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. Last Updated: 07/27/2016

UpDK Reborn as City's Property Powerhouse

Capitalism came as a blow to many state-owned companies but UpDK has weathered the transition better than most.

Officially called the Main Administration for Service to the Diplomatic Corps — GlavUpDK, or just UpDK — has grown from a section of the Foreign Ministry in Soviet times into a huge and profitable real estate company with annual revenues of $130 million.

Vladimir Lenin formed UpDK in 1921 to provide diplomats, journalists and foreign businessmen with housing, residential services and travel arrangements. For the decades following, UpDK was the only landlord open to foreigners.

But since 1988 UpDK has developed into much more than just a housing provider for ambassadors and their staff, when it became an independent state-owned company.

Now 80 years old, the company holds an enviable market position as the second-largest real estate proprietor in the capital, after the city administration. It is also one of the largest taxpayers, contributing some $30 million to the city budget annually.

UpDK's sprawling real estate holdings cover more than 1 million square meters of residential and office space, said Vladimir Karykhalin, head of the marketing department at UpDK.

"We are no longer a monopoly, but foreign diplomatic and commercial missions still largely rely on our services," Karykhalin said.

The company's clients include 138 embassies, 61 international organizations, 485 foreign mass media agencies, more than 900 firms, banks, air-companies, according to the UpDK web site.

Apart from real estate, UpDK operates construction, car repair, employment service, consulting, dry-cleaning, apartment maintenance, catering, sports and entertainment businesses.

But the focus of UpDK's investments is on its real estate projects. Every year UpDK spends $200 million on construction, repair and maintenance. Recently, UpDK has completed the luxurious Park Place and Donskoi Posad residential and office buildings as well as renovating Pokrovskiye Vorota business center.

This year, UpDK is developing infrastructure around the Zavidovo Leisure Complex on the Volga River in the Tver region and the luxurious Moscow Country Club Le Meridien in Nakhabino. This month, UpDK plans to open a $16 million sports and recreation center.

UpDK's office-space rental rates survived the 1998 financial crisis with hardly a blip. Last year, occupancy in UpDK's more than 300,000 square meters of office space stood at 85 percent, and the company expects this already healthy demand to grow further this year. One square meter of office space costs $300 to $600 per year.

At the same time, though, demand for apartments has dropped 22.2 percent to only 70 percent.

The company's total residential holdings cover more than 460,000 square meters, but 138,000 square meters are standing idle. One square meter per year can cost from $150 to $500, according to UpDK. This means vacancies are costing UpDK a minimum $20.7 million a year.

In addition to losing renters in the expatriate exodus following the crisis, Karykhalin attributed UpDK's dropping numbers of tenants to a saturated real estate market and to the appearance of many new operators.

"Since the end of the Soviet period, UpDK has had to compete on equal footing with other market players," said Gerald Gaige, the director of real estate at Arthur Andersen consultancy.

To meet this competition, UpDK has started to renovate buildings over 30 years old under a "model apartment" project. And for the first time, UpDK is offering apartments already furnished by such big-name companies as IKEA and Kraft, Karykhalin said.

In addition, UpDK announced last December that they are not going to increase residential rents for three years. The cost of a two-room apartment in the center runs from $1,350 to $3,250 a month, according to UpDK.

But to some of UpDK's foreign clients, the company's reliability is its best selling point. "Yes, the prices are pretty high, but the [higher] quality and safety of the apartments makes me rent from UpDK," said Michael, an American businessman who declined to give his last name.

And UpDK's large size gives it some flexibility in catering to clients. Yelena Prodanovic, director of the capital's Yugoslav school said UpDK saved the school by giving it a 30 percent discount for several years.

"If it hadn't been for UpDK," Prodanovic said. "The school would've already closed because of all the problems in Yugoslavia."