Russia Tower May Find a New Home

The Russia Tower, a proposed 612-meter skyscraper being developed by Shalva Chigirinsky, will "most likely" not be built in Moscow's up-and-coming business district Moskva-City, Alexander Kovalov, the project developer's assistant, said Thursday.

"In today's economy, a project of such scale is no longer feasible for us and can no longer be justified," Kovalov said in a telephone interview on Thursday.

Sergei Polonsky, head of property developer Mirax Group, said Wednesday that he would like to take over construction of the Russia Tower and intended to make an offer to Mayor Yury Luzhkov.

"By all means. If Polonsky somehow manages to come up with the $1.5 billion needed for the construction of the Russia Tower, let him talk to us about it directly. We would be very cooperative," Kovalov said, adding that Chigirinsky and Polonsky had not discussed such a project recently.

Polonsky offered $43.5 million for Chigirinsky's stake on Wednesday.

In place of the Russia Tower, the company now plans to use the land -- leased from the government of Moscow for 49 years -- to build three smaller skyscrapers of varying heights and a large parking garage, Kovalov said.

ST Towers, a subsidiary of Russia Land, Chigirinsky's developer, would first build the parking garage to satisfy demand for parking in the district, he said.

It would then go on to build the towers one at a time so that rental income from the first building would help fund the construction of a second and eventually a third, taller building.

"It is still just an idea, but it's more realistic from an economic point of view. With the Russia Tower, we wouldn't have been able to generate income for another eight years," Kovalov said.

Kovalov also clarified earlier reports citing Mikhail Posokhin, head of Mosproyekt-2, as saying the Russia Tower's planned height could be reduced to 200 meters during a closed-door meeting about the project last Friday.

"Posokhin was not representing his company. He was at the meeting because he is the deputy chairman of Moscow's Architecture Committee. His quite reasonable suggestion was for us to build three smaller buildings instead of one building that would be enormous by Moscow standards."

The Russia Tower, which was set to be completed by 2016, was billed as the world's tallest naturally ventilated building.

Russia Land has already spent $100 million dollars on the project. The foundation was started in May 2007, but work was stalled in November 2008 because of a lack of funding.

Now, Kovalov said, the successor to the Russia Tower project will probably be built in another part of the city and under better economic circumstances, though it would be up to City Hall to decide where, when and by whom the tower project would be resumed.

"Building it now is just not realistic. The project was designed for a totally different market, for different renters. In the current business environment, it is difficult to attract investors."

In April, Chigirinsky was No. 44 on Forbes' list of Russia's richest people, but debt problems have dealt a serious blow to the real estate tycoon.

Chigirinsky will now sell some of his properties in Russia, France and Britain, as well as an airplane, to raise funds to pay off his debts to Sibir Energy, the company reported Wednesday.

In December, Sibir's board said it would buy $340 million of distressed assets from Chigirinsky, who, along with his partner Igor Kesayev, owns a 47 percent stake in the company. In October, the company agreed to purchase assets worth $158.9 million, -including the Moscow Sovietsky -Hotel.

Now Sibir has reversed its decision to purchase the assets, and Chigirinksy must now repay the company $115.4 million after promising to compensate Sibir for any potential losses on the deal back in December.

He must also repay Kesayev $192 million after the latter helped borrow the amount from Sberbank using their collective assets as collateral.