People in the Know: Building the Business of Tomorrow

Rybstroiinvest, or RSI, is not on the list of major domestic developers. So far, the company has erected a number of properties, mostly in western Moscow. But then, RSI has unique experience. From the very beginning, the company aimed at developing sites others would never risk using as a venue for their projects. A challenge is the key criterion that governs his choice of building plots, says RSI chief Gennady Zhigaryov.

-Your company has completed several projects including a number of residential and retail properties, as well as a business center. Which of your projects appeals to you most?

Perhaps, the one we are working on right now because that is the project you live for, burn with, and pin your hopes on. I am talking here of the PROFICO business center, the development of which has begun at 1-3 Krylatskiye Kholmy.

We have been working on the project for six years now. It all began with an idea, a dream of building a high-rise and we have managed to prove that the development was possible in principle. Then, we took out the leasehold on the land, had it registered it, published the plan, went through the specialist examinations, and secured all the necessary approval and permission… Today, the development is in its early stages.

-Which of your developments is the most memorable for you?

It would be a residential estate in Krylatskoye, at 7 Krylatskiye Kholmy. It became our most beloved because no other project had ever cost us so much effort. Besides, we were building that house for ourselves and our friends, for my business partners who work for the group of companies we have founded. Our goal was not to make profit but to build high quality and comfortable housing.

-In the mid-1990s when the Krylatskiye Kholmy estate was being developed Moscow saw few custom-built developments and buildings such as yours seemed very luxurious. Today, ten years later, Moscow has numerous posh buildings around. Don’t you think that today your building is somewhat inferior to the new developments?

Our building does not belong to the elite segment, it is a premium comfort development rated as business class, and so far it remains one of the best in its class in Moscow.

-Considering how long the company had to wait before the construction of PROFICO became possible, it appears that the project will not be easy…

To begin with, no one ever believed that the site could be used for construction. You see, we usually take up the sites nobody else ever takes an interest in. Only afterwards does it become clear that those sites were the best.

Our first residential estate in Krylatskoye was built over a civil defense installation, a bomb-shelter. For 15 years it had been said that building new houses over civil defense installations was possible but we were the first to do so. Later, people learned from our experience. Altogether, our company has built three properties over such installations.

The plot where the development of PROFICO has now begun is, in fact, a slope, previously occupied by garages, barns and the like. Before construction was launched we had to reach an agreement with the garage owners regarding their relocation; besides, numerous underground communication lines had to be rerouted.

What is difficult about developing a slope is that we will have to build a breast wall 26 meters deep, fortified by over 500 anchors. Thus, by developing the business center we will go 20 meters below Krylatskiye Kholmy Street, clear the site and then start raising our high-rise, with 5 underground levels and 26 stories above the ground, literally from scratch.

By using modular constructions fixed onto the steel-and-concrete frame, we will be able to save twice as much time on assembling the facades and at the same time to achieve higher quality.

The business center will have three stories reserved for the purposes of technical maintenance, as should be the case in high-rises. The building will be equipped with eight high-speed elevators and a technical lift; two elevators will descend into the underground parking area. The project includes top quality ventilation and air conditioning systems in the restaurant, bank offices and a 450-square-meter conference hall. Four underground levels will be occupied by a 400-space parking area.

There will also be a helipad, which is a must for properties of such a class. We hope that by the time the development is completed Moscow will have launched the commercial air taxi service and our future tenants will be able to use it.

The total space of the business center is 49,500 square meters, with 26,000 square meters of office space, and a 19,000-square-meter parking area. The property will fully meet class A standards. The project was designed by real artists – the ABV group headed by Nikita Biryukov. The working design is now being prepared by Vladimir Malai of the Malaya Studio company. The property is slated to be commissioned in late 2007.

-Who will own the business center, and who will run the property?

The landlord and the management company is the Industrial Finance Company (Profico) while RSI is overseeing the development.

-Offices in quality business centers usually attract tenants long before the properties are commissioned. Has the company signed any preliminary deals already?

As a rule, preliminary tenancies are signed at the initial stages of development. In our case, that will not happen within the next two years. Usually, people don’t wait that long. But the project is indeed attractive.

-What other projects are you working on now?

Our first project on the commercial real estate market was the shopping and leisure center Rublyovsky. Today, we are developing the second stage – a leisure center. The owners have placed an emphasis on sports for children, not on gaming arcades. The building will also feature a children’s caf?. The second story will be fully occupied by the Detsky Mir department store. We plan to have the second stage commissioned in December of 2005.

I would like to note that being the developer of that project was of special interest to us. It is small, with a clear-cut concept, it only has three stories. As for the investors, building a children’s entertainment center is hardly very profitable for them. The payback period, as I see it, may last some 20 years.

Then, we developed the Krylatsky business center on Osenny Boulevar. Now we are working on the second stage that will house a sports center, at the same location (11 Osenny Boulevard). We have been working on that project for nearly four years. The complex will be oriented towards relaxation techniques, mostly. It will feature a variety of clinics, fitness facilities and an Italian restaurant. The project is to be commissioned in the first quarter of 2006. As far as I know, the list of future tenants for all the properties within that complex has already been compiled.

-In which way will PROFICO be different from its predecessor, the Krylatsky business center?

PROFICO will be twice as high. While Krylatsky is only 54 meters, PROFICO will rise to 112 meters. Such a height requires a qualitatively different level of responsibility. No deviations from the project parameters are possible. Accordingly, all the systems the new development will be equipped with will operate differently. The buildings differ greatly in terms of water supply, air conditioning systems, etc. It is no coincidence that PROFICO will have an additional, technical, floor. Technical maintenance of high-rises differs greatly from that of ordinary buildings. We have founded a firm to provide technical maintenance for our developments. A lot of attention is being paid to fire safety.

-Today, many say that the geological situation in Moscow is not favorable for high-rise development. There are fears that high-rise buildings are not safe to live and work in. What would you say to that?

Each new development requires a profound geological survey of the building plot to establish whether it is suitable for the construction of the given property or not. On the whole, the geological situation here is no worse than in other cities. As for living in high-rises, I would not feel comfortable living above the 10th floor, but I find working in a modern office high-rise prestigious and comfortable.

-What, in your opinion, is the key to commercial success?

The main thing is the team, the people. The people we have been working together with for twenty years now hold key posts, generate ideas and constitute our main workforce.

-You have a technical education. How did you get into the construction business?

I was, indeed, educated as a technician. I graduated from the Bauman Moscow State Technical University, took up scientific research, and completed a Ph.D. thesis, worked for the defense industry…

Then, as perestroika began and the government effectively stopped financing scientific research projects, my colleagues and I set out looking for fields where we could apply our knowledge. We began with production and earned our first money on a device we invented for the defense industry.

Then we worked for the commercial department of Inkombank until, in 1990, we founded a company of our own – the Industrial Finance Company, or Profico. We tried various lines of business, metal trade, publishing, etc. But we never abandoned production.

By 1993 we had saved a little money and were eager do something real, instead of mere sales.

In those days, Moscow began to put unfinished developments up for sale at auctions. Profico won a title to a development in the South Administrative Okrug, in Shipilovsky Proyezd, where in line with the investment agreement we were to build a caf?/canteen. Instead of a canteen, however, a 9-story residential house emerged. That was how we entered the construction business.

-But working in that sphere requires special experience and professional education. Weren’t you intimidated by the novelty of that field?

No. That was a joint decision taken by myself and my business partners. You see, in 1992 I bought a plot of land in the vicinity of Nikolina Gora (near Moscow) and set about building my own house. I oversaw the whole project, ordered the design, hired workers, chose the materials, controlled the construction work, etc. My comrades noticed that I was doing a good job; besides, they praised my house and so they suggested that we should start a construction business under my guidance.

-Considering your experience of building a country-house, do you have plans to start out-of-town development, say, to build a countryside compound?

We used to build countryside houses before. Perhaps, we will do that again in the future.

-The quality of construction is a headache for many developers. Perhaps, the problem lies in the poor skills of the construction workers, because even the most prestigious building sites of Moscow hire migrants from former Soviet republics, such as Tajikistan, who lack the necessary skills. What would you say on the issue?

What makes you think that Tajiks work as builders! They clear away the rubbish and carry reinforcement bars around, but they do not do any work requiring high skills, such as casting concrete, putting in ventilation and electric wiring, performing other engineering work, fitting out buildings, etc. The people you see at construction sites are helpers, while the real experts cannot be seen from the outside.

Here is something I want to tell you. No other city has as many skilled workers as Moscow. Take a look at those who work in construction in China, Germany or elsewhere in Europe and you will see, their construction workers are, for the most part, Turks, Yugoslavs, and Russians, by the way. Incidentally, I heard someone say that the entire cast concrete market in Moscow will soon be in the hands of the Turks as they are the best at it.

-Are there any Turkish companies among your subcontractors?

Yes, there are. We have been casting all our concrete – with the exception of our very first residential property – together with Turkish firms.

-How about the quality of construction?

Quality control must be permanently exercised by the developer, that is, by us. Being aware of the strict control, construction workers have nothing left to do but do their work properly. Say that once you order a contractor to break up the concrete they have just cast, next time they won’t be so careless.

-Did you ever have to force construction workers to redo something they did badly?

Yes, I did, and the construction workers had to dismantle poorly molded columns. Is there an alternative? If you overlook a flaw the house may tumble down. There have been such cases in Moscow! And what does that mean? That means that those in charge of construction performed poorly, and they are the ones to blame!

Here, when you ask where the most professional experts should work the answer is – with the company in charge of construction. Those companies need professional, highly experienced engineers who will not overlook any defects.

We have built a fine team of experienced experts, people who have worked on construction sites across the Soviet Union and abroad. Those people can be trusted. We demand the same from our general contractors and sub-contractors.

Not long ago, we dismissed two foremen from a construction site who were in charge of concrete casting. Those foremen were not bad, but they were not good enough. In other words, they failed to organize operations properly. We insist on hiring only the best, because we do not want to be held liable for poor quality in the future.

-Nowadays are you only developing commercial properties? Why have you abandoned the residential market?

We are a small company and cannot do everything at once, that is why we have opted for the areas we find most interesting. The company has shown its worth in residential development, by having built several quality estates, but now we are focusing largely on business centers.

-Is it because office development brings higher returns these days?

Perhaps, office development is not as profitable, but when choosing a project we are guided not only by monetary considerations. The rate of return on business centers today stands at approximately 18%, while returns on residential properties run as high as 30-40%.

A residential property pays off within two to three years, while, in our case, PROFICO alone will take six years to complete and another six years to pay back – in other words, it is a 12-year project.

But, as I’ve said already, our team is made up of a group of close associates who received their training in the defense industry. For years when we were doing our post-graduate studies and working on our theses, we were often driven by an idea.

Today, we are able to support ourselves and we do not want to make as much money as possible at any cost. Who knows, maybe residential development will bring much higher returns whereas the projects we are working on now are not as profitable, but we take an interest namely in those projects.

-Is it really possible that an investor willingly opts for a less profitable project?

It all depends on whether the investor wants to earn all the profit straight away or he plans to start a new business tomorrow. Many do it like that: they build, then sell up and move on. We, for our part, aim not just to build properties but build new businesses by managing and maintaining our properties. In this way, we do not only achieve our own targets but create extra jobs for local residents.

For example, the Krylatsky business center employs about 50 residents of Krylatskoye; PROFICI, I think, will employ three times as many.

I think that nowadays business people should think of how they can help the district where they live and work, their small homeland, as well as of making a profit. Perhaps, this is the way we were brought up as we grew up in the years of socialism in the Soviet Union.

-Were you a member of the Communist Party of the Soviet Union?

Yes, I was. I left its ranks in September 1989 because I lost faith in the leaders of that party. But I am still a socialist by conviction. I am convinced that socialism is the best system invented for the people. Capitalism may suit the goals of social and business development better, but no other system answers the needs of people better than socialism.

-These days, the West Administrative Okrug is being rapidly developed by Capital Group, Dekra and other companies under contracts with federal and municipal authorities. Is there any competition for building plots?

We have never competed and won’t compete with anyone. We are quite a small company and do not claim to have a dominant position, nor do we seek rivalry with the major firms. On the contrary, we have always treated them with the utmost respect.

We are professionals in our field, we are developers. We know how to fulfill those functions from the drawing board stages to the stage of commissioning. As for building plots, I will say it again, we are a small company and we have enough work to do. We are working on two to three sites simultaneously. There are good sites we are considering taking up in the future. But I will not disclose their addresses just yet.

-Your company used to be a member of the Moscow Union of Developers. What is the situation in the union today?

Formally, we are still a member, but in practice, the union does not function any more. One of its goals was to bring developers together, helping them to achieve a mutual understanding, develop common positions on certain issues, and the Moscow Union of Developers has achieved that goal successfully. We are still there, we meet other members, though those meeting are informal.

-These days, the center of Moscow is being rapidly developed. Do you think developers are doing everything for the Russian capital not only for it to become more beautiful after the new projects are completed but also to preserve its historic heritage?

There are certain problems, of course, but fortunately, Moscow exercises centralized control over design and construction. I have visited cities abroad where there is no such control, no chief architect, no research institute for the general plan of the city’s development (NIiPI Genplana), no architectural inspectors, and every company does as it pleases. As a result, those cities are losing their historic appearance fast. I believe that each era should leave its imprint on the city’s appearance. Properties developed now will be assessed by future generations.

-Your schedule is fairly packed. Do you manage to find time to rest, or for hobbies?

I enjoy traveling, I’ve been to nearly 60 countries, but these days I prefer spending my vacations in Russia. I believe that no other city – be it Paris or London – can compare to Moscow. There is no other city as beautiful and clean as Moscow. I know Moscow well enough, I take an interest in its past and present. I also like horseriding. I have a small stable where I keep four Trakens. As for my hobby, it may sound strange, but my hobby is my work.

Born in 1960, Gennady Zhigaryov graduated from the Bauman Moscow State Technical University with a Ph.D. In 1990 he established and became the head of Profico Co. Zhigaryov was awarded with the Order of the Blessed Sergei Radonezhsky, 3rd degree, for his charity work – in 2003, Zhigaryov took part in the restoration of the Chapel of St. Nicholas Church in Zvonari, Moscow.

RSI (Rybstroiinvest) has been active on the Moscow real estate market for over 14 years. The Finance Industrial Company Profico, established in 1990, was re-organized as RSI in 2002. The company’s pilot project was a residential estate built at 39 Shipilovsky Proyezd in 1996.

RSI has developed a total of five residential properties, four of which are in Krylatskoye (7 Krylatskiye Kholmy, 1997; 47 Krylatskiye Kholmy, 1998; 48/1 Rublyovskoye Shosse, 1999; 3 Krylatskiye Kholmy, 2001).

The company has also built a sports complex at 5 Krylatskiye Kholmy (1999), the Rublyovsky shopping and leisure mall at 48 Rublyovskoye Shosse (2000) and Krylatsky business center at 23 Osenny Boulevard (2003).