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. Last Updated: 07/27/2016

Moscow-City Project Investors Get Bigger Say

The Moskva-City business center's developer is altering its building plans to meet more conservative expectations of foreign investors, said Konstantin Gaaze, public relations director for City, the developer of the project.

He said the city government asked for the concept of the development straddling the Moscow River, northwest of the city center and behind the Ukraina Hotel, to be changed in October. City, a joint-stock company, is expected to report back on the changes next month.

The concept developed by the city administration for Moskva-City was under the supervision of City Hall architect Boris Tkhor, but after a meeting last October, investors were given more say in the design of their buildings, Gaaze said Friday in an interview.

The $10 billion center is not due to be completed until 2015.

The $10 billion project is not scheduled to be completed until 2015, Gaaze said. Since 1991, investors have spent $500 million, up to 50 percent of which was provided by City Hall, on the 100-hectare project, he added.

The main tower is now likely to be lower than the 640 meters initially foreseen, at which height it would have been one of the world's tallest buildings. But the tower still could become a major telecommunications and office center and serve as an alternative to the Ostankino tower for broadcasters, just like the Sears Tower in Chicago, Gaaze said.

The initial plan was for three-quarters of the project to be office space. In 1997, the office-space area was scaled back to only half the total space, and an in-depth analysis is under way to determine what to do with the other half, Gaaze said.

City Hall is to provide all the infrastructure for the site. There are plans for a mini-metro connecting the complex to Kievskaya metro station, and further down the line, a rapid transit system linking Moskva-City to Sheremetyevo and Vnukovo airports. The site is also on the edge of the Third Ring Road, which is due to be completed in the first half of this decade.

The project stretches back to 1977, when the Soviet government wanted to build an international business center in the Krasnopresnenskaya district. The World Trade Center was opened in 1980 by U.S. tycoon Armand Hammer to meet the same demand.

The Moscow city government took up the concept in the early 1990s and made plans to complete it by 1997, in time for Moscow's 850th anniversary.

The Bagration mall pedestrian bridge across the Moscow River was completed that year, but the 1998 financial crisis slowed development. The next building, Tower 2000, begun in 1998, will be officially opened in May.

Gaaze said the 34-story, 62,000- square-meter skyscraper cost $104 million, with City Hall investing about 20 percent of this. He said five companies intended to lease full stories and about 700 companies had shown interest in leasing space in Tower 2000. Tenants have been found for all the retail spaces in the tower. He declined to name the companies.

The next buildings to be built will be a five-star hotel and aqua park on the Krasnopresnenskaya side of the river and an elite apartment block on the opposite bank.

The Moskva-City area is classified as a special economic zone, but investors lost some tax breaks under Economic Development and Trade Minister German's Gref tax revisions. However, Gaaze said the project still has many advantages.

One of the advantages is City Hall's intention to sell the land to investors. However, until the Land Code is modified to allow land sales and the creation of a market for land, it is unlikely that investors and City Hall will be able to agree on the price of lots. Any sales were, therefore, likely to be some years away.

Another advantage is a law limiting office developments in the city center to 10,000 square meters. However, this will benefit not only Moskva-City, but all office developments outside the center, Gaaze said.

Michael Lange, managing director at Jones Lang LaSalle, said Moskva-City had good potential. If the right strategies are taken in the presentation of the project and the raising of capital, it could equal the standards set by Canary Wharf in London or the Docklands development in Melbourne, Australia, he said.

Nadezhda Belikova, office property consultant at Stiles & Riabokobylko, said about 300,000 square meters of office space are under construction in Moscow, some of it frozen since the 1998 financial crisis. Much of this will be in competition with Moskva-City, so office quality and the terms of tenancies will be important, she said.

Until the Third Ring Road and the metro stations are built, Moskva-City will have a competitive disadvantage because access to the site is not good, Belikova added. The World Trade Center in Moscow.