People in the know: Arrive on time

Is your arrival on the Russian market connected with a high level of competition in Italy? Are you scared of losing your leading position as a management company in Italy and therefore looking for other markets to apply your work?

The high level of competition and saturation of the market in commercial real estate in Italy does not bereave it of great potential. We plan to continue working on it in the future. The move into Russia corresponds with the company's strategic development on international markets. We consider this step very well timed: in a few years entering this market will be more difficult. Besides this many of our partners, in particular international investors, have shown great interest in your country's commercial real estate market. We will be working with them in Russia as well.

What makes you confident that your company's service will be called for in the Russian market?

We came to Russia at the most suitable time, when the market in the trade in premises is increasing in size and actively developing. The majority of Russian projects have, up till now, been successfully implemented, as there is practically no competition. Now, when competition between establishments increases day after day, the demand for professional services on managing commercial real estate will sharply increase.

In Moscow there are already several consulting companies, which offer professional help to developers in everything from choosing a land plots for constructing shopping centers and leasing the area to selecting the management of the company. What is the advantage of using Larry Smith Italia in comparison with other players?

The main competitive advantage of Larry Smith is the effective techniques in the sphere of managing shopping centers, which have been developed by us over several decades. Their uniqueness stipulates that we work on markets, which drastically differ from each other - in Italy, the US, France and more recently in Eastern European countries. This gives the possibility to approve our methods in various conditions, constantly improving and searching for new approaches to management. We know how to work well and productively. Besides we are not entering the Russian market alone, but with our reliable partner Torgoviy Kvartal, which knows the specifics of this market and has a great deal of experience in constructing and managing projects in the region.

Before you signed the agreement to work with Torgoviy Kvartal, did you already know something about the Russian commercial real estate market?

Of course. Before we made the decision about coming to Russia, we carried out a lot of work on studying the commercial real estate markets of Eastern Europe. Now we have experience of consulting and managing commercial real estate in Turkey, Croatia and Slovakia. In particular we have taken part in working out developers' projects, which are very current for Russia.

Do you have some prepared techniques that you plan to use in Russia?

Of course. The demands of the market will dictate which technique we will offer. For example, today many developers have problems with forward planning. Several projects look ready to start today, but what Russia will be in say about five years is not known. Larry Smith has experience in solving similar tasks in various countries such as the US, France, Spain and Italy. We can plan the development perspectives of the market and recommend our partners an effective strategy of positioning and development.

Are you concerned that your techniques will not work in Russia?

No. Our techniques and methods will be adapted to the Russian market and in doing this not only the specifics of this market will be considered, but also the features of the legal regulations of Russia.

What will be your firsts steps on the Russian market?

The first step will be joint work with Torgoviy Kvartal on creating a common database for studying the Russian commercial real estate market. We will input not only the regions' demographical and economic indicators, but also detailed research on trade in commercial real estate and the retail trade market. Then we will go on to working on specific projects.

You said that you have studied the Eastern European markets. What basic differences are there in the commercial real estate markets of these countries and Russia?

Above all western managing companies follow the practice of outsourcing, whereas their Russian colleagues prefer not to give the project to a professional company and create their own staff of specialists. The western approach is aimed at reducing basic budget overheads, connected with inflation and increases in salaries. European management companies also differ in their process for setting the budget. As an example management companies in the West receive the fee for services from lessees and not from owners. From the specific details, it can be noted that the operational budget is determined by the management independently, but representatives of the lessees, united in so called consortiums, have meetings with the management companies and the owners take part in deciding key issues.

Does your company undertake the management of unprofitable shopping centers? If yes, what do you start working on?

As a rule Larry Smith joins the project at the first stages of it realization, therefore we start working with a preliminary analyses of the market. As a result the research decides the architectural concept, including the size and structure of the trade center, floor plans, architectural-planning issues and the functional zones of the area. We attend the brokerage stage, providing the optimal choice of the lessees and management of the operating center. Such an approach helps to avoid taking part in unprofitable projects. Of course Larry Smith can join the management of an already operating commercial center. In this case, as a rule, we undertake a preliminary audit of the facility. This gives us the possibility to evaluate the expediency of taking part in the project, the perspectives of introducing a more effective system of management and other reorganization. For example adjustment of concepts or rotation of operators.

Larry Smith is an international company. When did it arrive in Italy and what activities does it undertake now?

Larry Smith was developed in the US in 1939. It entered the European market in the 1970s, opening an office in Madrid and then in Paris. In around 1984 Larry Smith started to work in Milan. Today the company is in the top three for management of commercial real estate in Europe. In Italy the basic direction of Larry Smith's work is consulting and managing commercial and entertainment centers. We have a 15 percent share of the Italian market. Our company manages five of the 15 branded shopping centers in Italy, including the biggest in Italy, Roma Est in Rome (general area of 98,000 sq.m) and the most visited I Gigli in Florence (68,000 sq.m). The head office of the company is in Milan, although in each of the shopping centers under our management there is a working office of Larry Smith with specialists who directly work on the operational management of the facility.

What task do you consider vital to have a successful commercial project?

For creating a successful commercial project it is necessary to carry out market research, work out the correct concepts, form a quality group of operators and professionally establish a system of operational management of the facility. We provide the professional completion of the abovementioned tasks and where necessary consult the owners on the sale of the shopping center as a business.

And what do you start working on with projects in Italy?

We prefer joining the project at the very beginning of its development and starting with an in-depth situational analysis of the commercial real estate market. This market analysis can include from 20 to 25 viewpoints.

Talk about your most successful projects in Italy.

We consider the shopping center I Gigli our most successful project. The area for rent is 58,000 sq.m and in that space we have fitted 120 shops. Before the project was realized the company carried out serious market research of the shopping center's territorial area. Among the advantages of this land plot, was its convenient location in relation to the transport network. A marketing plan was also developed for promoting the project and suggesting the optimal structure of managing the shopping center. I Gigli was opened in 1997 and today it has no competition in Italy for the number of visitors, which stands at about 14 million people a year.

What are the most difficult issues, which need to be resolved by the management of companies, working in large-scale shopping centers?

The most difficult task is ensuring the daily, high quality and effective workings of the shopping center's needs. There are no problems too big for us, however issues constantly arise which need to be immediately resolved. If speaking about global tasks of management companies, it is not simple, I would say the marketing promotion of the facility with the aim of attracting visitors.

What is the most expensive budget overhead for managing a shopping center in Italy?

In Italy at the moment the biggest budget overhead is the operational costs for the maintenance of the facility as well as the marketing and promoting of the shopping center.

In Russia the majority of development projects are shopping and entertainment complexes, where besides shops there are also entertainment facilities for the whole family, such as cafes, cinemas, ice rinks, games areas, slot machines etc. How is it in Italy?

Italy is rather behind with such shopping and entertainment complexes, which have only started to be built in the last few years.

Could Russia be ahead of Italy in this direction?

I would say that multi-functional complexes with entertainment facilities have developed in Russia and Italy at the same time.

What entertainment facilities are most often placed in shopping centers in Italy?

Cinemas, game areas for children and teenagers and fitness clubs.

In shopping and entertainment centers in Moscow the entertainment zone is always placed on the top floor, what is the situation in Italy?

Due to the technical considerations - the height of the complex, the possibility of natural light getting in and the features of the food court, in Italy the entertainment zone is also located on the upper floors. There is another reason for this choice, which is to attract visitors to the upper and less-visited floors.

In Moscow there is a pressing issue for organizing parking at shopping centers. How is this issue resolved in Italy?

I can say that in relation to Italian shopping centers parking at Moscow shopping centers is very modest. As in Italy most large-scale shopping centers are located in the outskirts of the cities and all customers come in their cars and there is an enormous amount of space set aside for parking. For example for Roma Est, the biggest shopping center in Italy, located in Rome, there are 7,000 parking spaces, or seven cars per 100 sq.m.

Do they prefer to build underground car parks in Italy or are they limited to above ground?

There is no simple answer to this question. Everything depends on the specific conditions. For example aboveground car parks cost less if there is enough space in the land plot. Although visitors prefer covered underground car parks.

Larry Smith Italia signed an agreement on partnership with Torgoviy Kvartal. The majority of their projects are located in the Russian regions and not in Moscow. Are you prepared to work in the regions where the retail trade market significantly differs from Moscow?

We think that it will not be simple but we have got used to working in the West, where the competition in the retail trade market is even more serious. Besides this Moscow and St. Petersburg's markets in commercial areas became saturated a lot earlier than in the regions of Russia. Because of these considerations, work in the regions seems more promising to us.

Have you visited shopping centers in Moscow? How do you rate the capital's shopping centers?

I have been to the Mega shopping centre in Khimki outside of Moscow. It was very big and a well-known project in Russia, but in my view there are certain details, which could be improved. The selection of trademarks in Mega was very successfully chosen. Among the operators of the facilities we noticed chains, which in Italy prefer to only rent areas located in the center of large cities and not in the suburbs. Also in Mega, in my opinion, there are more clothes shops than is recommended for a shopping center of this sort. There were not enough shops selling household goods there. But on the whole the correlation between lessees of various profiles was optimal. I highly appraise the system of management by the facility: Mega is a clean and safe shopping and entertainment center and that is very important.

What is your prediction for the development of the Russian commercial real estate market? When in your view will it catch up with Europe?

In my view there is a lot of potential in Russia from the point of view of natural resources and the active growth of the country's economics. Such cities as Moscow and St. Petersburg are developing at a very good rate. But a few more years are needed to catch up with the European level of providing commercial areas. At present Moscow and Rome drastically differ not only in the quantity of shopping centers but also in the quality of the projects. This becomes apparent in the architectural issues of the shopping center's buildings, the balance of the types of operators and the quantity of international brands, which are in Europe but not yet in Moscow. I am confident that the situation will change very soon.

Marchello Deledda was born May 29, 1973, in Nuoro, Italy. In 2000 he graduated from the Universita Cattolica del Sacro Cuore in Milan with a specialization in economics. From 2001 he was an analyst at the information and research department of Larry Smith Italia. Since 2005 he has been director of the international research department (Eastern Europe) for the same company. The main direction of activities is the studying of new development projects of shopping centers, commercial parks and entertainment complexes and comprehensive expertise and consulting during the sale and purchase of commercial property (generally large scale shopping centers) by European and international investment funds.

Larry Smith was founded in 1939 in the US and worked as a consultant for the world's first ever shopping centers J.C. Penney, Safeway and Macy's. In 1960 the head office moved to Europe, and in 1984 a branch of Larry Smith opened in Milan, Italy. Today the company's principal projects are located there. At present Larry Smith is a consultant and managing company of commercial real estate facilities in Italy covering a total area of more than 700,000 square meters. Included in Larry Smith's projects today are five of the 15 branded shopping centers in Italy, including Roma Est in Rome and I Gigli in Florence. Larry Smith has close ties with retailers and investment funds in Europe and plans to bring them to the Russian commercial real estate market. Their clients include the international corporations Decathlon, Galeries Lafayettes, Carrefour, Marks & Spencer, Obi, Altarea, Hines, Sonae, SCC, AIG Lincoln, AMC Babcock & Brown, Citibank, Deutsche Bank, Eurocommercial Properties, ING and Redevco among others.