Managing partner Sergei Slagoda commented on St.-Petersburg need to find a way out the town-planning dead lock
Developers shall be bound to correct any time consuming concepts, to a varying degree. These corrections are imposed by inevitably changing environment. The point is, the new government means the new town-planning policy in St.-Petersburg.
An absolutely pragmatic approach is now adopted towards all the development projects, i. e. those already launched and the new ones, regardless of their scale. As contrasted to the old times, when any developers’ idea was readily accepted by the city government, now the latter evaluates projects based on whether they are crucial for the city and on budget commitments associated with them. One part of construction community perceives this innovation quite negatively, talking about worsening of investment climate and general “stagnation” in the city development, while the others are pretty sure that a bit more logic and a bit less illusions in this sphere would do no harm to St.-Petersburg.
Moderation and accuracy
Development companies waiting for approval of their site designs (which contained rather ordinary concepts), were the first to feel the change in the town-planning policy. By the spring of 2012, the construction community began to speak about the future construction collapse, betrayed by the fact that about 200 document packages were “salted away” by Smolny. However, developers were much more scared by the new governor and his team’s lacking of clearly defined position, than by delayed consideration of documents, as such delays are commonplace challenges. In his recent interview to RBK Daily, Vyacheslav Semenenko, the Chairman of Construction Committee, explained that the majority of projects relating to design of new quarters proved to be of quite poor quality, since they do not provide for adequate social and other infrastructures, and the city government intends to resolve the issue. Major developers, as well as the small-sized companies, began to feel the growing tension, as they clearly realized that it is impossible to avoid the direct dialog with the new government, and no one will guarantee the positive outcome of such meeting
International companies are the first to leave
Talks about canceling of landmark infrastructure projects (Orlovsky tunnel and the new Admiralteysky Bridge) had barely ceased when it has transpired that TriGranit (a Hungarian developer; in 2007 announced his plans relating to development of the Badaevsky food warehouses) is planning to leave St.-Petersburg. This being said, the company abandoned other projects in Russia as well (in Moscow and Krasnodar). As to St.-Petersburg project, they simply decided not to renew their exploration permit which expired in this spring. However, our source in Smolny doesn’t see the connection between TriGranit’s abandonment of St.-Petersburg project and the policy followed by the new city government, pointing out that the project located in the territory of the Badaevsky food warehouses, i.e. erection of a 140-m high architectural dominant, was not fully worked out or agreed on when height restrictions became effective. And, given the existence of the said document, the investor was most likely unsatisfied with the commercial effectiveness of the concept. A bit later the city broke an agreement with TriGranit subsidiary signed less than a year ago, relating to construction of a mixed-use complex with the Palace of arts in the territory of a tram depot located on Vassilyevsky Ostrov. It was reported that companies spent approximately 400 million roubles on documents concerning these two projects. However, even the expenses for documents concerning the Palace of arts shall not be compensated, because documents stipulate that the agreement could be deemed effective only after the project will reach financial close. Unfortunately, matters didn't come to that, due to the uncertain status of cultural heritage sites located in the tram depot territory.
VTB Development, a major investor, has been through a lot this summer. At first, Vasily Kichedzhi, the vice governor of St.-Petersburg proposed to revise the functional purpose of a building covering an area of circa 100 000 sq. m (which is being constructed by the company as a part of Nevskaya Ratusha complex in the Central district, and meant to house the committees of Smolny) and to convert it into… the Palace of science and engineering for school students. This initiative provoked a significant response since the project was attractive to tenants of remaining business centers (8 buildings covering an area of circa 150 000 sq. m) mainly due to its proximity to the city government. In any case, the agreement concluded between the developer and the city stipulates that the latter should buy out the spaces constructed. And the issue of how to use these spaces is still open.
Luckily, the fate of another project operated by VTB Development was sealed rather quickly. Evgeny Yelin, the ex-chairman of the Committee for Economic Development, Industrial Policy and Trade, only had to propose to cancel the contract with investor and to create a park area instead of “Naberezhnaya Evropy”, and the governor Georgy Poltavchenko supported the idea in a couple of days, having declared that there are plenty of parks in this part of the city, and that too much money was invested in this spot already.
Not everybody is able to get some perspective
Meanwhile, one of long-delayed construction projects of previous years, i. e. “Izmaylovskaya perspectiva”, which was initiated in 1998, has recently entered into an active stage. First, demolition of rundown buildings at the territory of Petmol plant commissioned by Briz and Yunit companies closely associated with Meridian Capital is almost completed. It is expected that working out of design documentation relating to the first stage of a renovation which assumes construction of nearly 110 000 sq. m of residential space will be completed soon. The developer expects to start works in the current year, as it was planned earlier. The development plan of “Izmaylovskaya perspectiva” is already approved, which contributes to early beginning of works.
Secondly, the Etalon group which expects to construct about 680 000 sq. m of residential space by 2012 will develop another 38 hectares from total area of the project (470 hectares) under an agreement with the owner (allegedly the site is owned by Russian Railways). However, it still remains unclear whether other developers will be attracted by the remaining 100 hectares of urban lands within the territory (the municipal authorities have tried to prepare this land for tendering for several years) and nearly the same area owned by of the Russian Railways and the Ministry of Defense.
Put on a profitable footing
The project in the context of “Izmaylovskaya perspectiva” is not the first redevelopment experience for Etalon Group. A little earlier, the company has announced their plans to construct a residential complex named “Tsarskaya Stolitsa” in an area of 570 000 sq. m on the land plot of 20.8 hectares behind Moskovskaya railroad station (Moskovskaya-Tovarnaya station). The St.-Petersburg government has approved the design project of this territory just several weeks ago. Etalon Group also plans to build a residential complex in the territory of Vagonmash plant; however, construction works can be started only in 2014, after relocation of production facilities of the enterprise to the St.-Petersburg Tram Mechanical Factory.
Apraksin Dvor is a dead end
Currently, the projects operated by Glavstroy SPb Company (by the way, the company was named strategic investor of St.-Petersburg along with VTB Development) are in the opposite phases: development of the territories of Apraksin Dvor and the quarter situated between Shkapina and Rosensteina streets is still stalled, while construction process in “Severnaya Dolina” and “Yuntolovo”, goes quite successfully. In his message to Legislative assembly, Georgy Poltavchenko described the Apraksin Dvor project as a “dead end in town-planning”. The main reason is the impossibility to construct an underground parking and to renovate utility systems, as it will result in buildings failure; at the same time, the problem cannot be solved by demolition and subsequent restoration of buildings. However, Glavstroy SPb Company expects to settle all the issues by this autumn and to start construction works at last.
The situation with development of the quarter situated between Shkapina and Rosensteina streets is slightly worse. The company acquired the land plot in 2007 at an auction for 700 million roubles, and undertook to build a mixed-use complex before April, 2012, however, there is a risk that the land lease agreement for the plot will not be extended by municipal authorities, and the territory will be tendered again. Glavstroy SPb continues to negotiate with the city administration on this matter.
Make way for strategic projects
At the same time, municipal authorities have eagerly agreed to extend project completion period for “Baltiiskaya Zhemchuzhina” operated. That is generally understandable: about one third of total building volume in the complex territory is already completed, and one quarter is already occupied by lodgers, another three quarters are under construction (one of them is operated by Set City Company) and it is too late to back out. It is estimated that completion of the project (covering a total area of over 1.7 million m2) will be rescheduled from 2013 for 2016.
Recently, the satellite Youzhny project operated by the Start Development Company headed by Zakhar Smushkin has also earned support from the new city government. (It is expected that Poltavchenko's government will sign an agreement with the investor during the International Economic Forum at St. Petersburg.) The former government of St. Petersburg already granted Youzhny satellite the status of strategic project. Our source in Smolny emphasized that “Baltiiskaya Zhemchuzhina” and Youzhny survived only because of this status.
Far away from the center
The new municipal government also looks favorably on business district projects located far from historical center of the city. According to Georgy Poltavchenko, a modern megalopolis cannot be unicentric. In his message to Legislative assembly, he declared that construction of office space (first of all, high-rise buildings within a single architectural and town planning concept) covering at least 1 million m2, and in places with a good vehicle will help to attract global corporations to St. Petersburg. The mayor especially highlighted the importance of Lakhta center, Pulkovo business zone, and raised territories of Morskoy Fasad as potential locations for the city business center. According to experts, Primorsky district (unlike two other locations) is seeing an upswing in residential construction, however, there is an obvious lack of commercial and public spaces, transport infrastructure is poorly developed and inadequate. At the same time, the presence of a large scale mixed-use complex would boost the development of transport infrastructure.
The veil was lifted
The construction community was rather unwilling to make comments on the town-planning policy adopted by the new city government, and their comments were limited to the following two ideas: “a little more certainty would do no harm: how shall we work in the future?” and "things can be worse". On the one hand, investors agree with the governor: actually, the city budget cannot pay for simultaneous construction of infrastructures on all the proposed reclaimed areas. As of January 1, 2012 the total debt relating to reclaiming the new areas and development of built-up areas exceeded 677 billion roubles, and the city government has to set priorities. On the other hand, business community would like to learn the "rules of the game" in advance. Another meeting of the governor with the builders, which took place in early June, helped to clear up the situation. After this meeting it became clear that the city doesn't disengage oneself from obligations, but investors should either “keep waiting in a queue” for construction of engineering and social facilities, or to use one of three options, as follows: a) the city should pay investors to buy out the social facilities; b) PPP (Public Private Partnership); c) the ownership to a land plot which underwent engineering preparation shall be transferred to the city, for further construction of social infrastructures using city budget funds. However, it is still hard to predict how all these schemes will be implemented, whether the current developer projects are endangered by another transformations, and, especially, whether the companies, keeping in mind sometimes bitter experience of their predecessors, will be willing to announce any new plans.
Igor Onokov, General Director of Leontyevsky Mys Company
“Before crisis, many projects were planned in a big way. Such extravagant behavior would be impossible in the post-crisis context. That’s why any projects initiated before crisis need to be thoroughly revised – those worked out in strict compliance with St.-Petersubrg town-planning regulations are least prone to risks”.
Sergey Slagoda, managing partner of the law firm S&K Vertical
“Should the investor duly and timely perform their obligations, the city shall have issues with finding far-fetched pretexts for contract cancellation. It's another matter that should the investor fail to comply with the project timelines, the city can either turn a blind eye to violations either to take away the object. These are objective risks which the investor shall keep in mind when choosing to undertake a long-term and costly project”.