People in the Know: Smooth Flight

Although he does not intend to sell his share in the company in the foreseeable future, he is ready to consider proposals from would-be buyers. What is most important, he says, is to build up the business from the very beginning in such a way that it can be sold for a profit afterwards.

-Is it possible to say that the prime real estate market in the capital has already been allotted and outsiders are not welcome?

In truth, strange though it may seem, the prime property market has always been the most accessible and open for new operators, unlike, say, the economy or even business-class sectors. The macroeconomic situation in Russia is favorable today; the recent banking crisis is all but forgotten. The money supply is growing and needs to be invested and the property market is ready to accept it. Figuratively speaking, if earlier money was spent on expensive cars and jewelry, later on villas on the Cote d’Azure and country-houses in Zhukovka (outside Moscow), today the time has come to invest – and to invest seriously – in properties in Moscow, including prime real estate.

-But the returns on property investments are not really that high, though the risks are.

That is true for small private investors. The rate of return does not exceed 10% per year. The returns of developers using their own capital are much higher than when funds are borrowed. Moreover, cheap European money is willing to come to Moscow. I know of several commercial property projects, now being planned, which Europeans are ready to finance at an annual interest rate of 6.5%.

All the conservatism and skepticism of major Western operators aside, the interest in our property market is great. Foreign institutional investors are not merely ready to put up millions, or even tens of millions, but billions. With these kinds of sums being involved the returns that may seem low to us prove to be quite high considering the existing risks.

-Western operators never cease to be amazed at Russian investors assuming the developer’s role in most projects here. Outsourcing is not widely practiced in this field. Why is that?

This is truer for large companies, such as oil and gas firms, metal producers and others who want to diversify their investments by going into the property business, an area which is new to them. In their preferred manner they do everything on their own. One might say they have taken a leap back to a subsistence economy.

That is why those firms set up their own development units, realties, etc. I think that approach is erroneous. This says something about the poor level of management and poorly developed service industry on the whole. What is the point in doing everything on your own when it is possible to hire professionals who will perform the job better and for less?

Civilized market relations imply that everyone should do their own job, only then will businesses be effective. Gradually, we, too, are growing to understand that a variety of professional service companies on the market is a good sign. Those firms don’t need a large staff. To succeed in development a team of 10 is enough. For everything else there is outsourcing.

-But they ought to be professionals. So far, there are just a handful of professional teams in Moscow.

Unfortunately, that is true. For example, if a large company with a large workforce and financial resources, starts a new business in a new field it is not fair to blame it for rejecting the services of local experts, opting to do everything on its own and building its own “subsistence economy”. The company may simply have no alternative or even no time to train local recruiters, builders and realtors, so that they can adjust to its standards.

Things will change after the market becomes more developed. In terms of the quality of services, we are already more advanced than third world countries. But making a right choice [between working independently or enlisting the services of professional firms] requires a high level of professionalism in order to hold a tender at a high quality level.

-And how should the professional developer present himself to a would-be client?

The developer has no mass audience, far from it. They are, primarily, banks, private investors, governments. A professional firm can easily raise a loan for a new project even if it has only 10% of the total amount required for its implementation.

-Does Blackwood have any problems obtaining loans for its projects?

Today, we face no such problems.

-Has the market for prime property changed greatly over the past year?

I don’t think so. The structure of supply has remained practically the same; quality projects are still small in number, with the supply decreasing slightly if anything. While the demand grew more for countryside developments, properties of good quality [in the city] still remain in high demand, despite the price hike (prices for many properties rose sharply).

A luxury residential property in Moscow is now available for no less than $7,000 to $8,000 per square meter, which means a good apartment measuring 120 or 130sqm in a newly built compound would cost at least $1 million, at least in the city center.

Perhaps, this is one of the key reasons why this year the would-be buyers of expensive residences have been showing more interest in countryside developments. They hope to find top quality properties out there, because such properties are hard to find in the city today.

Although the problem of quality outside the city has yet to be solved, on the whole the supply is much larger. Admittedly, if we take Rublyovka [the Moscow countryside route along Rublyovskoye Shosse] for example, a minimal price for a [quality] country-house on a garden plot has already exceeded $1.5 million.

-In theory, it is possible to obtain a mortgage loan to purchase out-of-town property, although few succeed… What is the situation like regarding mortgage lending on the luxury out-of-town property market?

What we are seeing today is the development not of mortgage lending itself, but of the technology behind it. For the time being, none of the parties on the mortgage chain has made money from it. The transaction procedures are now being tested. Blackwood plans to launch a training course on mortgage lending for company consultants.

We’ve had experience. Together with Terra-Nedvizhimost realty and the DeltaKredit bank we were offering country-houses at the Pavlovo countryside compound under a mortgage scheme; none of the properties were sold. If a luxury country-house is put up for sale via mortgage these days, this is most likely done so the buyer can declare his income in such a manner, and not because he finds the scheme convenient.

-Your view on the development of mortgage lending differs greatly from that of the government. Was it the Main Intelligence Department where you learned to assess things and phenomena? It was in the agency of the General Staff where your career began. Could you say a few words about your work there?

The Main Intelligence Department, or GRU, was an elite division of the General Staff. Like most of my fellow-servicemen, I landed there through recruiters who visited universities. The background of potential candidates was thoroughly checked, intellectual abilities tested. Straightforwardness was not welcomed. The right person couldn’t be too loyal to the party, as fanaticism always gave grounds for suspicions.

They hired thinking people, those who were capable of analyzing situations and predicting their development, regardless of what field of science they were working in. That is why in the early 1990s many of my fellow-servicemen left the ranks of the heroic Soviet Army. I was one of them.

-Did you begin your studies immediately after leaving the service?

Not at once. At first, I spent about half a year looking around; then I found a job at a Dutch firm. They hired me on the condition that I would work for three months without any pay. After that term expired I became the head of the firm. Then I took part in establishing a joint venture for exporting wool to Britain. It was successful until we encountered the basic problem of a monopoly.

In the world there are absolutely lawful monopolies and one of them is the Australian wool business. That country has always had the equivalent of a 6-year supply of the world’s wool consumption in reserve. As soon as any new supplier arrives on the market, Australian producers flood the market with their excellent quality wool at prices lower than the competitors’. As a result we lost all our money. That was my first failure. But I managed to pick myself up again.

-You went to study in Britain. Did you have any problems by getting a visa, considering your background?

At first I worked as an intern, for almost two years. At one point I even wanted to stay there for good. I had no problems with entrance visas at first, then I was invited for interviews. Actually, when you go there at the invitation of some private individuals or [well-known] firms, you face no problems entering the country. I could have had problems getting a visa if the Russian special services had thought it necessary to stop me.

-Do you think changes in life and business are necessary? Do you like changes or fear them?

I do not fear change, as I have lived through many of them. I think there is nothing left that could really surprise or unsettle me anymore. I am convinced that a person who is set on reaching some heights should not rush and, secondly, should go some through serious shocks in life, at least once or twice, to fall and rise again.

-Some say that a normal person is capable of going through that sort of thing no more than three times in their life.

I fell twice, so I still have one more in reserve. I have learnt a lot. Flying is a wonderful thing. But now I pay much more attention to safety than I did than, say, ten years ago. The urge to take off and make a million overnight is in the past. I know people who made their fortunes within three to five years. Today, their fate is sad. In part, they have themselves to blame for what has happened to them.

You see, when you soar above the ground for a while you stop assessing the risks. In the case of managers and company owners, there are also the risks their company and the people who work them are facing. To see and adequately assess the possible risks is very difficult during flight. Something unforeseen can happen at any moment, and you will still have to summon your strength, rise up and take off again.

-You are the co-owner of Blackwood. What is your share in the company?

Before I became a co-owner five years ago, I worked merely as a managing director for a while. As for the size of my share, that is a commercial secret. I will answer that question when my partners and I decide to invite co-investors.

-Which events in your life of late have left the biggest impression?

A trip to Tibet, together with old friends who are enamored by the mountains. We completed the pilgrimage to the holy Mount Kailas. The locals believe that those who walk around the mountain a certain number of times have their souls cleansed of all their sins.

-Did you feel relieved after performing that sacred pilgrimage?

I had a feeling I had done the right thing, although it was not easy. That is why I would like to warn those tempted to try it. It is very, very hard. At such a height, nearly 6,000 meters, the pressure is completely different, there is practically no oxygen; this is hard emotionally, as well as physically. It takes an enormous effort, which is why that journey becomes another victory for those who overcome it.

-That is reminiscent of the early days of Russian business in the 1990s. Extreme conditions, pressure, lack of oxygen…

No, in those days business was a matter of luck. That was the time of overnight millionaires. You could buy a batch of computers and resell it twice and you were on your way. It would take no more than a couple of months, and no risk. That time was very interesting, we all learned, and made good money at once. Sales grew before our very eyes. But as far as I am concerned, I just enjoy working with real estate. I feel as though I’m needed, self-fulfilled, if you like. As to how to make ends meet I have long solved that problem.

-It is easy for you to say that sitting here in the office of a company you co-own, with a view of the Kremlin.

To be honest, I’ve already satisfied all of my essential needs. Just like many of my friends, today I attach most importance to building up my business, doing the work I enjoy.

-Do you feel a sense of rivalry?

Yes, it is a good, lively rivalry. Many young talented people have appeared – they won’t let the older generation doze off.

-To what generation do you belong, in your opinion?

Right in the middle. Though Blackwood is considered to be a company of the younger generation, we employ many people between 20 and 27 years of age. There are many talented people here. Their key advantage is a nimble mind, mobility. They are quick learners.

-Your background is quite conservative; after all you grew up and began your career in a time when our society was still under the influence of rigid stereotypes.

I would not say so. If I had gone along with the stereotypes, I would have left the army in 2001 not in 1992. But I was one of the first to do so. That was a very serious step that few were able to make in those days.

-Do you value certainty?

A good manager should be unambiguous and clear. It does not matter what he runs – a company or a country. It does not matter whether he is easy-going or tough. I repeat, he should be absolutely comprehensible and predictable, also in the eyes of his subordinates.

When he is no longer comprehensible, he loses control. That is what happened to the Soviet regime. It lost transparency, openness, became inert and lost control as a result. A good manager must not have any secrets, except commercial secrets.

Formed in 1991, Blackwood is one of the oldest and the most experienced property market players. PriceWaterhouseCoopers’ Moscow representative office was Blackwood’s first corporate customer in 1993. Simultaneously, the company started to work with a number of foreign embassies, diplomatic missions, and major Western companies. Blackwood’s partnerships with these customers, most of whom have become long-term partners, date back more than 10 years and our extensive list of blue chip clients continues to expand from year to year. Each year, Blackwood leases approximately 500 apartments. Today Blackwood provides the industry’s most comprehensive portfolio of integrated services: Development and Investment Services, Strategic Consulting and Marketing Research, and Residential, Office, Retail, and Industry Agency. In 2004, Blackwood launched a unit specializing in prime countryside real estate. Also in 2004, the company launched the management company Blackwood Real Estate Funds. In July 2005, the first privately owned investment fund Northern Palmira was launched.