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. Last Updated: 07/27/2016

City Hall Eyes Industrial Sites for New Projects

MTThe Spartakovsky business center on Spartakovskaya Ploshchad was one of the first former industrial sites to be renovated.
Despite appearances that downtown Moscow is almost entirely built out, city planners are under orders to press ahead with schemes to create sites for new construction.

City Hall believes there is room for another 70 million square meters of housing that can be built on previously undeveloped land on the fringes of the city and on sites where ruined buildings or five-story khrushchyovy buildings stand.

But a large reserve that could be used for commercial real estate -- shopping centers, offices, hotels and warehouses -- could also be released by closing down industrial sites in the city center, it says.

To this end, City Hall has produced a list of enterprises due for closing down or shifting out -- at least beyond the historic city center about four to six kilometers from the Kremlin.

More than 250 enterprises are located in the city center, of which more than 100 appear on City Hall's list as candidates to be shut down or moved out, freeing the space they occupy for other developments. Industrial zones cover more than 19 percent of the city's territory.

Last week Moscow Mayor Yury Luzhkov called for an acceleration of the program.

In the last three years about 120 hectares have been cleared under the program, said Alexei Vvedensky, a spokesman for the Moscow city government's department of architecture, construction, renovation and development.

"It's not very much in comparison to the size of the city," Vvedensky said. "But the program is part of the city plan for the next 20 years.

"It's still being perfected by a process of finding out what works well," he said.

Vvedensky said most of the industrial sites were built between the beginning of the last century and 1970.

"Most have more land than they need," he said. "Many of the buildings are only one or two stories high, so they are not using the land efficiently.

"Some industrial enterprises will be permitted to remain, but they are mainly high-technology or precision engineering firms that occupy little land and have a lot of intellectual inputs -- something Moscow has a lot of," Vvedensky added.

Darrell Stanaford, senior director with Noble Gibbons/CB Richard Ellis, said most of the businesses in City Hall's spotlight have been privatized.

"In many cases, whatever they produce is in little demand; they don't have the money to redevelop their sites or clean up polluted sites and they have large debts to the tax authorities, utilities and suppliers," Stanaford said. "Their property assets are worth more than the rest of their business.

"With the debts often equal to the market value of a site, sellers insist on receiving most of the sale price under the table or offshore.

"Buyers won't go along because then they are left to pay off the debts, ruining the return on investment. Thus a substantial write off of debts or proper execution of the bankruptcy process is necessary to break the deadlock facing a number of prime sites," he said.

Polina Kondratenko, research and appraisal consultant at Colliers International, said real estate deals are liable to high taxes, so would-be developers often find that it is more attractive to buy a company than to buy land or buildings.

"With industrial properties there can be another problem: that there is current production and you have to relocate it somewhere -- and the buyer has to resolve these questions," she said in a telephone interview.

The quality of refurbished industrial sites varies greatly depending on the quality of the construction, the developer and the incomes they want from their properties, she said.

Several projects have been or are being undertaken on former industrial sites.

Among the first was the Spartakovsky business center near Baumanskaya metro, developed by Vasily Boiko's Vash Finansovy Pochititel on the site of a former car repair workshop at 16 Spartakovskaya Ploshchad.

Work began on the 15,000-square-meter site in 1995, and it was developed into 12,000 square meters of class B office space with a sports club and restaurant that opened in February 2000.

About 30,000 square meters of class B office space has been developed on a former industrial site in Vyatskaya Ulitsa.

Yet another area under development is at 2nd Zvenigorodskaya Ulitsa near Ulitsa 1905 Goda, where local firm Upravleniye Presnenskogo Mekhanicheshkogo Zavoda has completed two class B office buildings covering 4,200 square meters and 6,108 square meters that are fully leased. A third 16,050-square-meter building will have underground parking and offer class A office space.

Another site is that of the Red Proletariat Machine-Building Factory next to the Donskoi Monastery in the south of the city just beyond the Garden Ring.

Plans exist to convert the site and buildings into modern shopping centers, offices, warehouses and a sports hall. One of the buildings has already been redeveloped and is being used by electronic giant Siemens.

One of the biggest developers of former industrial sites is CIED Forum Properties, formerly the Center for International Exchanges and Development holding.

Natalya Khoroshilova, the holding's marketing director, said one of its first transformation projects, the 6,000-square-meter River Place on Kozhevnichesky Proyezd, now occupied by Sovintel, had proved a huge success.

Its latest projects are the 89,000-square-meter Avrora Business Park class A project on the site of a former textile factory on Sadovnicheskaya Naberezhnaya and the further development of the site on Krasnoproletarskaya Ulitsa on the north side of the Garden Ring, where the Caterpillar building stands.

Khoroshilova said the latter class A development will cover 23,000 to 26,000 square meters and is due for completion in mid-2004.

CIED Forum Properties has built up a lot of experience transforming former industrial sites, and has been invited to develop several more, she said.

The number of such sites is far from exhausted, she said, adding that one of the keys to success had been careful planning of the developments.

"We build and reconstruct only with the agreement of City Hall, and we give our projects to our architectural bureau so that it will be attractive, elegant, effective and so that it fits into the city landscape," she said in a telephone interview.