Credit Squeeze Hitting Developers in St. Pete

As the worldwide financial crisis and its effect on project financing takes the luster off of Moscow's construction boom, St. Petersburg real estate developers are feeling a credit crunch of their own.

Teorema, a St. Petersburg-based developer, has frozen around $100 million worth of projects, said the company's chairman, Igor Vodopyanov. The projects were halted because of an inability to secure credit for their completion, he said.

"Right now, we're continuing to work on the Benua and Obukhovo Center projects so we can finish construction and get tenants as quickly as possible, but the rest of our projects are frozen," said Vodopyanov. "The situation won't change until banks start giving credit to developers. Right now, it's impossible to receive credit, even at the very highest rates."

Teorema's situation is not unique. As the crisis picks up steam, more and more banks are withholding credit from new clients, raising interest rates and demanding collateral on their loans.

"Bankers are now extremely cautious in giving out credit to new clients, preferring to deal with older, tried and tested ones," said Alexander Volkov, the head of Bank of Moscow's St. Petersburg affiliate. "The number of credit requests has grown, but so has the number of rejections."

Volkov said interest rates on bank loans have shot up by 4 to 5 percent in the past week.

The construction industry, which accounts for more than 5 percent of Russia's gross domestic product, registered 16 percent growth in 2007, but liquidity problems this year -- even before the current crisis -- have given cause for concern.

In the first quarter of 2008, construction accounted for 6.8 percent of the rate of GDP growth, down from 7.5 in the same period last year, while the real estate sector comprised 7.4 percent of growth, down from 9.7 percent in the first quarter of 2007, according to figures from UralSib.

The markets are seeing a crisis of trust in borrowers, rather than a liquidity crisis, said a St. Petersburg bank manager who asked that his name be withheld. Banks are using every pretext in the book to hold off on taking decisions regarding loans, he said.

Those wanting to improve their chances of receiving financing have at least one option, however -- Volkov said real estate is currently the best possible collateral for getting a loan.

Teorema's Vodopyanov, however, said he was refused a loan even after putting up real estate as a guarantee.

(Vedomosti, MT)