Cutts Abandons Plans for the Regions

Parkridge Holdings, a developer owned by British millionaire John Cutts, has decided not to build a warehouse complex in Yekaterinburg and is freezing its expansion in the regions, said Alexei Novikov, the company's general director in Russia.

In late 2007, the company announced that it was in talks to buy a 30-hectare plot in Yekaterinburg to build a 150,000-square-meter warehouse complex, but now Parkridge will have to scrap the plan.

"It's true that we were in negotiating to purchase land in Yekaterinburg, but even last summer the first signs of the crisis were starting to appear: Plots and projects were beginning to sell for less, and we decided to wait a bit and buy the land under more favorable conditions," said Parkridge Russia chief Alexei Novikov.

In Russia, just one-quarter of construction projects are currently being completed on time. Difficulty in obtaining financing has forced nearly 75 percent of regional developers to either freeze their projects or push back completion dates, said Mikhail Viktorov, head of the Russian Union of Builders, RIA-Novosti reported.

Executives at Parkridge weren't expecting the crisis to take on such serious proportions, with attracting funds for projects becoming virtually impossible.

"As a result, at the moment we're not looking to buy land in Yekaterinburg or anywhere else in the regions," Novikov said.

Cutts, who is also Parkridge's chief executive, had an estimated fortune of ?300 million ($424 million) in April 2008, according to The Sunday Times. The company had a net loss of $39.7 million in 2007, and its 2008 results have not yet been published.

Earlier, Parkridge had planned to build about 1 million square meters of industrial parks, outlets and hypermarkets in Russian cities with populations of more than 300,000. The company was supposed to get help from U.S. investment firm Prologis, which bought Parkridge's European logistics business for $1 billion. Spokespeople for Prologis were not reached for comment.

In addition to Yekaterinburg, Parkridge also has a project in Moscow. The company purchased 40 hectares on Leningradskoye Shosse, where it is planning to build a 150,000-square-meter warehouse complex. The company also wants to build a 100,000-square-meter warehouse in Krasnodar.

Novikov said the company was in the process of getting preliminary approval for both projects.

"There's no point in starting new projects now. Rental rates have already fallen about 15 percent to $120 per square meter per year. And even some finished projects are currently sitting half empty," said Vladimir Avdeyev, a partner at SA Ricci/King Sturge. He said all major developers have frozen projects.

The head of Raven Russia's office in Russia, Igor Bogorodov, said they were continuing on projects already under way. "At the sites where building has begun, the work is continuing," he said.