Remaking History

Sergey Porter / Vedomosti

ј reconstructed historical buildings can be the hallmark of the developer.

There are about 50 apartments in renovated mansions on the Moscow elite real estate market now. This kind of development does not have a high margin, but there are still plenty of risks. Therefore, it is mainly of interest to small companies or private investors. Large developers renovate historic buildings only in the cases of integrated development.

A ny developer will say it is better to demolish a building and replace it with a new one than to get involved in reconstruction. However, a dozen projects are started on the Moscow market every year to redo historical sites under the supervision of Mosgornasledie, the city's cultural heritage department, they say at Savills. Olga Shirokova, director of the Knight Frank consulting department, said that people are no longer afraid of complicated sites, and reconstructed buildings are usually located in the center of Moscow, which greatly improves the project's liquidity. "A private investor can buy an old mansion, resettle the tenants and turn the building into an elite housing complex, or a small company can win a City of Moscow tender for the sale of unclaimed or decrepit property," Savills managing partner Dmitry Khalin said, listing current opportunities for developers.

Moreover, in contrast to Europe, where strict rules on the reconstruction of historical monuments have created enormous problems for developers installing modern features (air-conditioning, for example, is hard to do), in Russia basically only the load-bearing elements — structural walls, floors and stairways Ч remain after the reconstruction of a building. The innards, as a rule, change completely, in conformity with concepts of home comfort.

The press service of the Moscow City Tender Committee said that investors competed for seven hours to purchase the former Kekushev apartment house on Ostozhenka. It was eventually sold to the RPA Estate company for 390 million rubles ($6 million), 34 percent more than the starting price. Gennady Degtev, chairman of the Tender Committee, advised investors to "pay more attention to the objects on offer from the city. There are many interesting ones." The city press office could not provide more information about upcoming auctions.

Khalin estimated the profit for investors from such projects at $1-2 million. Reconstructed mansions can be offered on the market at a price of $15,000 per square meter. There are a lot of problems, however. First, only a "friendly" bank will give them a loan, and for not less than 25-30 percent per annum. Second, serious problems can arise in the course of the work, either related to documents or the building itself. "You could scrape off some plaster and discover unique stucco work that has to be restored to its original form," Alexandra Golubeva, sales director of the Insigma company, said. Therefore, the developer of a historical monument, especially one of federal importance, always gets a grab bag, and it is difficult to assess the true cost of its reconstruction immediately, she added.

But advantages include a relatively short investment turnaround cycle. In contrast to the construction of luxury buildings, which could take up to five years, reconstruction usually takes between one and a half and two years. For example, the Vesper company, which is known on the Moscow market for developing historic buildings, worked on the renovation of Sheremetyevo Courtyard for two years. As a result, the St. Nicholas apartment-suite complex appeared on Nikolskaya Street, on the ground floor of which are shops. Restoration of the facade was carried out, load-bearing walls were reinforced, moldings restored, etc. Investment in the project amounted to approximately $55 million. Nikolai Lyashenko, a partner in the architectural firm Tsimailo, Lyashenko and Partners, the project architect, said that the cost of such projects is about 1.5-2 times higher than that of new construction. "The less we want to harm the building, the more it costs the developer," he said. Insigma's Golubeva estimates the developer's cost for the reconstruction of a historical building at 200,000 or more rubles per square meter, whereas "if we renovate a normal structure, it will cost 100,000-150,000 rubles." The internal rate of return, she said, should be not less than 20 percent, "ideally 30 percent. There are no huge profits from this kind of development." Moreover, these projects are always highly detailed, and the process can greatly increase costs.

On the other hand, a reconstructed historical buildings can be the hallmark of the developer, serving to benefit its image. For example, Gals Development reconstructed the former winery of Pyotr Smirnov, "not at the insistence [public preservation organization] Arkhnadzor, but as an image-building project that will bring economic and social benefit," said Leonid Kaprov, vice president of the company. Now the Wine House project is almost completed. It consists of two buildings Ч a small reconstructed mansion, 75 percent of the apartments in which were sold in a year and a half (the price per square meters is now 350,000 to 480,000 rubles), and impressive new buildings. Olga Shirokova of Knight Frank added that, in this case, the experiment was a success. The developer did not leave a decaying building behind but harmoniously fit it into the overall design of the residential neighborhood. "Elite residential customers have warm feelings towards historic structures. Sometimes, when they come to see a new building, they make a spontaneous decision to buy an apartment in a renovated mansion," she said. Kaprov says that buyers of historic lofts are a particular clientele, and they will not take apartments before they are completed, even though they could save money that way. They prefer to wait until the end of construction (reconstruction of the mansion was completed in 2013).

The market for high-quality low-rise houses within the boundaries of Moscow's historic center is very limited, so they have a high demand potential, said Ekaterina Rumyantseva, chairman of the board of Kalinka Group (her company is currently selling a restored apartment house on Khlebny Lane). However, adds Khalin, sometimes the investor himself wants to live in a historic home. So they does the project for themselves, and sells apartments in the renovated building "on the side" to recoup their investment.

Moscow: offices instead of pastries

The Bolshevik confectionery factory was bought by O1 Properties in 2012 from Kraft Foods Group for $72 million. Work on its renovation and transformation into a new business quarter with a museum of Russian impressionism lasted from 2013 to 2015 and cost the company about $130 million, including the $20 million cost of the museum. The former factory buildings were turned into Class A loft-offices. The first phase of the Bolshevik complex was put on the market in 2015, the second phase is scheduled for completion in 2017.

Vienna: apartments instead an institute

Reconstructing historic buildings is quite popular among Austrian real estate developers. One example is, the conversion of the former Royal Institute of Cartography near Hamerling Park into Das Hamerling residential complex and care center for the elderly. This is a unique resort, where not only are apartments and penthouses are sold, but medical care and nursing is offered to those in need. Now only penthouses remain on sale (with areas between 100 to 210 sq. m.). Prices range from €1.52 million to И4 million.

London: a house instead of a pool

Having bought a former military facility in Bushy ParkЧa 46-meter pool for testing anti-submarine torpedoes, the owners decided to convert it into a house. The architects saturated the building with glass and metal, making as a result a comfortable six-bedroom house of 917 sq.m. surrounded by a garden, which occupies half a hectare. Now nothing but the facade looks as though the building once belonged to the Navy. The house is for sale for around £7†million.