auctions this year. We will invest the funds obtained from the sale in the arrangement of the property necessary for the state,” A. Vārna reveals.
In order not to leave the property empty, last year SRE decided to bring life to the pub, separating the cafe from the rest of the property, which made it possible to lease these premises in accordance with the law by public auction, thus reducing the losses to the state. From August 2020, the pub is leased to SIA “Munda”, and since November 2020, this tenant has also been granted rent discounts within the limits specified by law in the amount of 100%.
According to the strategy of the company, SRE maintains properties necessary for public administration in the long term, while properties that are not necessary for public institutions in the long term and cause losses to the state are alienated in accordance with the law - sold through public auctions etc.), thus giving them the opportunity to become useful again. For example, in 2020, SRE sold 92 properties for 3.506 million euros, including 2 old manors - “Lēnu pils” in Skrunda Municipality, Nīkrāce Parish in Venta river valley for 70,300 euros and a historical manor at Juglas iela 14, Riga for 149,000 euros. Both properties need large capital investments for their renovation and improvement of the territory, and they have been transferred to private persons, creating an opportunity for new development of them.
In total, since March 2020, due to the Covid crisis SRE has provided support to 182 out of 630 commercial tenants of the company by releasing or reducing rent payments, in total providing discounts in the amount of more than one million euros. The support is provided in accordance with Regulation of the Cabinet of Ministers No. 453 and the Law on the Management of the Spread of Covid-19 Infection.
SRE is implementing 118 infrastructure development projects worth approximately 180 million euros and working on 25 new project ideas. The company provides professional real estate management and administration for approximately 450 real estate properties with 1000 buildings of 1.02 million square metres and more than 3700 land properties with an area of 9.5 million square metres. As a testimony to good governance and sustainable operations, the capital company has received a Gold award in the Sustainability Index by the Institute of Corporate Responsibility and Sustainability. SRE was founded in 1996 and its sole (100%) shareholder is the Ministry of Finance of the Republic of Latvia.