Money Growing: Make it Before 2014

Investors have come

At the beginning of July 2007, Sochi suddenly became "the hottest investment platform of Russia," by the expression of Dmitry Chernyshenko, the head of the organizing committee of Sochi 2014. Having won the competition to be awarded the Olympiad city of 2014, the city’s investment appeal has dramatically increased. The price of one sotka of land for construction, according to local builders, has reached $0.6-$0.7 million, and this is not the limit.

The main problem of future construction is the absence of a general plan of Sochi and its neighboring territories. Predictably, one will be created before the middle of 2008, however, to get a definite answer with more exact dates from the administration of Sochi was not possible for Vedomosti. And how do you build without a general plan, for example, in Imeretinskaya valley which is located at sea level, and in some places, even below sea level? However here Base Element plans to build five hotels with a capacity of 8,000 rooms, 0.6 million sq.m of residential apartments and also a media center measuring 80,000 sq.m. And these are only the largest premises.

Nevertheless the main Olympic investors have already been determined. They are three national monsters - Gazprom, Interros and the already mentioned Bazel, which through their affiliated structures are planning to carry out large-scale investments in both the construction of hotels and apartments, and in large infrastructural objects.

Lots of plans

In the vicinity of Sochi (Krasnaya Polyana, Imeretinskaya valley, Psehako mountain, etc.) these companies did not just appear yesterday. For example, in 2006 Bazel bought Adlerosvky airport for 5 billion rubles and has carried out its partial reconstruction ("for the arrival of the appraisal commission of the International Olympic Committee," admits Yuri Relyan, the head of the operating management of the Project of Sochi-2014 of Base Element) and is planning to invest in total $120 million in the airport’s infrastructure, and has already begun the construction of a cargo terminal. In the future the operation of this airport will be carried out together with the operation of all airports in the south to create general volumes of passenger traffic.

Interros has been in Big Sochi since 2001. In 2003 it created a special structure – Roza Khutor - for the realization of a mountain ski resort project of the same name as a part of the development of the Krasnaya Polyana complex.

Gazprom has also already constructed an elite hotel complex called Laura. It also plans to create a mountain-ski and biathlon complex on Psehako mountain.

In total by 2014 in Big Sochi there should be 11 sports premises. In addition to the already mentioned constructions by Interros and Gazprom, Bazel will create an Olympic village in Imeretinskaya valley. In general, the sports infrastructure will be divided into two clusters: coastal and mountain. In each one there will be an Olympic village. Organizers promise that it will be possible to reach one place from the other within an hours drive.

Roads and ports

As has been said by Alexei Khraban, assistant to the head of Sochi concerning the preparation for the 2014 Olympics, special attention will be paid to creating new transport infrastructure and 115 billion rubles has been allocated for this. According to the program of development of the resort an additional, so-called "bypass" railway will be constructed. Although now, according to Relyan’s calculations, it is possible to increase the throughput of the existing branch from 1 million tonnes of inert material to 5 million tonnes if "a significant dispatching center is successfully created.”

In total, according to Khraban, by 2014 about 200 km of new roads and railway in the region is planned to be laid.

In addition to roads and railways there will be two new seaports. During Olympic construction they will serve first of all as reloading points for incoming cargo. In Sochi there is a marina, but it is a passenger one. The main flow of building materials gets to the city through the ports in Novorossisk or Tuapse, and then by railway. Local builders complain that they always have constant problems because of this: any factory that decides to make money from builders cuts down on its deliveries. If the factory does not have stock, construction will stop, and therefore people are prepared to pay any money not to break the construction cycle.

For the construction of Olympic premises in Sochi, experts calculate that not less than 100 million tonnes of building materials will be needed. There are no sandpits or large cement factories in the city. However the construction of seven factory projects have already been announced. One of them, with a capacity of 1.7 million tonnes is being built by Bazel. As Relyan said at the Olympic Conference, Base Element will be solving the problems of Olympic construction with the complex.

Bazel has already paid for the pre-design work for the construction of one of the two ports at the mouth of the river Mzymta. This has been done by Novorossisk institute NovomorNIIproekt. According to its general director Sergei Gonenko, it is supposed that the first port will be constructed (in 2008-2010) with funds from Bazel and the state.

The government should finance the design and construction of protective buildings and navigation safety premises. Bazel will pay the rest, acquiring the right at the end of the Olympic games to re-orient the port into a world-class yacht club. During the Olympics the port will accept cruise vessels.

Investors’ risks

State corporation OlimpStroi will be created at the start of November 2007 to manage the budget of the Federal Target Programs and also to cooperate with private investors. Its head is a former president of Transneft Simeon Weinstock. Its members are federal and regional officials. It is planned that they will attract the necessary funds. According to Alexei Yankovsky, manager for planning and logistics at BDO Unikon Consulting, at the beginning of November, 20 premises designated in Federal Target Programs have not been distributed, i.e. they have not found owners. Among the outsiders are hotel branches.

According to Khraban, by 2014 in Sochi there should be an additional 2,100 hotel rooms in 5* hotels, up to 10,100 rooms in 4* hotels and up to 13,500 rooms in 3* hotels. But investors are still not in too much of a hurry to develop the local hospitality sphere.

Sochi is quite an old resort, the great bulk of local hotels were constructed during Soviet times and hotel service remains approximately at the same level. Although according to Khraban, in 2006, the mid-year fillability of hotels increased 3 per cent in comparison with 2005 and reached 66 per cent. Now in Sochi 227 average and large means of accommodation operate. According to Federal Target Programs 30 more should be constructed.

Of course, the exposure of investment tenders for land plots are stipulated by certain conditions - first of all on the Small Akhum Mountain. "This is a beautiful place, but there is no infrastructure,” Yankovsky says. When there will be a general plan, there will also be clarity on how many hotels it is possible to construct.

However the absence of infrastructure, the seasonal prevalence of tourist demand, the limited rehabilitation ability of the region (beaches after all are not made of plastercine) and the short-term expediency of planned investments are forcing investors to reflect on the possible of entering the hotel sphere of Sochi.

In addition by 2014 near the coastal line of the city, M-industry with the money of an Arabian investor (Allied Business Consultant) promises to construct a new island - with beaches, sea-scapes, private houses, apartments and world class hotels (the architectural bureau of Eric Van Egeraata is designing the project). The island has been modestly named Federation Island, and its contours from a bird’s eye view will remind all Russians of the outline of the motherland.

As the director of development at M-industry Grigory Usychenko has told, the company has worked on this project since 2002. But the final agreement on its realization was signed only recently, during the International investment forum "Sochi-2007" in October 2007. Except for M-industry and Allied Business Consultant, which promises to provide more than 150 billion rubles, the third agreeing party became the administration of the Krasnodar region which will receive a new municipal formation within the structure of Sochi by 2014.

In Sochi there is a profitable climate and various real estate, praised Eric Van Egeraat, representing Federation Island at a press conference at Itar-Tass on November 19. However "here there are beaches of low quality and waste is dumped directly into the sea," he said unable to deny the truth.

The architect from Holland - a country where it is necessary to win each scrap of land from the sea, was perplexed why in Russia, "where there is a lot of land," you would create an artificial island. Its area will total 330-350 hectares. For its alluvion alone 7 billion rubles is required from the investor, then it will become the property of the Russian Federation. And the real estate that will appear there will be given either to the owner, or for rent. "If we put it on sale now, the price per sq.m would range from $5,500 to $10,000," imparts Usychenko. He says that the project was not thought up to coincide with the Olympics and the date of its initial realization was planned for 2015. However, after some amendments Federation Island will be basically ready by 2014, the developer promises. Besides residential real estate on it there will also be sports premises.