Mirax Bets on Country's Superrich

ReutersA waiter setting tables at a private club in the Federation Tower, where some apartments are priced at over $5 million.
Banks may not be lending and global recession threatens, but the developer building Europe's tallest skyscraper sees a reason for confidence: Russians have not lost their appetite for flaunting their wealth.

The developer behind Moscow's Federation Complex believes that, crisis or no crisis, rich Russians will pay for the cachet of owning one of the project's apartments designed by Giorgio Armani and costing in excess of $5 million.

"It's a lifestyle thing," said Dmitry Lutsenko, a board member of Mirax Group, the company that is building the complex of twin towers on the banks of the Moscow River.

"It is quite obvious that people still have money in the world, and they want to buy nice things. They want to buy unique things. And I think this section of the market will be least affected by the crisis."

Russia has not been immune from the turbulence on global markets. Stocks listed in Moscow have lost 70 percent of their value since May -- worse than comparable economies -- and several billionaire businessmen have watched their assets shrivel.

But the country's superrich, the type the Federation Complex wants to attract, appear unusually resilient to the global crisis.

There are a lot of them: The Russian edition of Forbes magazine says there are 110 entrepreneurs worth at least $1 billion, and a study commissioned by Mirax showed Russia has 200,000 families with an annual income over $1 million.

And they still appear ready to spend money on items that enhance their status. "We studied the situation with the sale of luxury items, for example expensive cars, to analyze buyers' behavior at a time of crisis," said Lutsenko.

"This is a segment of the market which is not so vulnerable to competition," he said, sitting in a chic private members' club on the 59th floor of one of the two towers as a construction worker dangled on a rope outside the window.

When finished, the taller tower will have 93 stories and stand 448 meters tall, including its spire. By comparison, the Eiffel Tower in Paris is 324 meters high with its flagpole.

The private members' club will soon be dismantled to make way for four apartments created by Italian fashion designer Armani, which will be sold at auction. "They could fetch anything," said Lutsenko.

Ordinary apartments are more modest and will carry an average price tag of between $4 million and $5 million. Office space and a hotel will take up the rest of the complex.

Asked if the project would be completed, Lutsenko said, "We have no doubts whatsoever."

Mirax, one of the biggest players in the construction boom that has transformed Moscow's skyline over the past few years, has not escaped the crisis unscathed.

It says it has total debts of $800 million, $265 million of which is due to be repaid before April next year. Refinancing is not an option for now. "The banks are not giving any loans to any developers at all," said Lutsenko.

The company said last month that it was freezing all projects that were still on the drawing board, and it has been trying to improve its cash flow by collecting debts from clients and persuading contractors to lower their costs.