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. Last Updated: 07/27/2016

New Kid on the Block Challenges Old Gangs

Relatively unknown developer Golutvinsky Dvor is set to complete Tuesday its 13,600-square-meter, class A office building just 900 meters as the crow flies from the Kremlin, officials from the private company said.

The nine-level building, which carries the same name as its owner and is located at Yakimanskaya Naberezhnaya 2, is being offered in shell-and-core condition for a rent of $470 per square meter a year and a minimum leasing period of three to five years, Golutvinsky Dvor deputy general manager Yury Khomenko said. Leasing terms are flexible and the space could also be available for sale.

No leases have yet been signed, but the owner is in talks with a number of interested parties who are "waiting for the building to be finished," Khomenko said.

Although the completion of the project is now at hand, tenants could easily be forgiven for waiting until the last minute just to be on the safe side. Austrian firm AMR started construction of the office building in 1997, but work was suspended following the financial crisis of 1998. Construction on the 2,000-square-meter plot of land obtained under a 49-lease from the city of Moscow finally restarted last spring.

Khomenko declined to say how much had been invested in the building. Real estate experts put the cost at $25 million to $30 million.

Operating expenses are $100 per square meter a year, and the lease of one of Golutvinsky Dvor's 63 secured underground parking spaces is $250 a month. A multilevel garage nearby will offer an additional 450 parking spaces.

The $470 per square meter price tag may appear a bit steep even for class A space in a market where fitted out space is going for an average of $500, but Golutvinsky Dvor insists the space is well worth the cost.

"According to our market research and our talks with potential tenants, the price is competitive," Khomenko said.

Real estate insiders expressed mixed feelings about the Golutvinsky Dvor's potential for success.

"It definitely will be a success [thanks to] the location, its quality and the generous availability of parking," said Stas Tikanov, property consultant with Noble Gibbons, the Moscow associate of CB Richard Ellis and the agent for Golutvinsky Dvor.

As far as rents, "the commercial terms for the building are in line with any other class A building in Moscow," he said.

Other industry players were more cautious in their appraisals, pointing out that competition was fierce and the relatively unknown developer could face a tough fight convincing tenants that picking Golutvinsky Dvor is better than going with a more established developer like Capital Group or Alarko.

"We see some problems with the marketing of this building ... due to the fact that the building is being developed by Golutvinsky Dvor, which is not a very prominent developer," said Irina Grishina, head of market research at Colliers HIB.

"We think it will face very strong competition from other class A buildings," she said.

However, Golutvinsky Dvor's Khomenko sees things a little differently, saying that his building is in a class of its own.

He said that very few Moscow office buildings have the amenities offered by Golutvinsky Dvor - including a downtown location within walking distance of the Polyanka and Oktyabrskaya metro stations and access to the main Leninsky Prospekt highway. Built to Western standards, the quality of the business center is also among the highest in Moscow, he added.

Currently, some 216,000 square meters of class A and B space is lying vacant in central Moscow, including space at popular complexes such as Riverside Towers, the Ambassador Building and Paveletskaya 2, according to HIB Colliers.

Compounded with the wariness of Western companies ahead of the presidential elections in June 2000, Golutvinsky Dvor is facing an uphill fight to fill the building, Grishina from HIB Colliers said.

"If they can't sign up the first clients, it will be very difficult to attract other tenants," she said.

"This is a normal problem that all developers are facing now," she added.

In any case Golutvinsky Dvor appears to be well aware that one of the main hurdles it faces is attracting its first tenants.

"For the first tenants, the landlord is ready to make really, really attractive deals," Tikanov at Noble Gibbons said.

Space in the office building with five Otis elevators and Combellga and Sovintel telephone lines is divided into about 1,400 square meters on each of the seven floors above the ground.