Developer Hopes To Score With Complex Built Around Historic Soccer Stadium

Andrey Peregudov

Senior Vice President VTB Bank and Chairman of  CJSC VTB Arena / MC Dynamo

What is going to make this project different from anything which has been done in Europe before?

Andrey Peregudov: Certainly the complexity of the elements of VTB Arena Park: there is an apartment park with a 5-star hotel and a couple of office buildings which we call a commercial ensemble. It is actually a whole new district of 400,000 square meters along the Third Ring and Leningradskiy Prospect. Together with an old Moscow park with trees of more than 100 years old, we have a sports park which to our mind was always the element which could dominate, but now it is just an integral part of what we're building. It is a very nice, cozy stadium for 27,000 spectators and an arena for 12,000 which we are fitting under one roof. That's another unique element of our development: nowhere in the world has it been tried before. There were complicated sports structures but this one has been built in order to fill the old Dynamo site which has been since the 1930s a mecca for Moscow sports enthusiasts. We are trying to accommodate not only football but also basketball and hockey matches, as well as concerts.

The most important thing is that elements work for each other. That was reflected in the prize we won in the European Property Awards in two categories: Best Mixed-Use Development and Best Public Services Development. Mixed use is a word that is usually applied to offices and apartments but we have offices, apartments, retail, hotels, sport and possibly a medical clinic. The retail is quite unusual because it is mixed use on its own: we are trying to fill it with sports life, for kids and families and not just for shoppers.

Does that mean we should expect some surprises with the retail offering?

AP: We have a passage under the two fields, comprising retail of around 20,000 square meters and this plaza is not a typical retail plaza near the subway station. We want to fill it with creative and entertaining shops where kids and families can really learn what active sport is about. We will definitely have cinema, as well as the museum of Dynamo. Dynamo was created in 1923 and has had more than 300 Olympic champions through Soviet and Russian history as well as more than 2,000 world champions so it is a great sport history which we have to tell people about.

There is a reflexive tendency among many Muscovites to get into a car or onto the metro and go into the center of the city. You are building another location but are you central enough?

AP: If you are talking about the stadium I would disagree with you. If you want to go out of the center of the town you build something beyond Mkad. By the way, this out-of-town fashion has stopped in American sports. After the event these out-of-town locations become a no-man's land. Now developers are mostly building downtown arenas for NFL and NHL. They want to draw people from their office to an event they can walk to without taking a 40 minute ride in the subway or car.  In this respect we are quite downtown. If you look at the map of Moscow we are five kilometers from the Kremlin on the main arterial, and one subway stop from the circle line. How much more central do you want to be for a stadium?

In terms of apartments I think we are exactly where we want to be. You don't want to be in a completely downtown area in terms of traffic and pollution. We're in the park, in the old historical, cultural district which used to be the elite dacha location in tsarist times, which later  became a sports park, and this element we are keeping.

Where I agree with you is that Moscow does not have enough clusters which are developed as secondary centers as there are in London with the City, Canary Wharf, and hubs where new centers were created artificially. Moscow is a very central city and everything that happens within office life happens within the Garden Ring and that has to change. There were some parks built outside of downtown but I think we are right on the edge, where people want to be, but still central enough. Our location is completely brilliant, along with the eight hectares of green park within it.

As this reaches completion it is going to be a catalyst for the area. What kind of changes do you want to see in this district?

AP: What I see as an ideal turn of events is that first we return to this place its fame as a sports center and a place that people like to come for entertainment and fun. It has always been a magnet for all kinds of people coming here to entertain themselves. If you look at the photographs of the 1940s and 50s, when there was no television, people could only go to theaters, cinema or football. People would come in their thousands, standing outside the stadium listening to the sounds of the match because they could not get in. There was no room in a 60,000 seat stadium!

The second thing is that in the perestroika times this place may have been a magnet but it was turned into a flea market. There was a bunch of kiosks, unregulated trade, and what Russians call baraholka in the football pavilion. Probably some of these were things you would want to change but it shows that people want to come here to trade and be here. We don't want to change that but we just want to have it civilized more or less.

The third thing is that the park is turned into a place where people want to exercise and play sports: amateur runners, joggers, three-on-three basketball, maybe the old guys with chess tables. And then maybe the occasional jazz festival and all of that with our help because we'll probably provide some showers and changing rooms in the sports academy that people can use. This will definitely pull in people from the huge residential area just north of us.

Can the stadium survive as a stand-alone business?

AP: A football stadium on its own cannot be profitable in Russia. That is clear. Even if you have two or three concerts a year in the open air it does not work. Football unfortunately, with very limited TV rights proceeds in Russia, cannot pay the rent or produce income which will make it feasible. That's why it was a completely informed decision to complete the project with some other sports like hockey, basketball and concerts that will help us pay for the development.  That is exactly why most stadiums are built from municipal and federal budgets. There are two stadiums built with private money: Lukoil is building Spartak and we are building VTB Arena. I hope that our financial plan will work, with all the elements: retail, underground parking, the second arena will add to the football arena and at least make it break even and not drag the commercial income down. What it gives us is the social significance and the ability to fill the ensemble with a sport element. I think that the rest of the park would not work so well if we did not have this stadium.

How do you break that tradition of people expecting to watch sport for almost nothing? In some regions it's  almost free. Doesn't sport need to become more expensive in order for the owners of stadiums to recoup their costs; maybe not Premier League prices but higher than they are now?

AP: It will be a big challenge to develop the social political element of Russians going to sports events. We have some cities where there is one team which everyone supports and people pack the hockey halls in small towns in Siberia. I have seen a first league basketball team in Ukhta which is a always busy. I know the Moscow crowd is a little spoiled and decentralized and has many places to go. Sometimes even the elite clubs do not fill half the seats. It is also a social political thing that people have not become used to supporting their groups and clubs.

I was at an arena in New Jersey for a semi final college football match and there were 60,000  people watching. I understood hundreds of parents and families were there but I wondered who the others were. The whole town and nearby area had come to support their college and this is something we have to learn. It is not a question of prices. There are all kinds of tickets, expensive for better seats, VIP services and packages, but from the point of view of income, all groups of people are able to come to matches now and they will absolutely be able to come to our stadium.

Fun is understood by people in different ways: football basketball and hockey spectators are completely different and we don't want to mix these crowds, their different habits and types of behavior. So there should be lots of logistical exercises including security to promote the mixed use element of our stadiums.

You touched on marketing and the leisure industry. Are you looking to do tie-ins with other brands or companies which would help you raise the profile, keep the project in the headlines, generate a buzz of something constantly happening?

AP: We don't want to reinvent the wheel. There is Anschutz Entertainment Group which is the leader. They promote singers all over the world and they own more than 60 arenas. They are consultants on the development and there is a chance that they will actually manage the facility for us. The other company that is helping is IMG which has been in Moscow for a long time doing a lot of events. We're taking to Live Nation; to all of the leaders in this area who know how to bring a good show to a place, promote it and bring in sponsorship money. We are thinking of naming rights. It's called VTB Arena and the bank owns the project and we hope that our mother company will continue the contract. If it doesn't there is a bunch of companies who would like their name on the arena but we hope VTB will stay.

Why will the stadium not be hosting the FIFA World Cup 2018?

AP: We played a good part in the bidding for Russia, and I think an important part because Dynamo is the oldest Russian stadium where football has been played. But there has never been a bid in which there were three stadiums in one town hosting the World Cup. Luzhniki was not in doubt because it is an 80,000-seater, required for the opening and closing ceremonies. The other is Spartak, the construction of which was two years ahead of us so they chose the stadium which was more ready. We look at it with a reserved optimism. On the one hand we are sad that Dynamo will not be a participant in probably the only World Cup that Russia will host in our lifetimes. At the same time we think it allowed us to limit the construction area and do a more district-oriented and cozy stadium just for Dynamo. In fact 45,000 seats would be needed for only a few games a year.

You demolished part of the Dynamo stadium walls. Did the criticism surprise you and did you successfully tell your version of events?

AP: We kept the western stands but it was our choice to demolish the non-historic elements. In 1928 it was not a full stadium. It was a racing track for motorcycles and speed skating and then in the thirties they completed the circle. But we have proof that those walls were partly destroyed during construction for the 1980 Olympics. There was complete openness in our actions: we showed all the proofs of construction. Some people did say, "don't touch anything," but we can't keep historic elements that do not serve their historic function. We don't want a Coliseum in the center of Moscow; we want to have a stadium with fun and life and sports happening in an area that is designed for this. So we kept what we want to keep, including the sculptures from the facade which were done in gypsum and were completely destroyed. We will rebuild the facade and put the originals in the museum as they can no longer survive outside.

What about transport? Just last month the city government decided to look at the impact of large shopping centers. Are you counting on some infrastructure works apart from the new Petrovsky Park metro station?

AP: We are building two roads ourselves. We are making one street wider by one lane to speed the connection to the third ring but we are using our own land to make a road to the Moscovskoye Allee to circle the traffic back around the stadium when people are leaving. I'm not expecting the city to do anything additional. They have done a lot already: the tunnel under Leningradskiy Prospect and the turnaround ramp, which is busy but you cannot expect this area of town to be empty. If you look at Leningradskiy Prospect next to us it is running well. It is not that which creates the problem but the third ring which needs improvement. Will our development make things better? No. Any stadium creates traffic jams but when you are in a little bit of a jam but you know you are on time that builds up your expectations a little bit. I don't think empty streets before the game is a good sign.

We will have 4,300 parking spaces under our buildings. Some will be purchased by the apartment owners but much of it will be available to those coming for entertainment and shopping. If parking regulations in the city are going to be as tough as we expect these spaces could be used by people driving downtown to stop at Dynamo and take the metro to work. It is something which will change the parking dynamics. People need to be prepared to pay for parking, instead of leaving  their cars on the pavement, but this needs a psychological change. The only psychological change I see for now is that people put stickers over their number plates so that the speed cameras cannot photograph them.

How much of the overall cost of the development does the residential element represent?

AP: We secured financing for the whole development. We don't need to sell apartments to build it, which gives a lot of security to the people who buy apartments. Half of the budget is allocated to apartments and half to sports. We think apartments will give income right away. We also have office and hotel rents which will fill in cash-flow and payback the loan and the interest. I think the model is feasible. It gives us enough return to justify the investment although the social elements, the stadium and sports academy, made this project quite heavy for the developer.  We are enjoying the burden of doing something nice for the city and are doing it with pleasure.

What is the overall cost?

AP: We've published the figure of $1.5 billion as the total cost of the project and I would not change this number at this point.

How many of the social obligations were imposed by the city  and how much of it is your own initiative?

AP: The only  obligation that we always have towards our partner, Sports Society Dynamo, is to rebuild the football stadium. At some point there was also the instruction to take part in the World Cup bid but when we ceased to be a participant this was taken off. We are voluntarily rebuilt the academy, the place where gymnastics, hockey, football and martial arts were taught. There was no direct obligation but we chose to do it because we think it will create good dynamics in the park and for the residents.

Residents fear that the cost of using these facilities will rise once the development is complete, fears shared in the case of Luzhniki. Will people be able to afford to play and train here?

AP: We are developers. We have a certain rent allotted for the use of buildings. It is the normal Moscow market rent so, for example, whatever type of food the restaurants choose to sell, they will have to charge normal money.  As for sports tickets, we used the current prices charged by the other stadiums. We did not inflate them at all. We will also have many business and VIP lounges and we will sell them, as the Donetsk stadium did, on multi-year contracts. Those products will be popular but not more expensive than other benchmark products.

What other projects are you looking at right now?

AP: My job in VTB is to take some difficult projects and to turn them into profitable ones. We have another just starting on Kutuzovsky Prospect. It is also an office-apartment project with some sport element, which is volleyball, but I don't want to say more just yet. There are a couple of others that we're taking care off but this project takes 80 to 90 percent of my time because it is very serious and has all kinds of elements.

What is the date of completion?

AP: We celebrated the the four-year countdown on 22nd October which is the birthday of Lev Yashin the world famous Dynamo goalie and we'll open the stadium on his birthday in 2017. I think it's a good time to choose the performer who will sing at the opening. I have a few ideas.

The whole team which works here including myself are very privileged to take care of this project. It is something everybody will be able to show to their kids and say this is what I did. I think it is very rare when you can do something which provides such an opportunity.