People in the know: From the Baltic's to Siberia

Was the transition from bankers to developers easy?

The transition was not easy. It was a transition from a hired manager to the owner of a business. It was necessary to engage in new things, but on the whole it was all very successful, and I am happy that made such a step.

At Alpha Bank did you once supervise real estate projects?

No, I had absolutely no connection at all with real estate, I was director for work with corporate clients.

Why then did you choose this area? Did you decide that it's a promising and profitable business?

Real estate is a segment that is connected with creativity. I was interested in it, it was a new direction. The first project that I worked on as soon as I left Alpha Bank was the shopping center in Kaliningrad. Much connects me with this city, I was born there, I grew up there, and my parents still live there.

I began to create a team for the Kaliningrad Plaza project then not realizing yet, that we would develop into a developer division. I thought about how to do a project, to construct one beautiful building. We achieved it.

Where did you get the money for the project? Did you use your own funds? Or did you attract extra?

Employees don't earn much at Alpha Bank. The Shopping center cost approximately $35 million I organized the financing by means of loans from individuals. There were people who believed in me, in the project. Then we were able to attract bank credit.

After Kaliningrad Plaza you decided to investment in a chain of shopping centers in different regions? Did you create the chain to sell it?

Originally we thought that it was necessary to construct a good premises. After it was built, we started to why we shouldn't build a chain of similar premises. Though in our case "chain," probably, is slightly the wrong word. A chain means a uniform brand, a uniform condition. We have absolutely different premises, which are not connected at all. Although we are working on a brand, and it is quite possible, that in the near future we will announce it.

It was logical.

The fact is that for the shopping centers we build, we choose unique places and we develop unique concepts.

What uniqueness, for example, does the Kaliningrad Plaza have?

That it has was done for a specific place, for new tenants in the city, which we attracted.

Is it not rather expensive for tenants in Kaliningrad, for example Wild Orchid? Is here high solvent demand in the city?

You know, in Kaliningrad about 270 new Mercedes are registered. There is Bentley, and Maibakh. In general there are enough rich people whose wives come and buy underwear [from Kaliningrad Plaza]. Kaliningrad is a developed city. With George Valentinovicha Boos's arrival it has received a new wave of development. Now there are many new tenants and new investors constantly coming.

By what principles are multipurpose centers in Kaliningrad currently built under?

Well, there aren't a lot of them. Jones Lang LaSalle has named our premises as the only correctly constructed shopping center from the point of view of the concept and quality of building materials, but there are also other projects in the city. Developers of some of them say that they will be better than ours.

You have announced that the company has developments in 15 cities.

Quite right. We plan to be present in them and have already started work.

Where will you get the money for their development?

We have now generated a pool of investors. We work with western funds and banks. Igor Yakovlev, owner Eldorado is a key partner of ADG Group in the realization of real estate projects. He acts as a private investor. Together with him we have attracted western partners with whom he works. We have shown them our Kaliningrad project, and its quality has satisfied them.

Is Kaliningrad Plaza the jewel of the company for ADG Group?

Yes. It has brought to the company new professional employees, which there is currently a big deficit of in the market, from it we have started to work with Jones Lang LaSalle and Michael Lang. They help us very much as advisers, as main partners.

Your company is small. How many staff do you have?

Almost 30 people. We have employees who are engaged in its development and search for new projects, and those who are responsible for their realization and management. We do not aspire to expand our staff, on the contrary, we want to become more professional. In the West there are still companies that operate with a small number of people that have the same number of projects as ADG Group.

Does your company operate purely as a developer?

Yes. We do not build independently, moreover, we do not work within general contacts. We try to establish reliable partner relationships with good construction companies. From them we choose two that we would like to do all our projects.

By what principles do you choose cities where you will be present?

We depend on research, which we carry out independently, and use public information, including from mass media. We use the partner relations that the company already has in the regions. We want to develop in the regions by means of local partners and are interested in strengthening relationships with local developers, builders and businessmen. They already understand that real estate development is a professional field. Professionals like those that construct metal combines, for example. And, accordingly, it is necessary to skillfully work or not work at all.

Are such people increasing in the regions?

People fly around the world, have been to developed European countries and to Moscow. In the regions there are many people who understand that in the future only premises that have been constructed professionally will be competitive.

But even in the capital there are not enough professionals in the construction field, and in the regions, probably, with them it is just a disaster? For example, the building of Kaliningrad Plaza was not done without excesses - whether one of workers has killed the fallen building crane, whether construction has filled in. Or is it rumors?

Building problems happen everywhere. The developer is more an investor than a builder. It manages the risks, and works with advisers. Our problem is employing the correct construction company. Of course, there can be mistakes, there can be accidents, no one is insured against this. For example, in Kaliningrad we employed a professional company called Kontek. I consider that it kept within the supplied and stipulated deadline. I should tell you that Kaliningrad construction companies came to study the Kaliningrad Plaza, observing the speed of its construction. When we announced that it would be a year when construction would be completed, nobody trusted us that we would construct it such a time period.

In Kaliningrad are there delays in the period of construction like the usual phenomenon in Moscow?

Everywhere there is this situation. There are not many construction companies that keep to their budget and deadlines.

Do you choose them with a tender or do you already have established connections? As a matter of fact your company is a beginner in the market.

We approached development in the following way. We started to learn, using advisers. For Kaliningrad Plaza we employed a rather large number of them. We listened to them, we formed our own ideas, some were rejected, some were used. In general we successfully created a professional team, which, not without mistakes of course, made this project. Now we can say that we have gone through the development process from A to Z.

Tell me in more detail about the other regional projects which are already being developed.

In Novosibirsk we are realizing two shopping center projects with a local partner. The first premises has an area of 50,000 sq.m and is located on Karl Marx square. The second, three times bigger, is located on another part of the river. We have attracted local architects for their construction. The shopping center on Karl Marx square we plan to finish at the end of next year, and the Kamenki project measuring 150,000 sq.m should be finished at the end of 2009.

For the first premises we have already received approvals, and although we are not yet advertising it, our agent Jones Lang LaSalle is already looking for tenants. The second, bigger premises will be unique - we plan to have a spacious game zone, and are negotiating with one very interesting tenant, which we will not disclose yet.

Will it be the operator of a food court or shopping zone?

It will be a modern shopping center with a food court, cinema complex... The project will be realized according to high European standards, using modern materials and technologies. The time to build it will be considerably longer, we are studying in detail manufacturability questions, and the correct selection of tenants. The uniqueness of each project is defined first of all by the unique structure of tenants.

Are there just more problems in Russia?

More problems. One can't say that a large number of chains in the world are now in Russia. For example, in the format of hypermarkets, individual companies work, but there is still choice. There are really not enough small tenants who really attract [visitors] to a shopping center and distinguish it from others. But I hope that this segment will develop.

How do you look for such tenants? For example, Torgoviy Kvartal united with Italy's Larry Smith and with its help hopes to attract new brands to Russia. Who helps you?

We have a partnership with Jones Lang LaSalle, and we try to force them to help us.

With money or how?

With money of course... We try to force them not to stand in one place, not to wait for tenants who come and try to find a good place, but to go and look for good tenants - in Europe, the US, Asia. There are currently not enough of them on the Russian market. For example we attracted Polish tenants to Kaliningrad Plaza, and Jones Lang LaSalle helped us do this.

You mention Jones Lang LaSalle a lot. Other developers, on the contrary, complain or are even offended by advisers who have got used to working in a pattern. And for only a beginner developer, it seems to me, difficult to understand, that the concept that is offered by skilled advisers is unique.

I understand what you're saying. Of course, we have disputes. In our hearts we can sometimes be offended by advisers. Not only at Jones Lang LaSalle, but in general. Our task is to force the adviser to work. In my opinion, this lies in the professionalism of the developer. Because, if you come to an adviser and ask it to make everything, first, it roll out for you a corresponding account, and secondly, do only work they consider necessary. This is the problem. Now we have both [small] regional, and [large] federal businessmen who have taken a great interest in development - sometimes they are not serious, and just find the market interesting, these people resort to the help of advisers and think that it is possible for them to solve all problems.

How is the participation of a professional adviser in the project, for example from the "big four," a sign of quality for developers?

Without doubt the adviser does a lot of work. But it only supports the confidence of the professional [developer]. As a rule, advisers are addressed with questions that you want answering. The adviser should dispel your doubts and help you to move onwards. If ask an adviser to construct a shopping center for you, it will make it. It will employ 100 more advisers whom will thank you for your money. And then in the end you receive, like I already said, a big bill and you won't know the [economic] effectivity [of the realized project]. Because the shopping center or any other real estate premises will not have been constructed by you, but one or several employees of an adviser.

Are advisers expensive?

We spend money on them, of course. For example, of the $35 million we spent on Kaliningrad Plaza on advisers we spent almost $1.5 million Theoretically we could spend much more. Advisers are literally involved in everything: finding tenants, managing risks, managing the volumes of passenger traffic and transport around the building, in operations. There are special companies, which assist only in opening a shopping center, etc. Frequently participation of advisers is warranted, frequently it is not.

One direction of your activity is cooperation with Russian Railways in the construction of logistics terminals. Tell me about this in more detail.

I will correct you: we have acted as a co investor in the civil-engineering design of a logistical terminal in Chernyakhovsk, and have not worked with Russian Railways, but with Transgroup, its official partner. They are professionals and are actively developing it, and I am sure our joint alliance will be successful. We have acted as initiators and developers of this project, and they as professional operators. ADG Group has organized construction and has transferred the management of the terminal to Transgroup.

Will you continue to be engaged in this business? The shortage of logistic terminals is a sore point for Russia, even such giants as Panasonic are involved in it now.

We are shareholders of this project and we are now holding further negotiations negotiations with Transgroup. Quite probably, we will develop this business further.

Tell me about the production side of your activity.

We have constructed the Baltmikst factory (manufacture of electronics) and we are continuing to operate it. Here too there was the development of real estate but this time industrial. It is an up-to-date enterprise in which more than 1,500 people works, including Poles, Lithuanians, and Muscovites. We partners, we are partners, I am not afraid of this word, with such companies as Sony, Panasonic and Philips. For Sony we have begun manufacturing LCD TVs, and for Panasonic we make plasma TVs. We realized this project simultaneously with Kaliningrad Plaza.

Will you return to your trade projects? Their geography is extensive enough. How do you intend to do business in cities scattered so far from each other?

First of all we very much rely on our regional partners we will give us the necessary help - in financing, in development of the concept, in designing. I do not see any particular problems in organizing the management of the development of a project, which is not being realized in Moscow, but for example, somewhere like Nizhny Novgorod.

Are you going to build in Moscow too?

We plan to.

It seems to me that in Moscow there will soon be an overabundance of so-called high quality shopping centers.

There are a rather large number of different formats for shopping centers. Fashion and retail parks. There are projects that are rather interesting. We are considering them and working with architects. Now we are concentrating on the construction of unique shopping centers.

All developers think their projects are unique.

A unique project cannot be copied. It is possible to copy simple, standard projects, for example Mega.

It is very successful copy.

Yes, very successful. But we choose our shopping centers for the city centre. It makes certain demands on the project. Each place is unique and costs money and we try to use each plot of land to its maximum. Of course, any elements of a shopping center can be duplicated, we work under standardized facades, but in general they will all be unique premises.

How long have you been in Moscow?

10 years. I live in the Sokol area.

Do you have a favorite shopping center in the capital?

I like the Mega format, and Atrium, these are successful business projects. As a consumer, I try not to go to shops. Although I like to buy shirts sometimes when I am abroad.

Can you disclose the financial results of your company?

We are not ready to discuss these yet.