Billionaire’s Home: As an ex- co-owner of a PIK group, building a business abroad

9 April 2018
Billionaire’s Home: As an ex- co-owner of a PIK group, building a business abroad

In November 2007, the Ministry of Foreign Affairs of France put up for sale a mansion built in 1781 by the architect Bronyar for General Anne-Pierre de Montesquiou-Fézensac, in the seventh district of Paris in the Rue Monsieur, a stone’s throw from the Eiffel Tower. One of the subdivisions of the department, located in it, was moving to another building in two and a half years. At the location, in the tourist and political center of the capital of France, it was planned to build elite real estate, so dozens of companies and one Russian businessman-at that time co-owner of PIK Group Kirill Pisarev wanted to take part in the auction. There was no time to create a special company for participation in the bidding, therefore he was declared as an individual. He suddenly won in the auction, slightly exceeding the rival’s bid. The mansion went to Pisarev for € 147 million, writes Le Parisien.

Today it is difficult to imagine that the Russian citizen owns the building where the division of the French Foreign Ministry was located. But in 2007 it was much easier to win in such an auction, says one of the developers realizing projects in Europe: «At that time, there were no sanctions or sanctions lists, so it was enough to confirm the availability of funds and development competencies.»

For Pisarev, who built in Russia mostly low-budget housing, it was the first such project abroad. To develop the concept of the hotel, he invited the famous French architect Jean-Michel Wilmotte. But the eminent architect and the landmark location did not save the project: because of the 2008 crisis, Pisarev had to redevelop the building for commercial real estate and eventually sell it. Now the embassy of China is located there. They came with a profit, but the experience gained can not be overestimated, ironizes Mikhail Serdtsev, Pisarev’s partner at the management of Wainbridge.

In the Crisis, the businessman’s affairs went badly not only abroad, but also in Russia. Capitalization of the main asset, PIK Group, in a few months fell by 98%, to $ 300 million. Debts, difficult negotiations with creditors and, finally, exit from business. The status of co-owners of the PIK group Kirill Pisarev and Yuri Zhukov (Russia’s richest developers, with $ 6 billion each) fell 10 times in 2009. However, Pisarev did not lose the desire to engage in real estate, this time abroad. «It seemed to me at that time, that I knew how it could be done. Although today, looking back, I can say that I had no idea how to work in this market,» he confesses in an interview with Forbes.

Today in the portfolio of Wainbridge there are more than 30 realized projects — villas, flats, apartments and eight more in the implementation phase: four in London, two in the US, one in Paris and one on the island of St. Barts. According to Serdtsev, the total sales value of objects that are managed by Wainbridge is $ 4 billion. Forbes found out how Pisarev makes money for houses for very wealthy people.

Bet on the wealthy

A financier by education, Kirill Pisarev never studied architecture, but he definitely has a development flair: the ability to choose a place, an architect, a concept, prepare a technical assignment and adapt the product to local requirements. In Russia, Pisarev had experience working with elite real estate. Together with his former partner in PIK Yury Zhukov, he built a settlement Park Ville on Nikolina Hill with luxury houses, the cost of which began from $ 5-7 million, recalls the chairman of the board of directors Kalinka Group Ekaterina Rumyantseva. Then the Partners had a club house in Bolshoy Afanasyevsky Lane, 24/26, with a penthouse 492 m2, a winter garden and a terrace.

An incident in Pisarevs own life pushed him to the idea of working with elite real estate in foreign markets. Soon after the failure with the mansion in the seventh district of Paris, the businessman decided to settle in the south of France. The architect, who was hired by him, built a very unusual villa for the Côte d’Azur. Modern architecture: a lot of glass, stone, large windows. It stood out against the background of houses in the style of Belle Époque and Provence — traditional for the Coast. Suddenly, Pisarev began to receive one after another offers to buy this house, although he did not give ads and did not intend to sell at all. And then he realized that «if you build approximately the same luxurious house, you will get almost the same result.»

By that time Pisarev, together with partner Mikhail Serdtsev (he was then deputy chairman of the board of Absolut Bank) already owned Wainbridge. It managed two funds that invested in commercial real estate in London (£ 100 million) and New York ($ 100 million). Serdtsev was responsible for attracting investments, and Pisarev for construction and management of objects. To outside Investors, they promised a profit of 7-10% in valuta, says Ekaterina Rumyantseva. «When it comes to the fund, investments go into the strategy, and not to the final object,» Pisarev argues. — Someone understands the strategy and gives money, others does not understand the strategy, but gives money, believing in the team, and someone does not give money at all, because he does not understand the strategy and does not believe in the team."

The British fund had an uncomplicated strategy: to buy office buildings, repair them and increase the cost, raise rental rates and then sell. Because of the crisis, real estate in London became cheaper, and Pisarev and Serdtsev hoped to make money on it. «We understood that we should go in today, because tomorrow everything will be more expensive,» Pisarev recalls. The entrance to the American market was also connected with the consequences of the crisis. «There were problems with financing projects in New York, so we decided to help local developers,» the businessman says. Expectations of Investors were justified. Risking investing in the funds of Pisarev and Serdtsev, Investors, according to the developer, made a profit around 15% after paying all taxes.

However, elite residential real estate seemed a much more interesting topic. «All modern business is built on doing something for the middle class. But very few people think of super-rich people,» says Pisarev.«They are suffering with their family offices, buying real estate around the world, they are being pursued by the tax services, hiring some consultants who are extremely ineffective managing this estate, keeping staff of people. It’s all a headache.»

Wainbridge began to look for locations for projects in the places where billionaires gather: London, Cote d’Azur, Courchevel, Saint-Barts Island. Choosing a place for the construction of each new house, Pisarev trusts only his own intuition and does not listen to brokers, because he repeatedly burned on their recommendations. Brokers live for today, he explains, they understand what can be sold today, but they will never say that it will be in demand in two or three years. The first residential Wainbridge project appeared in 2011.

Rules of the game

London became the most difficult place for Pisarev. The work of developers in the city center is clearly regulated, and this, according to the businessman, is the problem. "Unequivocally, I can say that the English method of leading business development is not better than the Russian one. But I can not say that it is worse. It is just different, «says Pisarev. Developers are forced to take into account a number of factors in their work.

Active development today moved to the periphery of London — it’s easier to build there, and domestic demand has shifted there. But the center of the city is hanging in the regulations and approvals. 

Wainbridge International
Chairman of the Board of Directors
Wainbridge International

What is the development in central London? It is when you buy a micro-house and build a loft of 100 square meters in it. And all this procedure, including reconciliation, can take eight years! — explains another Russian developer of luxury housing. — This time frame is not regulated at all! Sometimes it all depends on the local municipalities, which even the mayor of the city cannot control.» This is a very strange development, Forbes interlocutor is perplexed: just to make some changes to the inherited real estate can take years as well.

Arabs and Indians, who bought lots in London four years ago, are hanging on their projects, because the authorities do not give permission, another Forbes interlocutor, realizing projects in Europe, tells. The cannot sell at the same prices that they bought, and in principle the market of central London today sank — in many respects because of Brexit.

In the UK everything is too formalized, you have to do something that seems strange or dumb, but it is part of the working system, explains Pisarev. Firstly, the hours, in which it is possible to produce construction work, especially noisy ones, is strictly regulated: an hour of noise, two hours of break. Special sensors are installed, and when the noise level is exceeded, the signal is turned on, and people are taking you to court, such examples exists. Plus, problems can be created by aggressive neighbors, and in the case of London, it can be quite prominent personalities.

«I was shocked when one of the largest landowners in England asked us to buy a special license so that our crane’s arrow would pass over its land,» exclaims Pisarev. For England this is a very real story. At the site of another developer in France you have to pay the municipality for a truck at a construction site, because then it supposedly have to restore the roads. «And perhaps, it will not be necessary. But still for every truck we pay,» complains the builder.

«Kirill had a big conflict with one neighbor, also Russian. Kirill bought a neighboring lot, made all the project documentation, but the neighbor began to sue, because Kirill interfered with the noise, — Rumyantseva remembers. „This man apparently had nothing to do, because Kirill spent three years in courts with him, freezing his assets, lot and spending time and money on the courts.“

Despite calling such situations strange, Pisarev himself is sure that the logic is simple: everyone wants to earn on everything.» In Russia there is no such thing, and in this respect it is easier to work in Russia. But when you buy land in Russia, you do not fully understand what you can do with it. When you go into a project, you do not know if you can get approval on what you want, «says Pisarev. The latest example: Wainbridge plans to build on the Leningrad Highway in Moscow a multifunctional complex RC Aquatoria with underground parking: four residential and three office buildings, a kindergarten, a wellness center overlooking the embankment with a total area of 149,000 square meters. But in February 2018 the Architectural Council sent the project for revision: it resembles a typical resort building. «This is the entrance to Moscow from Sheremetyevo, today there is a task that everything that meets people entering the city should have a certain tonality. In this form, we cannot agree with the project,» was the explanation from the chief architect of Moscow, Sergey Kuznetsov.

In general, the developer is more protected in the UK than in Russia, Pisarev believes. «You can say that if you lost money, it’s written in documents. In Russia, you can lose money out of the blue due to various circumstances, — he argues. — There you create all your problems when you enter the project. If you did something wrong, then you did it yourself. In this regard, you can only blame yourself. In Russia, even if you did everything right, you can still have problems.»

Unit marketing

Pisarev is trying to create an elite product in the elite segment abroad. How? To successfully sell real estate to buyers from among the «ultra-rich» (UHNWI), one must understand their requests, the difficulties they face. The task is simplified if you are one of them, the businessman thinks. One must understand that elite housing is not just «more», «higher» and «richer», one has to be a user and have a passion for development. «Today superpremial real estate has a completely different function, not the same as 20-30 years ago — a life style for show,» Pisarev tells. Before, a person bought real estate, and then he organized the whole service for himself. Now the rich want to buy real estate with services and everything related to it.

To build an elite object for a particular person is a thankless task, you can end up never finishing, drowning in endless reconciliations. Therefore, creating an object, the developer is guided by the fact that 80% of buyers should like it. But sometimes, while selling such objects, you have to adapt to a speciall individual.

Once Pisarev built a house in one of the best places in Saint-Tropez. Already in the process of building, he realized that the market is going down: the offer is increasing, 25 houses for sale around, the prices are unstable, the businessman recalls. But the project had to be completed. The broker gave a tip that one of the Australian billionaires wants to buy a house in Saint-Tropez. Pisarev found out that this billionaire made a fortune selling music studios and teaching music, he himself is a former guitarist and has one of the biggest guitar collections in the world. Although Pisarev don`t reveal the buyer, on the Forbes-list of the richest people in Australia, there is an ex-musician and entrepreneur Richard White, who collects musical instruments and even restores guitars for AC / DC musicians.

Pisarev carefully prepared to the day of viewing. He remembered that he had seen a guitar made of Venetian glass in Venice, an exact copy of the guitar of John Lennon. Pisarev bought it and put it in the most prominent place in the house, and also asked one of his friends, a former professional musician, to casually come to the piano and play. «There was a wonderful weather in May, — the businessman recalled with pleasure. — We opened the windows. High ceilings in the living room. The potential buyer comes in and first sees the guitar. Then plays Marcus. Immediately the feeling that „this is yours“ is created. The first thing he saw was the guitar, the first thing he heard was music, it is what his life is connected to. And he began to think quite differently.»

Literally 20 minutes after the presentation, the billionaire made an offer to Pisarev, after another five minutes they shook hands and two weeks later they closed the deal. He does not disclose the price of the deal. «We set a record price in the history of Saint-Tropez, despite the fact that everything around was sold about 2-3 times cheaper,» the businessman says proudly. «It means that a person does not care how much there is to pay, he just needs the best.»

The buyer of the future

Not only elite real estate changes, but also its buyers. Yesterday they were Russians and Arabs, today they are residents of China and Indonesia, as well as Africans who have grown rich on oil. However buyers from Russia are remaining, and in this line thee are the most advanced. It’s hard to surprise a Russian businessman so that he says «Wow!». «He really have travelled around the world, seen it and understands what an elite real estate is. But most importantly, the Russian has his own ego. He will never say that it is good,» Pisarev said.

Nevertheless, he admits that it is nice to deal with Russian buyers with rare exceptions, because you speak with them in one language in all senses. «They understand and consciously make decisions,» notes Pisarev. The portrait of a Russian buyer of elite real estate abroad today is as follows: these are people from 45 to 60 who buy houses mainly for themselves and their large families. Sometimes they think about buying something less expensive for their children.

Everything is much more complicated with the Chinese. They think differently and approach the buying process in another way. In the market, such people are called «new money», and the process of training has already started. Almost none of the rich Chinese speak English, they don`t understand much themselves and are forced to negotiate through consultants and local Chinese brokers. Together with them, they go around all the objects marked on the map. «However, by their reactions you do not understand whether they are surprised or not, and what is important — the size of the room or the height of the ceilings. It is more important for them, that someone who can be trusted would say: „Wow! That’s cool“. For them, this is more important than their own understanding. However, the most advanced Chinese do not come at all, but send consultants, who make decisions for them,» Pisarev said.

What will tomorrows buyers of luxury real estate be like? There are more and more young millionaires from the hi-tech area in the world, and they have a completely different mentality, the developer notes. They are also willing to pay high price, but only for rent, not for a purchase. Pisarev believes in the rental business and now he stakes on it. He is confident that such a property will be in demand by many millionaires and billionaires around the world. Up to 300,000 rental flats are owned by large funds, the businessman says: this is the most reliable and very profitable business, being invested in by a huge number of pension funds and other institutional Investors.

In 2015 in the US Wainbridge began a project of a business class multi-flats house for further leasing. Serdtsev is responsible for attracting Investors. Partners also participate in the project — the share of their investments is about 20%. Experts believe that the profitability of the rental business can be up to 15-20% annually. "We are increasingly flying and moving, we are becoming more mobile, we are becoming cosmopolitan. Therefore, ownership of real estate will be a thing of the past, "Rumyantseva agrees