Developers Target Kursky With $130M Project

For MTThe 63,500-square-meter Citydel will have stores, a fitness center and a restaurant, as well as Class-A offices.
In an attempt to replicate the success of transforming the once-industrial area around Paveletsky Station into a booming business district, developers are turning their attention to the area near another train station -- Kursky.

The neighborhood near Kursky Station, on the eastern edge of the center of Moscow, has traditionally been used for production and warehousing.

The opening of the 100,000-square-meter Atrium Mall in 2002 made the area a popular retail spot. Now, the development of the area's first large Class-A office center is aiming to change the widespread perception of it as unsuitable for offices.

Located across from the Atrium on Zemlyanoi Val, the 63,500-square-meter Citydel complex, scheduled for a mid-2007 opening, will have some stores, a fitness center and a restaurant in addition to Class-A office space. The project's cost is estimated at between $120 million and $130 million.

Citydel's developer is Tema, whose previous projects include the 70,000-square-meter Smolensky Passazh office and retail complex, as well as several elite housing developments in western Moscow.

The Moscow Tax Inspectorate was located on the site until City Hall approved Citydel's construction, with the condition that Tema build the inspectorate's new 30,000-square-meter headquarters next-door.

Financed by Vneshtorgbank and a syndicate of French banks, Citydel's general contractor is France's Bouygues Batiment. Realtor Knight Frank is serving as its exclusive consultant.

"Unlike the western and northwestern part of the Garden Ring, its eastern part is relatively traffic jam-free," said Knight Frank director Andrei Petrov, praising the location. "Anywhere on the Garden Ring investment is justified, because it is still the city's main road, where it is very difficult to find sites for construction."

Mikhail Gets, director of commercial real estate at Blackwood, said the area around Kursky Station could be "undervalued," but added that it was still not ready for Class-A offices.

"This part of Moscow was never considered prestigious," he said. "On the one hand, it is close to a railroad. On the other, it has a reputation as an industrial area and doesn't have any offices of similar quality yet."

Unlike Paveletskaya Ploshchad, the area adjacent to Kursky Station does not have any large plots of land open for redevelopment, meaning that it is unlikely to become a large business district, said Sergei Riabokobylko, managing director at Cushman & Wakefield Stiles & Riabokobylko.

"As far as offices are concerned, the area remains largely undeveloped, with virtually no new construction and a few reconstructed buildings," he said.

The growing popularity of the area around western Moscow's Moskva-City as an office destination may also spell trouble for the project, Gets warned.

"Based on its [2007] delivery date, Citydel will face a lot of competition," agreed Darrel Stanaford, senior director at Noble Gibbons, in association with CB Richard Ellis.

There is another large Class-A office project in the area -- Neftyanoi Group's 59,000-square-meter complex on Serebryanicheskaya Naberezhnaya, scheduled to be completed in late 2006.

Some realtors polled by The Moscow Times have said that Tema's previous track record suggests possible future leasing problems for Citydel, and that its quality may not be up to standard.

Tema's previous large-scale Class-A office development -- Smolensky Passazh, completed in late 1998 -- has turned into a "financial disaster" for the parties involved, and took over a year and a half upon completion to be fully leased out due to the developer's pricing inflexibility, one market observer said.

But Knight Frank's Petrov strongly disagreed. He linked Smolensky Passazh's initial problems with leasing space to the 1998 financial crisis and called the project "one of the most successful on the market today."

"We'll try to make Citydel as top-notch as possible. It is going to be built by a quality Western construction firm and will later be operated by a professional property manager," he said.