Commercial Real Estate

The shortage of development land in the center of world capitals is driving redevelopment. Thus they redevelop docklands in England into business centers, and in America they regularly redevelop industrial buildings. Petersburg-based experts are studying Western experience and applying it to local problems. For all that, the success of every project where the developer counts on conserving the historic aura depends on the prospects for regenerating adjacent depressed territories.

Practicality and Romance

Classic examples of successful redevelopment include the Gasometer project in Vienna, where round brick towers framed by hi-tech structures poke up above the industrial cityscape. This mixed-use was developed by the famous Coop Himmelblau Architects at the site of old gas storehouses dating to the 19th century. Now the old gas facilities house a business center, apartments, a student hostel, restaurants, a multiplex and a shopping complex of 70 shops covering a total of 22,000 sqm. In May 2007, an extraordinary hotel opened in the center of Helsinki, in a former prison building, just a few steps from the port and train station square. The building outwardly resembles our Kresty jail, a somber, angular, red-brick building surrounded by a fence of the same red brick. After the prison was relocated to a suburban area in 2002, the building was purchased by an investor, who fashioned a four-star hotel there, managed by the Best Western chain, which always chooses “historic buildings” for its projects. With investment of 15 million euro, 160 prison cells were refurbished into 106 hotel rooms with all amenities. They designed a 130-seat conference and wedding hall. But the prison facade and cast-iron staircase remained untouched as architectural monuments. The low vaulted ceilings, latticed doors and old stairway are juxtaposed with soft carpeting, engravings on the walls and curtains. Guests are offered striped pajamas, as well as Jacuzzi and PCs. The main target audience is well-to-do businessmen with a sense of humor. At the height of the tourist season, the daily room charge may reach $290, and the hotel is 100% occupied. The banquet hall is reserved through next spring.

Experts point out that the investor who tackles the refurbishment of St. Petersburg’s Kresty might learn from the Finnish experience. The historic Kresty building will be put up for an investment tender in 2013, after the jail moves to Kolpino.

Aura by Succession

There are many opportunities for the redevelopment of St. Petersburg’s pre-Revolutionary factories. “Any building with a special aura can bestow it on a new use, and the image of a place can attract people. As for Kresty, it is advisable to refurbish it into a five-star hotel, although the property regeneration and reclamation will call for a bulky outlay,” opines Igor Luchkov, appraisals and analytics director at Becar Commercial Property SPB.

Few projects are being currently delivered. The management company Museum is redeveloping the bankrupt Red Triangle rubber plant. Museum acquired the 100,000-sqm production facilities in 2002. Reconstruction on the first 40,000-sqm phase is expected to be delivered by 2010. In 2006, the company completed the renovation of 6500 sqm of facade buildings to house office space. In 2007, it tackled the regeneration of the back territory. Following KGIOP requirements, the developer conserved the red-brick factory facades and the historic staircases, the number of stories and the roof profile. A large recreational center and a three-star hotel will open on the former plant grounds by 2010. Another project is the redevelopment of Warsaw Railroad Terminal into a mixed-use. The terminus was closed in 2001. In 2003, the city handed over the building on investment terms (for $2.95) to the Adamant holding. Investment in the project was $43 million. The 35,000-sqm Warsaw Express mall opened in May 2006.

Waiting for the Synergistic Effect

The distinguishing characteristic of St. Petersburg redevelopment projects is high costs. Adamant had to lay out $1300 per sqm to re-profile the Warsaw terminal, while the average cost of retail property construction ranges from $600 to $1000 per sqm. Such projects take more time to recoup than usual commercial properties – 12 years instead of the average 7-8 years. But the main problem is that quite often potential redevelopment properties are located in depressed industrial districts. Kresty, on the Neva quayside, is a happy exception. The location of Warsaw Express is far from favorable. The surrounding areas (Bypass Canal and others) have a low-income population and the mall is hard to access because of traffic jams.

The city administration and Russian Railways are now considering developing 400 ha beyond the Warsaw terminus. The surroundings of Red Triangle have also left much to be desired until recent. Regeneration of the vast territory bounded by Shkapin and Rosenstein Streets will be a catalyst for investment and business activity in the area. The development land was acquired late in 2007 by Glavstroy SPB.