Money Growing: Life After Restoration

The people involved in the process of protecting monuments, painfully react to any changes in the condition of the historical-architectural environment of the city; in contrast to people with business interests, above all they think about what profit can be made from investing in historical real estate.

Don’t touch!

Konstantin Kovalev, managing partner of Blackwood, is sure that in the current climate of an existing deficit of vacant sites for construction in the city centre the restoration of historical buildings may be a unique variant for large development projects.

"The Moscow authorities having forbidden the construction of office complexes in the Central Administrative District has compelled developers to develop the territories of industrial zones, to reconstruct low-class office premises, and even to restore office private residences,” says Kovalev. “Now in the CAD the realization of new office projects that were not approved before the Moscow authorities decision to forbid new construction, is only possible within the limits of reconstructing and restoring existing premises."

Kaido Kaarma, director of the department of elite real estate at MIEL-New Build, in turn thinks that for the developer, restoration of historical buildings is just a question of prestige because there is no commercial expediency of such projects.

"There are two concepts - restoration (returning the building to its initial condition without changing its front and constructive design) and reconstruction (the façade or the skeleton of the building may be the only thing that remains the same as the original, while everything else - construction elements, other facades, the design of space and lay out - varies),” he explains. “The restoration of historical buildings is rarely interesting from a commercial point of view. A historical building is, above all, about image. A good example is the beautiful building of Russky Kredit on Smolensky Bulvar. It is a good example of restoration."

However from a commercial point of view, in the opinion of the expert, this building is not the optimum variant for the accommodation of a bank for the following reasons:

• higher loss of space due to non-optimum lay-out;

• higher unused area of the land plot;

• inconvenient arrangement of the premises for various functions;

• there is no lift;

• There is no underground parking, etc.

"Such disadvantages are not only present in administrative buildings, but the overwhelming majority of historical residential buildings possess them too. Therefore to be engaged in restoration in a pure state is meaningful only for art, for the preservation of buildings in their original state and keeping this view for our descendants," summarizes Kaarma.

Adviser at Penny Lane Realty Yan Al-Nuri thinks that for the proprietor or the tenant of a heritage premises it is most important to know will the building be solid in the future, how quickly will repairs be needed, how comfortable are the conditions to live in, and what is the architectural authenticity of the premises after restoration, etc.

Probably, from the point of view of critics it is important to keep wooden overlappings (sometimes these are extremely shabby),” says Al-Nuri. “But from the point of view of the people who will maintain the building, it is better to replace them with modern and stronger designs. I am against taking down monuments and building “models” in their place, but the balance between careful treatment of architectural heritage and reasonable commercial use of monuments needs to be found. It turns out that everyone is worried about historical monuments, but nobody really does anything. Monuments decay, turn to ruin and cease to be attractive to business and society. In 50 years it will turn out that there will be nothing left to restore. Now such premises yield only losses although after restoration or reconstruction they could both make a profit and remain part of cultural heritage."

Technologies or enthusiasm?

Recently in the center of Moscow a casual passer-by on a Sunday saw that in the Khitrovki area builders had started to take down a private residence from the beginning of the 19th century. They photographed the building works and put the pictures on the Live Journal blogging website. After a couple of hours a group of enthusiasts had gathered by the building and had called the police demanding that construction work stopped. On Monday experts from the Moscow Heritage Committee had vetoed the demolition of the monument.

Defenders of monuments say: if even just one person stands up for the protection of a historical building, the monument will have a chance to be rescued. And more often than not this "personally interested" person can gather a team of like minded people, find sponsors and investors, punch gaps in bureaucratic defences, and in general, work like a locomotive.

The famous tower on Shabolovskaya in Moscow, designed by ingenious Russian engineer Vladimir Shukhov, has a native sister in Nizhny Novgorod, from an initial four. The Nizhniy Novgorod tower is not as tall - only 128 m (Moscow’s is 160 m), but apart from that they are the same. Shukhov was the first to use mesh metal as a construction material in the construction of his towers, which not only gave his creations a weightless openwork tracery view, but also – most importantly - maintained the maximum wind loading. All Shukhov’s creations, including his towers, are objects of cultural heritage and are protected by the state. However, two years ago this didn’t prevent malicious conspirators from removing some of the metal from one of the towers and selling 100 tonnes of it as scrap metal.

And a year ago the tower in Nizhny Novgorod faced the same fate. It currently also has only a third of the supporting structure, is missing one of its rings that fastens two sections together, and it is considered to only have months to survive. The Shukhovskaya Tower Fund, which is headed by its inheritor has interfered in time.

"The tower in the Nizhny Novgorod region was saved as a result of collective efforts,” says Vladimir Fedorovich modestly. “The tower had an owner – the local branch of RAO UES Russia, but they did not want to have to spend money on the reconstruction of power systems. Then the administration of the region through the courts obliged the proprietor to fulfil its responsibilities concerning the protection of the premises. All research work for the preparation of the restoration project has been carried out by experts at the Nizhny Novgorod State University of Architecture and Construction together with a group of international experts under the direction of Professor Rayner Gref, who is the director of the Institute of Construction History and the Protection of Monuments of Architecture at the University of Innsbruck (Austria). And our fund together with foreign partners has collected $2 million to carry out restoration works. A year later and these are the results: The tower has been completely restored, and the Nizhny Novgorod branch of RAO UES Power Systems is now conducting additional work on strengthening its supports."

This problem was solved with apparent ease. The other Shukhov tower – the famous Shabolovskaya tower - has been declared personally by Yury Luzhkov a disastrous premises. The Mayor of Moscow already not for the first time has threatened to transform it into one of the main tourist sights of the capital: in Paris they have the Eiffel Tower, and we will have the Shukhov Tower. But conversations on the matter have not progressed yet: the monument is federal property, and neither the federal government nor the Moscow government gives money to restore it. It is impossible to get the tower now – the whole territory around it has been built up. But Vladimir Shukhov is not despondent, he is sure that all the same they will win, and a restoration project will be forced through just like in Nizhny Novgorod. Just in Moscow it is necessary to spend more effort and money than in the regions.

For the cultural heritage of Russia it would be better if times of "personal culture" were replaced by the celebration of technology. We don’t need to create something new, in the West (from where developers literally scoop commercial ideas) the building boom has long since passed and they carefully treat their heritage. In many European countries there are long-term programs for up to 30 years, on the preservation of heritage and the development of an attractive tourist image of the country as a whole and in the capitals in particular.

In Russia the interest of investors in historical real estate meanwhile remains languid, and it’s not only domestic developers but also western ones, who have wide experience in working on such projects. Georgy Kuzin, executive director of RDP Holding, has a simple explanation for it: "Everything connected with Moscow real estate and the rental of historical buildings is semi-legal. Nobody can give serious guarantees, profitability is not always calculated, and therefore for western investors such projects are uninteresting. Western investors are conservative and pay a lot of attention to documents. Even purchases of new buildings for investment purposes among western companies are extremely limited and business has not yet reached monuments of architecture." In Kuzin's opinion, in Moscow an insignificant number of historical buildings are restored with maximum care to preserve their appearance, and use historical materials, etc. The overwhelming majority either represent new builds, or are reconstructed in such a manner that they practically lose their historical beauty and value.

History as a trend

In the opinion of experts in the real estate field, a historical building as a head office of a company or to use an ancient private residence for the head of the firm is now fashionable. Can this upcoming trend make historical real estate interesting to business? "If the building is in the historical part of Moscow or in an area attractive to business after its restoration it will be possible to sell or lease it more profitably,” Al-Nuri is convinced. “Everything depends on the conditions on which the building is bought. Demand is influenced, first of all, by the location of a premises, secondly, by the historical component of the building (who constructed it when, etc.) and, thirdly, the possibilities to adapt it in view of modern requirements for office buildings. I mean, that in the building after restoration there should be all the necessary engineering and communications systems: ventilation, air-conditioning, telecommunications, etc."

According to Blackwood, the cost of reconstructed offices in private residences in the office real estate market can be some of the highest. To a greater degree the high cost is caused by the historical value, the uniqueness of architecture, the small areas of such premises - as a rule, up to 1,000 sq.m – and also the limits in supply of such premises. In the residential market private residences are also in the highest price segment. The majority of private residences are located in prestigious areas in the Central Administrative District (CAD) (Arbat, Khamovniki, Ostozhenka), have original architecture, large areas and their own history. "These are first of all purchased for the sake of image, which favourably emphasizes the status of the buyer and their financial position,” Kovalev is convinced. “And this means that historical buildings are several times more expensive than new buildings."

Of course, investments in restoration are much slower to make returns than in new construction. In Kovalev’s opinion, 6-8 years is required. And Kaarma thinks that the recoupment of costs depends on the amount of work the project involves: they can include the replacement of overlappings, all engineering communications, the replacement or restoration of external walls, etc. Therefore in comparison with new construction restoration is more expensive - often 1.5-2 times more. "The recoupment of such projects depends on many factors,” says Al-Nuri. “For example if it is ruins that have been bought for nothing and a new building in its place will be constructed this is one thing. But if the building has been bought at the current market value and $2,000-$2,500 per sq.m needs to be invested in its restoration, then the profitability of this project is absolutely different. But on average the recoupment of restoration projects take 5-7 years. If restoration is especially complex it can take a little bit more. In any case the acceptable time period for recoupment of such premises should not exceed 10 years. Premises with the opportunity to increase areas are more attractive as the recoupment period of such projects is less."

"Buildings constructed by avant-garde architects are easier to adapt to modern operational use, than, for example, a private residence or manor from the 17th-18th centuries,” Kuzin is convinced.

“In Russia it seems it is possible to get approval for any project for money. An example are the Voentorg building and the Moskva hotel. The question of planning approvals and reconstruction is a question only of money."

An example, of careful restoration which may become is expensive is that of the Narkofin building (about which Vedomosti has already written). MIAN plans, having invested $60 million in the scientific restoration of this masterpiece of Russian constructivism, to transform it into a boutique hotel. However, MIAN spent a long time deciding how to use what they had obtained: first of all an apartment-hotel, then an apartment building with an entertainment center, and eventually they decided on a boutique hotel, which allows them to keep the architect’s concept of the house - as communal as possible. "The destiny of the monument depends not only on how it will be restored, but also on how it will survive after restoration. A boutique hotel is a good format for historical buildings,” says Yana Mironets, a representative of the Narkofin building fund. “All over the world they have helped monuments of architecture to survive. Fans of architecture and culture can come here to stay, look, join in. And this allows for the monument to be maintained in a new condition so that it is not necessary to sae it again some years later."