People in the Know: From Usadba to Slava

Stolny Grad is a company well known on the market and needs no special promotion, its chief executive and co-owner Konstantin Gusakov is convinced. Prime residential development is a closed niche where everybody knows each other anyway. A good reputation takes years to build, and afterwards needs only to be maintained – with successful projects and promotion of the brand in narrow specialization fields. Gusakov believes it is possible to succeed under any regime. He began his career when this country was still ruled by the Communists and does fear further changes.

-Are you a workaholic?

I like work because what I am doing gives me satisfaction. We are involved mostly in upscale housing and office development. It all began in 1993 when my partner Viktor Shtil and I established the Construction Management Company. We own Stolny Grad on a parity basis. It is a sort of a conglomerate of companies, an umbrella-type brand. Each project in real estate development depending on the scheme of financing is registered as a separate company. We are using the same scheme – we may have investment and technology partners, but in every company we set up the post of a general director is held by one of us. In Stolny Grad, I am the general director.

-How did you enter the niche of prime housing and office construction?

We got into it at Perestroika, a joint Soviet-U.S. venture established in 1989 to develop offices and residential properties in the capital. Back in the 1970s and 1980s major Western or Russian firms seeking to acquire office space in the city had no choice. The only entity active on the office market in those years was UpDK, the Foreign Ministry’s Main Directorate for Services to the Diplomatic Corps, that provided foreign firms and embassies with office space.

In the early 1990s, foreigners accounted for 100% of our clients because Russians still didn’t care much about their office locations and worked from factory buildings and research institutes. But with time, their share grew and now stands at 50%, both in the office and housing sectors. And, while our target audience from the very beginning was made up of Western companies of international level we had no choice but to build the best properties the market could offer. That is why all our projects developed in the early 1990s were the best in the city and so they remain.

In the mid-1990s it became possible to develop larger properties, such as, for example, the Usadba Center (37,500sqm, Voznesensky Lane). We hired Western architects, used the latest know-how and materials. In 1998 Usadba earned the best office project in Europe award at the MIPIM show. Eight years later I still visit the site with pleasure and am proud of its quality, style and fulfillment.

-How did you manage to build a business center in the backyard of the mayor’s office?

Earlier, there was a car park for the officials of the mayor’s office. Then, city hall decided to expand it by building an underground parking area on the site. We were invited to take part in the discussion and we said that an underground parking lot alone would be an utter failure, a loss of money like burying money in the ground. Then we suggested: “Let us build a top quality property that will bring revenue to the city.” As a result, the plan was adopted to build a complex that now brings $15 million per year to the city and at the same time features an underground parking facility where the mayor and his subordinates leave their vehicles.

-Who owns Usadba?

The building belongs to a joint-stock company in which city hall holds nearly 100% of the shares. We acted in that project as a property management company, as a developer we designed and implemented the project, rented it out, established a maintenance service and then transferred the complex to the city hall.

-Which do you find more appealing – office or residential real estate?

As we are involved in the upper class niche where each project is unique, both sectors are interesting. Besides, many of our office clients later take an interest in our apartments. But office development is easier, because when you are working with some major client your only task is to meet all of his requirements. Let’s assume, Shell is looking for a 10,000sqm office. Its operations officer comes up with a clear-cut list of requirements concerning the office itself, engineering systems, etc., and your task is to meet those requirements. In these terms, housing construction is more complicated as almost every client has a wife, mother, mother-in-law, friends… Here we have to meet some personal wishes, where the criteria are vague. That is more difficult.

Another reason why housing is more complicated is that you have to foresee the market situation and find some special feature that will appeal to the public. Besides, we thoroughly check our would-be customers’ background, because our clients want to have decent neighbors. In other words, there must be nobody with a criminal record among them. We do not care what a person is doing as long as what he is doing is lawful. There are no outsiders in that niche, and we have been on the market for a long time now, and have worked with most major Russian and foreign firms. If we do not know someone, a couple of calls are enough to check their background.

-How much money do you spend on advertising?

Not a single cent, in housing. We do not advertise our apartments, which is why we are not mentioned in any rankings. Office space is quite another matter, but what we are promoting is not our company but specific properties – Novinsky Passazh, Usadba Center, etc. We have received a number of awards, for example, for Novinsky. The Stolnik house has been included in the encyclopedia of modern architecture, published in London. But our properties are not included in any of the Russian ratings.

-Does that bother you?

No. That was our own choice. What we value is the opinion of our clients. If our properties are in demand, that means we are doing the right thing.

-As for the Novinsky 31 project, market consultants have been quite critical about it…

Looking back, it is always possible to find some flaws. But, firstly, the project was semi-complete when we took over, the carcass had already been built and certain restrictions regarding the ceiling height, window size and size of the floors had already been set. But then again, it is the client who has the final say. Tenancies at Novinsky are held by Shell, ExxonMobil, Merrill Lynch, De Beers and Rotsсhild. Secondly, property consultants tend to praise what they are selling and criticize what is being sold by someone else.

Unfortunately, evaluation criteria are rather vague. Efforts are made to systemize and rate everything as class A or B. But there are no general criteria apart from that of quality, of which I am firmly convinced. For example, we have been told that upscale residential estates have to be built of brick. Why namely of brick? For many years now nobody has been using brick in New York or London. We build houses with ventilated facades, and they are in great demand.

-Today we often hear that everyone wants to live in prime residential districts, such as the Golden Island, once it is completed.

There is no such thing as a “prime district” elsewhere in the world. There are prime locations, such as Knightsbridge or Chelsea in London, living there is prestigious. There are large estates measuring up to hundreds of thousands square meters, but I have never heard of entire districts consisting solely of upscale apartments. Let’s hope the projects launched in Moscow succeed. But it is not enough just to build those properties – you have to be able to sell them afterwards. Today in Moscow a more or less clear ranking of districts is beginning to form, though it is yet to be adjusted. Unfortunately, developments of poor quality are still emerging even in the best parts of the city, but that is inevitable.

-Where do you live?

I live in the countryside – have done for nearly 15 years now – in Peredelkino. I am no fan of Rublyovka (a prestigious countryside area along Rublyovskoye Shosse); I prefer old countryside villages. These days we are developing an out-of-town compound there [Stolnoye]. We had been looking for a building site for the project for five years and found it literally next door to my house. The climate is different there, no cars with flashing lights on the roof, no restaurants with discos or SUVs with bodyguards…

-Once you finish your compound, all that will appear!

No, the approach is absolutely different. This may sound a little self-conceited, but we are trying to get a bit ahead of the market all the time. We are offering people the opportunity to communicate normally with like-minded neighbors.

-But the local residents in Peredelkino are worried about the rapid construction in the area, they fear it will destroy their spring.

We promised to preserve the spring and we did it. After all, what we are building there is not a car park or a heart hospital, we are building something that is not new to the area – a countryside residential compound. And while earlier those parts were inhabited by intellectuals, top brass and government officials, now it is attracting government and business elites, so there is no contradiction in that.

A civilized society means there are rules that have to be observed, no matter whether you like it or not. Those who keep on breaching those rules – be it a developer or the public – they have to be punished. There is a problem that often arises for most developers in Moscow. Our people still think: “Everything I see out of my window belongs to me!” and quite often the authorities pursuing some populist ambitions side with those people. We have to deal with that every day.

Do you know what happened in Kiev after the Orange Revolution? Those guys have turned professionals. There is even a list of prices to pay to halt construction. Five buses packed with youngsters with flags and placards reading “Ban construction!” or “Hands off historic Kiev!”. The developer arrives and asks those kids: “How much?” They name the price, he pays and off they go. Such methods are not widely practiced in Moscow but competent developers must be able to ward off such racketeering professionally. We are not afraid of litigations, or of the media.

-Nevertheless, you have left the spring?

We have. My friends from the writers’ village often pop in at my place and we discuss our plans with them. We respect reasonable requests and want to make sure that the local residents welcome the new neighbors. For example, nobody had ever cleared snow in Peredelkino before. We began with buying a sprinkler and a snow-plough. For two years now our streets are free from leaves and snow. The road has been repaired; a central water supply has been installed.

-And what about your relationship with city hall?

We often hear the Moscow mayor’s office described as something evil, allegations that it is impossible to work with them, they are so bad, etc. But I have been in the construction business in Moscow for 20 years now and I am firmly convinced it is possible to work when you know what you want and if you exercise a professional approach to what you are doing.

-Are entrepreneurs bracing themselves for a regime change in Moscow?

We are only trying to do our job better. It makes no difference as to who exactly is at the helm as long as we have stable and unchangeable laws. This is the case now in Moscow. The question is whether it will be preserved in the future. That will be a litmus test for the regime. Moscow’s real estate market is full of negative things. We see pyramids being formed which is very bad for all operators. There is lack of professionalism. Russia is, indeed, a country of belligerent amateurs. Earlier anyone could open a bank or a stock exchange, now the same is happening in the real estate sector. People who have made some money in other fields are actively taking up property development. But you cannot just pour money into the market and say, now we will build here. You need either a team of professionals or partners who are professionals.

-Could you say a few words about your Slava project?

The management of Slava – an enormous Soviet-built watch making plant (2nd watch-making plant near Belorussky train station) – came up with a proposal to overhaul its production facilities. Our company together with our partners from Globex Bank examined their plan thoroughly. The 2nd watch-making plant has two industrial estates – at the Belorusskaya metro station and in Nauchny Proyezd, at the Kaluzhskaya metro station. While the latter may be preserved as a production facility, the former site, measuring 4.5 to 5 hectares, will be vacated for new construction. We have submitted our business plan to the city hall, hired good architects from the U.S. to work in a team with Russian designers, and developed an urban-planning concept based on what will be in demand in that area.

-And what is that exactly?

The problem is that many developers tend to think they must decide themselves what exactly has to be built. In truth, you have to listen to the market in order to understand what it says. You have to examine and take into account not only what is already available in the area but also what will be built in some 10 or 20 years from now. We are set to create a new urban project on a grand scale where it is possible to take into consideration the desires of many people. The first thing that became clear is that our project would fail if the existing transport situation remains unchanged and no measures are taken to ease traffic congestion on Leningradsky Prospekt and in the vicinity. Once we build another 0.5 million sqm of extra space, driving through the area will become absolutely impossible. But if we build an extra street we could solve the problem for the entire area.

-What will be the name of that new street?

We welcome proposals. We could even hold a competition.

-What will you begin with?

We will start with a parking lot, with 5,000 spaces and five underground levels. The future Slava complex will feature all the necessary points of attraction, an atrium, restaurants where people can dine after the movies, for example. Perhaps, there will also be a skating rink or a winter garden with exotic plants. Above the shopping mall we will build offices, with all the amenities on the lower levels being available to office tenants.

-What has already been done?

The project is still on the drawing board. The government will issue a decree on its development shortly. Meanwhile we are working on the design.

-How much will the project cost?

We put the cost at over $0.5 billion. The projected size is 480,000sqm including parking facilities, retail and office properties.

-You have bought shares in the plant? What about the plot?

We have registered the leasehold. For the time being we are working under the existing scheme where we own all the buildings, the shares of the company, and the land we rent. Later there will be an option – either to keep the lease or secure the freehold. We will decide after the cost of the deal is clear.

-What are the revenues of your first project – Usadba – and what do you expect from Slava?

Usadba Center cost us approximately $50 million; the annual revenue is $15 million. As for Novinsky, we estimate the cost of that project at $130 million. It brings in about $30 million in revenues but we expect the figure to grow to $33 million per year. Slava is different. If the projected cost is $550-600 million, the revenues are expected to be $150 million.

-Have you already received any bids from future tenants?

Property consultants like to say the property is leased out long before construction is completed, but the legal side of the matter must not be neglected. No tenancy deal can be signed before the property is commissioned. You can sign preliminary agreements or protocols of intent. Although, of course, we may invite the property manager of our major tenant at Novinsky and inquire whether they need extra space. Let’s assume he says the company now has an office of 10,000sqm, but in some three years it will need 25,000sqm or even, 35,000sqm. We often suggest that our rapidly growing clients sublease extra space and then rent them out under 12-month deals, in case they do not need that space for themselves at the moment. If we have a tenant for 30,000sqm and he signs a long-term lease, say for five or six years we will go all out to keep him. We will adjust the column spacing to suit his needs, take into account all his requirements.