Money-Growing: Rail Yards on the Move

Finally, in the spring of 2006, the situation began to change. On June 8, 2008, shortly after the state-run Russian Railways Company (OAO RZhD) secured a 49-year lease to the lands beneath railway facilities, the Steering Council was established with a view to redevelop those territories. The board’s line-up includes Moscow construction officials and RZhD’s top executives.

To dispel doubts over the seriousness of the interested parties’ intentions the government has already unveiled its plans to launch a pilot project near Poklonnaya Gora in western Moscow. Doubts are dispelled but questions remain.

No Comment – RZhD

Some of the experts asked by Vedomosti to comment on the joint initiative of the Moscow government and RZhD were skeptical about the results of expert valuations published in the media in the past weeks. A source in RZhD, talking on conditions of anonymity, said that Moscow officials have pictured the prospects allegedly created for property developers by the city hall’s alliance with RZhD as entirely too “enticing”. On its part, RZhD has assumed a wait-and-see attitude, thus creating an impression that all issues have already been settled by the Moscow government.

When asked what the official position of the company is the source has said that RZhD would abstain from any official statement before the session of the Steering Council, due in July. At the same time he emphasized that RZhD attaches utmost importance to the development of the Moscow railway transport system; that is why by selecting plots and determining strategies of their development the company will proceed not only from their investment appeal, but, first and foremost, from the interests of the company’s core business. In other words, it is necessary to examine not only the state of infrastructure but also the prospects of logistics schemes, taking into account the placement of production facilities and commercial properties in the city.

Consciousness Determined by Being

Meanwhile, it is obvious that notwithstanding their silence, RZhD executives welcome the idea of redevelopment of the company’s territories, most of which are desolate wastelands. Earlier a source in the Moscow construction industry department said the city hall was not liable to pay any compensation to the railway company, for the city does not buy the land but carries out its reorganization. Then, what is the interest of RZhD?

Konstantin Korolevsky, first deputy head of the city department in charge of town-planning policy, development and reconstruction, who is also a member of the Moscow-RZhD council has shed light on the economy of the project. The lands reserved for the needs of public transport in Moscow are in fact a gigantic industrial territory. Albeit federally-owned, they are viewed by the city hall as industrial estates falling under the target-oriented program aimed at reorganization of industrial territories.

What is of primary importance is that the owners – RZhD and its affiliates – have the right to act as an investor. For RZhD, given its financial resources, that is a great opportunity to claim a worthy position on Moscow’s development market. The city hall defends its positions by retaining control over functional use of lands and sanctioning of construction projects.

Korolevsky emphasized that the key goal pursued by the city hall is to preserve the industrial potential of those territories. The same principle applies to railway transport infrastructure. Thus, the both sides have common interests, for the railway company is keen on preserving and developing the railway transport network (and at the same time is interested in returns on investment projects).

Rail Tracks Beneath Building Sites

So far, little is known about most of the projects planned on RZhD’s territories. The only exception is, perhaps, the plot in western Moscow (West Administrative Okrug), adjoining the Kiev rail branch line near Poklonnaya Gora. But even there many things remain unclear. The project is to be developed by Mirax Group, which has already submitted pre-project proposals to the government.

It remains unknown if the company is to run the project on its own or a special consortium will be set up for the purpose. Mirax Group refused to comment on the project saying only that the decision is to be taken by the city hall and RZhD. So far, reports on the details of the project are contradictory. Earlier Sergei Polonsky, Mirax Group CEO, said that railway tracks would be covered with concrete platforms, to be used as a foundation for 1.1 to 1.2 million square meters of office and leisure facilities.

Property experts engaged in animated debates on the class of future offices (agreed on class B) and the cost of the project, which they estimated at $3 billion. Meanwhile, it transpired that the idea to cover the tracks with concrete had never been discussed with RZhD, whose representatives were skeptical about the idea. The company will decide on the issue, proceeding, first and foremost, from security reasons, they said. Besides, it is necessary to take into consideration the uninterrupted operation of the Moscow railway system, where commuter trains alone are responsible for carrying 2.5 million passengers to and from the Moscow countryside on a daily basis. Even a brief interruption of the service is fraught with disastrous consequences.

Technology Issues

International practice shows that developing space above railway tracks is possible in theory, but such projects require costly technology solutions, likely to delay payback for years. In particular, strict vibration safety standards apply to those developments. For example, the cost of vibration protection at the Poluostrov Krym (Crimea Peninsula) estate near the Varshavskaya metro station ran into nearly $1 million per house. Railways, especially freight trains, rolling beneath a monolithic structure generate much more noise and vibration, than a metro line.

The functional uses of the future projects are vague, too. Vedomosti has obtained a list of priority projects compiled by the Moscow City Hall and the Moscow Architecture Committee. The second item on that list reads: “The Kiev branch of the Moscow Railway and adjacent territories between Minskaya Street and the Third Ring Road. Mirax Group. 1 million square meters of housing space.”

Thus, it is quite likely that the future project will provide apartments instead of offices. A closer look at the list reveals that approximately half of the planned developments are apartments; the rest is commercial properties. There are no mixed-use projects on list. RZhD told Vedomosti that so far they had received no such data and know nothing of the city hall’s list. In the meantime they are working on their own proposals.

400 Hectares Plus Vicinity

The ambitious project to be launched at Poklonnaya Gora will not be the only one. The Moscow Railway’s facilities occupy 2,800 hectares of land within the city limits, or up to 4,000 ha, adjacent territories included. According to preliminary calculations, some 400 hectares of RZhD’s lands may be used for development of retail properties, community centers and apartments, the city department for urban development reports.

As a result of the reorganization the number of sanitary protection zones around RZhD’s installations will be reduced, as new retail and community developments will serve as an acoustic shield. That will make it possible to refurbish adjacent residential areas and build more apartments and community facilities. A more precise evaluation will be provided after the municipal program for development of railway facilities and installations is drawn up.

In terms of prospects of commercial property development, RZhD’s territories including existing industrial zones, rail yards and major stations are of special interest. Korolevsky says that the Russian Railways railway equipment facilities occupy 23 out of 48 industrial territories, included in the plan for reorganization of industrial zones. In 25 of them the development of design projects has already begun; 12 of them have RZhD facilities.

In four of those industrial zones town-planning programs may be adjusted provided RZhD approves those changes. That would help substantially increase the volume of new space. Those zones are Paveletskaya, Verkhniye Kotly, Severyanin and Ogorodny Proyezd.

Commercial Real Estate

Ambitious plans exist as regards the rail yard of the Belorussky train station where the development of a mixed-use complex measuring nearly 500,000sqm is possible. An analogous project has been proposed near a rail yard at the Moscow-Tovarnaya-Kurskaya station in the Central Administrative District. A large community mixed-use center may be raised on the site near the Nizhniye Kotly station, provided the rail branch is rerouted.

A lot will change on the Moscow map of commercial properties after the Fourth Ring Road is built. In particular, the new highway will affect the territories adjacent to the Frezer railway platform, where reorganization of the Karacharovo industrial zone is possible with a view to raise a multifunctional complex. RZhD’s subsidiary, OTsV, or the Branch Center for Application of New Technologies and Know-How, has already expressed interest in the Savyolovsky rail yard, Korolevsky says. The site is favorably located in proximity to the city center and the Third Ring Road. The development of another mixed-use complex is planned on the site.

One more project planned by the government is aimed at developing space above railway tracks on the stretch between Novaya Basmannaya Street and Syromyatnicheskaya Embankment, and construction of mixed-use complexes and parking facilities along the section of the railroad between Kursky train station and the Three Station Square. More projects are to be launched on the territories along the Small Ring of the Moscow Railway, which is expected to be used for intercity passenger services in the future.

Living on Rails

Quite a few plots are to be allotted for housing construction. In addition to the already mentioned site between Minskaya Street and TRR where 1 million sqm of housing space are planned, housing construction may be launched on the site of the Paveletskaya Tovarnaya rail yard (300,000sqm of apartments). Another 150,000sqm may be built on the territory of the Krasny Baltiyets platform.

Moreover, once reorganized, the area now occupied by the Severyanin rail yard and territories adjacent to the station (the site within the borders of the Yaroslavskoye rail branch of the Moscow Railway, Prospekt Mira, Krasnaya Sosna Street and the park Losiny Ostrov) will provide 50 hectares of land for the development of 500,000sqm of space. Considerable volumes of residential space could be built on the territory of the Rizhsky rail yard. Irina Raber, head of the Northeast Administrative District, has confirmed that such plans exist. According to the official, the area offers large reserves of plots beneath railway equipment facilities.

The area borders on the Mariina Roshcha district and is situated not far from the city center and the Third Ring Road; hence, good prospects for residential development. Irina Raber refuted media reports alleging that the city hall plans to close down the Rizhsky train station and preserve the building as a monument of architecture. Such matters can only be decided on by the railways company, she said.

I See the Land!

Complaints about Moscow running out of vacant plots no longer sound as serious as they did before, with developers’ most daring ideas turning into reality. The city hall has in all earnest set about looking for land resources and their legal preparation. It transpires that there are quite a few territories in the city available for development. Those are industrial zones, plots abandoned by previous investors under expired investment agreements, residential areas designated for reconstruction, sites along newly built roads, Moskva City, later on the Greater City, villages, etc… RZhD’s facilities are another huge reserve.

As a result, the volume of commercial space in Moscow may double in the near future. But does not Moscow run the risk of repeating the fate of Berlin where, following the 1990s construction boom many offices and apartments now stand vacant? One cannot rule out that in the next couple of years developers will have to worry not about the shortage of building plots but whether the market is able to digest such volumes of new commercial properties. However, for the time being tenants have a good appetite, whereas Soviet-era buildings of research institutes and other similar developments no longer meet their requirements.