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. Last Updated: 07/27/2016

$140M Kursky Shopping Center Back on Track

An ambitious plan to build a sprawling shopping center near Kursky Station got a lease on life last week when Russian developer Engeocom signed a deal with French construction giant Bouygues to complete the $140 million project.

The 90,000-square-meter Garden Ring shopping center, scheduled for completion in June 2001, will be one of Moscow's largest retail complexes and the largest single investment in the retail sector since the August 1998 crisis. Currently, the biggest center in Moscow is the 70,000-square-meter Manezh mall beside the Kremlin, and the Garden Ring complex would only be rivaled by a planned 100,000-square-meter IKEA Supercenter project in Khimki.

"I hope that this marks the start of a new era, meaning that at last a big project is being launched after the crisis," said Michel Pascalis, partner with Jones Lang LaSalle, the leasing agent for the shopping center.

The Garden Ring center, envisioned at six levels with the possibility of a small seventh level, will be anchored by a giant hyper-market that will take up a whopping 10,000 square meters of retail space, or half of the first and second floors. Two other anchors will occupy 1,000- and 3,000-square-meter spots, and the third floor will contain a leisure center with an eight-screen cinema, a 30-lane bowling alley and a food court.

The possible top floor would have a swimming pool, night club and tennis courts in the summer and an ice rink in the winter.

A three-level underground parking lot will accommodate 700 cars, and some 1,000 more spots are expected near the shopping center.

Most of the financing for the project is being provided by Sberbank, while Engeocom and Bouygues will also chip in, Jones Lang LaSalle said.

"Specific arrangements with Sberbank have not yet been settled, but we are targeting a five-year repayment schedule," said an Engeocom official who asked not to be identified.

The center is jointly owned by Engeocom and the city of Moscow, the same partners that built the Manezh mall. Engeocom held a 70 percent stake of the Garden Ring project under the original terms of the partnership, but the ownership may shift to 80-20 considering the larger role the developer is now taking, the Engeocom official said.

Retail shops are to be leased in units of 30 to 200 square meters.

Prices will be announced after Jones Lang LaSalle secures contracts with the anchor tenants, a process that is expected to take "several months," Pascalis said.

Because the construction agreement was not signed until Nov. 27, no anchor retailers have yet committed to the Garden Ring. "But some international retailers are coming to Moscow to speak with us before the end of 1999, which is a big result," Pascalis said.

The Garden Ring center will initially cater to the relatively affluent middle class, following the lead of the wildly popular Ramstore shopping centers. Eventually, though, it will target the everyday Yury, Vladimir and Boris.

"This is not for rich people," Pascalis said. "This is for the mass market."

Although plans for the complex were first announced in May 1998, funding for the project blew away with the financial storm that hit several months later. At the same time, the center was dealt a major blow when French retail giant Carrefour abruptly pulled out of talks to become the center's main anchor tenant. Building officials had been counting on Carrefour's participation, and the French side had gone so far as to sign a letter of intent, according to Jones Lang LaSalle.

"It's no secret that it was the financing that made the project stop last year, but the fact that we signed [the construction deal last week] gives confidence that the financing is now finally in place," Pascalis said.

A main selling point of the Garden Ring shopping center is its accessibility to customers, real estate experts said. The complex will occupy a site directly between Kursky Station and three metro stations on one side and the main Garden Ring highway on the other.

"What is very special about this site is you have about half a million people passing this site every day," Pascalis said. "This makes it a very attractive location."

"It should get pretty good pedestrian footfall," agreed Amanda Spring, managing partner at real estate company DTZ Moscow. "You always want high footfall for shopping centers, but the problem is you need the right kind of footfall."

The issue that Spring and other industry insiders refer to is the somewhat shoddy reputation associated with Kursky Station, an area known to be frequented by vagabonds and petty criminals. However, the success of the project is not likely to be affected by any image problems, they said.

"I think the center will change the area," Pascalis said. "I'm not at all afraid about that [the reputation]."

"[Moscow] seems to put shopping centers in areas that need rejuvenation," Spring said. "It's quite common in the West for shopping centers to not be in the best areas.

"The success of the project will hinge on getting big tenants to sign up," she added.

Most of the work on the project's infrastructure was completed before the crisis, and a large, gaping hole now marks the site of the future shopping center. Construction is expected to pick up again before the end of the year.