People in the know: The Creative Nature of Intermediaries

Streaminvest calls itself an international company, but it is a family business. It was set up by your father? Can tell us the history of its creation and the pluses and minuses of managing a family business?

My father left Soyuzvneshstroyimport, an organization that used foreign companies to carry out construction in the Soviet Union, when he set up the company. We have mainly built or work form connections gained during Soviet times. Our company is an agent for various organizations - both financial in the field of real estate, and for foreign firms, which carry out contract, work in Russia - and provides various sorts of services.

Are Strabag and Enka among your clients?

Quite right. As well as Budimex, Skanska and SRV International. We provide services in approval documents, subcontractor searches, designing.

So you basically work as intermediaries?

It is not strictly intermediary activity. It is development. All stages we pass independently - from the purchase of a site to receiving registration documents, design, construction, up to putting a premises into operation. Foreign companies appear at the financing stage of the construction, and supervise the spending of funds. Intermediary activity is interesting to us from the point of view of becoming acquainted with a premises and after this starting its development. Then, as a rule, the weak links in the project are discovered and then variants come up. Sometimes we are investors or co investors in a project, sometimes we design and build premises.

Tell me more in detail about the structure of the group of the companies.

In 1992 Streaminvest was created. The name can be interpreted as "Construction, Imports and Investments." In the 90s imports were very interesting for us and we really did nothing else. Nobody built anything, but now the situation has changed, and we are completely focused on development projects.

What did you import in the 90s?

Mainly construction materials. From Finland we imported boiler installations, finishings for cottage construction, from bricks to roofing materials. From Turkey we imported fixtures. In Russia we supplied cement from Finnish, Turkish and Polish companies.

Did you have some connections with cement factories?

Yes, in Novorossisk. We unfortunately don't have our own cement factory. And we don't plan to buy one. The market is rather capacious, there are many profitable areas, to be engaged in all of them are impossible. There are only 24 hours in a day, therefore we only choose what we understand well.

When did you start concentrating on construction?

In the middle of the 90s but our growth was slowed by the 1998 crisis. Investment activity in real estate considerably decreased after it. There was some space of time when the building activity of the company stopped, but now this area is rather aggressively developing.

As the group developed, what projects was it engaged in?

During the post crisis period we fully realized an office center located at 29 Shchepkin. Now we are developing the neighboring land plot at 31 Schepkin, and another four projects are being worked on. Among them is a contract with the Ministry of Defense. Within the framework of the contract the company is building a 3* hotel in Moscow (37 Leningradsky prospekt). Its total area is 21,000 sq.m (approximately 200 rooms). Here there are two adjacent sites (1,300 sq.m and almost 2,000 sq.m, all of it measuring approximately 0.3 hectares), for one of which we have all the registration documents but until we have all the papers for the second, we will not think about starting.

We have been working for a long time on this project, there are certain complexities in working with the military. Once the president signed the decree on providing service men with housing the accommodation department was in charge of this question. They are people who are able to build premises, but investment activities are different from what they're used to. Now the situation is improving, new Minister of Defense [Anatoly] Serdyukov has been appointed and is completely changing this system. The power will be transferred to other people, and we hope, that they will actively support us in the realization of the project.

The friction between the mayor and the Ministry of Defense has already become the talk of the town...

The friction is dictated by political interests. There were problems with the Khodynsky field, for example. But now, as far as I understand, relations have got better: there is a road with an exit onto Leningradsky being built, and the mayor has transferred a share of the residential apartments constructed by Moscow, to the Ministry of Defense.

What other projects does Streaminvest have?

We have a land plot in Yaroslavl where we will build a hotel, not within the limits of the program of inter-regional cooperation, but as an independent investor. In Yaroslavl there is the same situation with hotels, as there is in Moscow, i.e. they were needed yesterday.

Yaroslavl is a good example of how the tourist business survives when there are no hotels. Tourists come to the city for a few hours, and in fact as it is a historical center, there are things to look at that would take a week. Therefore hotels will have 100% fillability. We build an inexpensive hotel here. We are communicating with both owners, and operators, which say there is no need for expensive hotels in Russia, only in Moscow and even here there is enough already. In the regions 3* or 3*+ hotels are needed for traveling businessmen or tourists who spend little time in their hotel rooms and for whom extra stars are completely not necessary. In Yaroslavl the hotel will be in the central part of the city, and will measure almost 6,000 sq.m, and will have approximately 120 rooms. Premises around the Golden Ring of Russia can be developed from Moscow, which is close enough, and the opening of representative in these places is not necessary.

What will be the volume of investments in its construction?

The average cost of construction in Moscow and the regions differs slightly. If in the capital it costs almost $2,000 per sq.m (without finishings) in Yaroslavl it is a little bit less. When we will approach the stage of realization, we will invite an operator and we will furnish it how he wants - in fact at each operator the requirements, they are similar, but there are also differences.

Do you have plans to develop the hotel business? Generally developers don't like it much.

Of course we have plans. Here the market dictates the rules. Now our company can develop a hotel and administrative segment. Housing projects are only just starting to be supported by our foreign partners.

Each premises has specificities. The company should either attract a large number of executors, or be broken into parts. Both take time and money. In addition, for us, the development of a premises is a creative process, and it cannot be entrusted to someone.

With what banks do you work with aside from Germany's Aareal Bank AG? How did you come across it, by the way?

The financing of our projects is provided by both pour own and attracted funds from private investors. If there is 30 percent of the necessary sum then the other 70 per cent it is possible to receive by bank credit. We came across Aareal Bank through our Finnish partner SRV. In 2006 they built a very large multipurpose complex in the center of Helsinki costing 450 million euros together. For Finland it became an unprecedented project. The complex is a very complicated "sandwich:" metro, car park, bus station, shops, hotel, restaurants and cafe.

What interest rate did the bank loan you money at?

It works out a little bit more cheaply than our [banks] give. The rate in our banks is 12 percent, and at Aareal Bank we get 7-8 percent. Though in Europe it does not exceed 2-3 percent.

Does your Finnish partner - SRV not want to construct in Moscow something similar to the multipurpose center in Helsinki? Have they asked you to find a land plot for such a premises?

They asked us, and we are engaged in it, but there are complexities. For

example, the mechanism of decision-making of foreigners and Russians

essentially differs. Our people are emotional and can make a decision rather

quickly. They have a bone structure formed over decades. For a foreigner

to say "yes" takes a long time. But while it is making a decision, in our

dynamic capital market someone domestically has already said "yes", and we

are too late. Therefore we first of all need to own a land plot and then involve a

foreigner.

Financing of the premises is not a problem. Now there are many European funds which, owning huge sums, are ready to invest in the [capital's] real estate. But they are very careful in choosing premises for investment, and in Moscow few projects completely correspond to international standards. Our work is to bring to these standards into accordance.

To me it seems that in situations where land plots and projects are snatched away by Russian organizations, foreigners also become more loyal in assessing the risks?

Yes, but with the obligatory presence of a local partner. They say if you have a reliable local partner then you can depend on it. Simply entering the Moscow market and trying something here is a big risk. And they are able to consider the risks.

It is clear that the larger and stronger this partner is, the more administrative resources, the better …

We also consider ourselves such a partner.

Who from your family works in the company except for your father and you?

My father is the chairman of board of directors and the general director, I am an assistant, and my younger brother is the general director of the construction branch of the company. My mum is still a teacher but she also works for the company.

What is it like doing business with relatives? Is it simpler?

I would say it's not easy. There is of course the advantage that you don't expect a dirty trick of him, but there are also difficulties. It is necessary to understand very precisely, that besides working relations there are also personal, which are not always good for business. If you do this successfully, business goes well. We think it is possible for us. For example, how to combine what I am inclined to risk, but what my father approaches with caution? We look for compromises.

What is the legal form of your company?

A holding and firms that are part of a group, companies with limited liability. The group of companies is simply an amalgamation. The founder is my father, Valery Kaitmazov. But he is also an actively working person.

You and your brother are hired workers?

Legally - yes, but with greater powers.

Do you have ideas about how to divide the capital or is it not necessary

This is the advantage of a family business, I am more interested in my own process and self-realization, rather than the distribution of profit, which comes as a result of this process. It is the main plus of a family business, but there are also sides that you always need to remember.

Like what?

For example, you put a relative in a supervising position instead of a person who deserves the position. If the relative's abilities corresponds to the job then they should be there - if not, the position needs to be filled by a person who can manage better.

You took on a supervising role from the date the company was established in 1992. Could you manage your responsibilities? Did you initially become a director or did you build a career in the company?

The structure of the company from the beginning of the 90s to today has undergone many changes, and we didn't have the structure in 1992 that we have now. Before we conducted different areas of business and everyone was engaged in something of their own.

From which university did you graduate?

We all graduated from Moscow State Institute of Construction: my father, brother, mother, and I.

On what principles do you choose partners? Why did you start working with Finnish companies?

It's established connections from Soviet, times. Finns in general are active in our market in comparison with other foreigners. But they are not noisy about it. For example, the first contract in Russia of our current partner - SRV - was the reconstruction of the Metropol in the 1980s. Since then they have constantly been constructing something here. They built the first 10 McDonald's. Incidentally we also participated in that.

Lets talk about tenders - choosing partners, contractors, etc. Are they not just a formality as first of all we choose from a human factor? Or do you look all over again at who is cheaper, and then fall into traps?

If you are not a professional and just enter the market then you can lose in something. Including with contractors. Difficulty in finding a good contractor is, unfortunately, a problem these days, and the majority of those who have rushed to this market, do not even have even basic building knowledge. These days only lazy people don't build. If you only have to attract funds, suddenly everyone wants to become developers. But development is not only attracting funds, but also the further realization of the project from the beginning to the end. Now the majority of developers can economically estimate a project, and cannot realize everything. Or they do it for much more money, overpaying the same contractors.

When talking about how to choose a suitable contractor, it is necessary to imagine very precisely what it is needed for, and it is good to understand what you are entrusting it with. If you can simply choose the best and if you have been on the market for a long time then you already have established mutual relations.

Do you help your clients choose the correct contractors?

We help. To talk about clients in plural is possible at a stretch, clients are individual. The main thing is that we are in the [market] process. Our company can provide western accuracy and organization of work with understanding of Russian specificities and mentality.

Do you promise that your premises will be handed over on time? For example, Etmia II

We promise. There the general contractor is an affiliated structure of our Finnish partner, and the Finns unlike nobody else are able to keep to deadlines.

Are you looking at other land plots? In Moscow and beyond the capital?

It is being considered, of course. But now in Moscow there are very few land plots which you can look at. They have all already for a long time been seized. With land plots there are certain complexities. The developer should "organize" the land plot itself, think about what it is best to do. Outside the capital business is not so effective. In the regions it is necessary to take a number of sites, and this is a lot of work.

Do you only look on the secondary market, in tenders as I have understood, you don't participate?

Yes. Tenders in Moscow are currently not badly organized. But our company understands that someone can give a better price [for a site]. Large companies, which have relations with the government of Moscow, can offer absolutely different conditions to us. They can allow themselves to do this, but it might not match our ideas of the real land price.

What are your ideas?

No matter what the format of the premises is it is necessary to have a minimum of 30 percent of the funds to make it interesting. If there is less money, it is necessary to consider each specific case. The total number of square meters matters, how expensive will it be to use the site, what sort of premises should be constructed, how quickly can it be realized. We cannot make mistakes our reputation is too good.

On your website it says that, that you are an authorized company in the realization of the program for the construction of garage parking in Moscow. Tell me in more detail about this?

We are actually authorized for hotels. We were included in the program for garages with our Etima II project. Within the premises there will be an underground car park (for 65 machines) and an aboveground car park for 100 cars, which is under construction within the limits of the garage program of the government of Moscow.

165 car parking spaces for a 15 000 sq.m premises seems little. Though it meet norms in reality there will not be enough parking.

Parking in the center is a huge problem. And, in my opinion, the measures that the city is now taking to solve it are ineffective. The approach to the problem needs to be changed. For us, the usual those methods that are used in other countries do not work. Now the construction of car parks is unprofitable. The conditions that the city gives to investors are uninteresting. It is more interesting to construct something else in its place. The program on car parks is badly thought over, more and more cars are appearing in the city, and construction cannot keep up. Eventually we will all start to walk, maybe then the city will think about it and the conditions [for investors] will be simpler.

Tell me about your plans for the future.

Although we plan to expand our business, we have the following approach: we will carry out projects, which we are technically able to do to a higher standard of quality. Expansion of activity for the sake of greater turnover us not interesting for us. Quality is more important. The services that we provide demand a careful, thorough approach. What we produce we can be proud of.

We completely realized the business center at 29 Schepkin, (we are the proprietors), and have taken part in the realization of another 10 premises. We have constructed an industrial warehouse complex on the Varshavskoye shosse and some cottages in the Odintsovsky area. For the State customs committee in Moscow we have made a network of boiler houses, for a Polish company we have acted as advisers on the construction of two customs crossings, etc.

What is the turnover of Streaminvest?

Statistics are not a parameter for us. For example, the budgetary cost of the company which we organized for the construction of Etmia II was $30 million. And in this money is our profit. But to say that the returns directly depend on turnover, probably, is incorrect. For us the quality with which we have organized our business and how we manage each premises in which we are engaged is more important for us. With the growth of professionalism will come a growth in returns and thus will increase the turnover of the company What God will give, will be.