Defense Ministry to Auction Off Own Bases

The Defense Ministry is looking to play auctioneer for the first time as part of a plan to sell billions of dollars' worth of property to help fund the construction of much-needed housing for officers.

Two prime locations that once housed military units -- including a 12.2-hectare lot on prestigious Rublyovskoye Shosse with an asking price of $110 million -- were to go under the hammer as part of a plan backed by Defense Minister Anatoly Serdyukov to sell off assets deemed unnecessary.

Opposition to the "hurried" sales of the assets has been reported as one of the factors fuelling discontent among senior army brass with Serdyukov, a career tax man who became only the second civilian to hold the defense post on his appointment last year.

Nezavisimaya Gazeta reported last month that the chief of the armed forces' General Staff, General Yury Baluyevsky, and a number of other senior officers had submitted their resignations in protest against Serdyukov's plans. The Defense Ministry denied the reports.

In an announcement likely to have made those opposed to the sales happy, the first auction, planned for Tuesday, was postponed, Interfax reported. The Defense Ministry gave the reason as a lack of bidders and had yet to set a new date for the auction.

When the sales do finally get under way, the Defense Ministry will be taking over the role of auctioneer from the Federal Property Fund, which is the official owner of the property, giving the ministry oversight of how some of its most attractive properties will change hands.

The scenic spot at 151 Rublyovskoye Shosse is surrounded by a quiet forest and sits close to the Moscow River. The former home of an Air Force procurement unit, it neighbors the upscale residences of many of Moscow's rich.

The other lot, close to the town of Khimki on the northern outskirts of the city, is smaller at just 2.8 hectares and going for $48.5 million. An old tire jutting out of the ground next to a concrete fence around the site was just high enough last week to offer a peek inside at the depressing collection of crumbling former medical warehouses.

An officer walking into a nearby military hospital said the warehouses were closed four years ago. In the middle of a military compound, they are surrounded by the hospital, a racetrack belonging to the Central Army Sports Club and a civilian bus garage.

The Federal Property Fund said it also used to transfer money from the auction of Defense Ministry properties directly to the military apartments budget. At present, 122,000 military officers and their families are in line for apartments that the state is required to provide for them.

By organizing the auction itself this time around the Defense Ministry may be looking for more credit for trying to solve the military housing problem said Alexander Komarov, a spokesman for the Federal Property Fund.

"These are large and valuable assets," he said. "Perhaps it's easy to sell them and feel that a solution has been found."

The fund's sales of military properties last year totaled only 1.5 billion rubles, or $64 million.

Independent defense analyst Alexander Golts said the Defense Ministry was trying to ensure that more money went to build new housing. While money from these sales has been included in military budgets approved in the past, the proceeds will come on top of existing spending, he said.

"The Defense Ministry is interested in attracting substantial extra revenues for the apartments," he said.

The entire plan calls for 18 other sites formerly used by the military to go on the block across the country this year, spokesman Ilshat Baichurin said last month, RIA-Novosti reported. Included are sites located in Moscow, St. Petersburg, Kaliningrad, Vladivostok, Vologda, Perm, Kirov and Krasnodar.

Some of the lots could be those in Moscow that the ministry plans to vacate as part of plans to relocate a number of its administrative and central command branches from downtown Moscow to elsewhere.

The plans call for the Strategic Missile Forces Academy to move to Bolshevo, outside Moscow, and for the Navy headquarters to move to St. Petersburg. There has been widespread speculation in the media about other candidates for re-election.

A Defense Ministry source said the value of the Strategic Missile Forces Academy building on Moskvoretskaya Naberezhnaya, close to the Kremlin, and the surrounding land has been estimated at no less than 100 billion rubles, or $4.3 billion, Interfax reported last month. The assets will be handed over to the Presidential Property Department and auctioned off, the source said.

The auctions are just the latest move by the government to try to provide accommodation for its military officers.

President Vladimir Putin allocated 30 billion rubles for 2006-07 to improve the situation in the country's five most expensive regions for real estate, including Moscow and St. Petersburg. The federal government has also traded plots of land to city governments for already existing apartments, and military personnel have been given housing certificates to help them buy apartments.

The Defense Ministry's Baichurin said selling off the properties would not hurt the country's military capabilities, as military analysts have already deemed the installations in question unnecessary.

The ministry is asking a fair starting price for the Rublyovskoye Shosse lot, said Dmitry Kanunov, deputy director of strategic consulting at Knight Frank Russia and CIS, a real estate company. He said the land there would generate interest as a site for upmarket housing.

At the same time, the relatively large 12-hectare size might render it a bit imposing, thus contributing to the dearth of offers.

"This would be a serious investment," Kanunov said in an e-mail. "Not only for the plot, but also for its development."

Another factor may be worries on the part of investors that the Defense Ministry would place restrictions on how the land would be developed, said Sergei Belov, associate director at Jones Lang LaSalle, a real estate consultancy. Restrictions might vary from a ban on disrupting possible underground communications lines to the requirement to keep existing facilities intact, he said.

Generally, Belov said the Rublyovskoye site would be most appropriate for building cottage-style homes, while the spot near Khimki would be better suited for apartment buildings.

But Polina Kondratenko, valuations director at Colliers International, said the smaller lot was more suited to office space because it was surrounded by nonresidential buildings.