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. Last Updated: 07/27/2016

Mikhelson to Develop Property in Petersburg

Leonid Mikhelson, the billionaire co-owner of gas giant Novatek, appears to be taking up property development in St. Petersburg after one of his companies purchased 144 hectares along the coast of the Gulf of Finland.

Severo-Zapad Invest on Wednesday bought at auction 15 plots with a total area of 144.2 hectares in the Kurortny and Primorye districts of St. Petersburg, the press service for the city’s property fund said. The plots were sold as one lot for 36 million rubles ($1.2 million), with a starting price of 33 million rubles and bidding in increments of 1 million rubles.

City officials declined to identify the auction’s second participant.

According to the SPARK database, Severo-Zapad was 70 percent owned by Levit at the end of June; 25 percent belonged to Cyprus-registered Eubaea Enterprises and 5 percent to a company called Dialog. Novatek’s second-quarter earnings report said 78.29 percent of Levit was owned by Mikhelson, who is also Novatek CEO.

A spokesperson for Mikhelson confirmed those figures but declined to discuss the development project or its possible cost.

The plots are located along the Gulf of Finland, not far from the city’s ring road, the property fund said. Under St. Petersburg zoning rules, the land could be used to build low-rise houses, said Vyacheslav Semenenko, a spokesman for the city’s building committee.

The terms of the auction say the winner must build and hand over to the city the necessary utilities infrastructure no later than 57 months after the auction. Construction on the property must be done within eight years.

Semenenko said the land was swampy and covered with trash heaps, with few plots ready for immediate development. Just restoring 77 hectares, or about half of the land, will require investments of 4 billion rubles ($132 million), said an official at Severo-Zapad Invest.

Including the expenses for readying the property, the land will cost 280,000 rubles per hundred square meters, making it by no means cheap, said Olga Trosheva, deputy director of consulting firm Petersburg Real Estate. It is, however, a good location, close to the city and with good transportation links, she said.

Oleg Yeremin, first vice president of Baltros, warned that the investment in utilities infrastructure could also be costly. His company spent more than 2 billion rubles for water and power lines at the 260-hectare Slavyanka development.

The plots could have more than 1 million square meters of low-rise housing, with investments reaching 1 billion euros ($1.5 billion) based on a production cost of 35,000 rubles ($1,150) per square meter, Trosheva said.

Mikhelson — whose fortune Forbes estimated at $2.4 billion earlier this year — probably does have the money, at least for the initial work on the land. His Levit has received almost 2.3 billion rubles in Novatek dividends over the past three years, and he has personally gotten 92 million rubles.