Interview by Michael Belton, Wainbridge President: “I don’t believe that new amendments in law will boost prices on the real estate market”

25 March 2019
Interview by Michael Belton, Wainbridge President: “I don’t believe that new amendments in law will boost prices on the real estate market”
The brand Wainbridge is hardly familiar to an average real-estate customer, mainly because Kirill Pisarev (the company’s principal shareholder and a/the co-founder of PIK Group) founded the company for the investments in international premium property.

In recent years, the company has begun to work on projects in Russia. For instance, Wainbridge has a common project with the co-investor of “Magnit” Alexey Bogachev. The project includes luxury hotel and residencies near the Kremlin. BVLGARI manages the construction process. Probably, Wainbridge will support the BTA Bank to complete the ex-projects of the Kazakh businessman Mukhtar Ablyazov on Poklonnaya Hill. Ironically, Kirill Pisarev from Russia is responsible for the foreign policy of the company while Michael Belton from the US – for the Russian policy.

How did you come up to Russia? According to your biography you are from the US and studied at the St. Petersburg Polytechnic University. It’s so surprising.

- I was born in Alaska that has always been associated with Russia. For example, my native Fairbanks and Magadan are twin towns; the relationship between them has always been based on commercial ties. Besides, I am fond of hockey. Remember in my childhood the best hockey team was the "Red Machine" from the Soviet Union (Russian: “Krasnaya Mashina”). As an ordinary boy of those times who was fond of hockey, I dreamt to play hockey in Russia. Besides, Fairbanks could be the first to receive a nuclear strike from the USSR: very close to us there was a military base and there were held military drills, that’s why I have not only a general idea of what they call the Cold War. In general, Russia with its military power and excellence in hockey had always attracted me. This was the reason why in 1990 I decided to move and study in Russia participating in the exchange student program between my university in Massachusetts and the St. Petersburg Polytechnic University.

What memories do you have from the freewheeling 1990s?

- I was satisfied with everything except for the weather. In Alaska the climate is colder but it’s not so wet as it was at St. Petersburg. That time Leningrad made a great impression on me, a 20-years-old boy, I was very young back then. I saw a big difference between Leningrad and Alaska: it was a big city with a lot of students from different countries. At the university I met my wife, she was the main reason I stayed here. Besides, I studied politics and specialized in the Soviet Union. In the early 1990s in Russia it was a tough transition period: dangerous but exciting.

How did you get into real estate development?

- Those times Russia was different. These days expats are not considered more professional and then everybody thought if you were born in the USA you were supposed to have higher qualification. Hines Inc. from Texas was the first foreign development company that built in Moscow. Because American chiefs gave up after a half a year of work in Russia, Hines began to hire Americans who spoke Russian and provide them with unique knowledge, experience and support of the most professional real estate development company in the world. And I was one of those lucky ones. I tried and got success.

What was your first project in Russia?

- The first project was Pokrovsky Hills in 1998, a cottage complex near the Pokrovskoe-Streshnevo park. It was the first project I managed from the beginning till the end. After its completion I left Hines and started my work in CMI Development (Millhouse Capital), which executed Krylatsky Hills – the first business park in Russia. Pokrovsky Hills is my favorite project as well as Krylatsky Hills which is a very/extremely successful project. There were good rental rates and a trustworthy general contractor that executed the works properly. Besides, I lived in Pokrovsky Hills, my children grew up there. Now and then I still visit my American school to look how the trees have grown.

Why did you decide to found a company instead of continuing your contract employment?

- I spent four years in Millhouse Capital, completed several projects with it. I got experience during these years, gained reputation and decided to found my own company that would invest in Russian real estate. This is how I left Millhouse on Friday and already on Monday my company Storm Properties including 20 employees had a list of potential projects.

How the partnership began

How did you get acquainted with Kirill Pisarev?

- After PIK Group having hold IPO in 2007, one part of shares were bought by foreign investors, they were not good at comfort class residential real estate in Russia. They were satisfied with company’s money flow but at the same time they would like to build something more “sexy”, and commercial property as well. At that time several agile western companies worked in the real estate development in Russia and our company Storm Properties was among them. I got acquainted with Kirill in 2006 during MIPIM exhibition. We talked a little, Kirill told me about his plans, his expectations, he needed our work experience from abroad. Eventually, we got on well from the very beginning – may be because we are of the same birth year. In fact, in PIK Group there are a lot of people of the same year: Kirill Pisarev, Yuriy Zhukov, Artem Aramdzhantz.

They are all ex-classmates.

- Yes, in our entourage there are a lot of people of 1969 birth year, all of them are sportish and sociable. Before I met Kirill in real life, I thought of him as a good interlocutor. He told me then: “Michael our meeting went off well, we can meet with the legal department. Further, I was interviewed several times and every time I thought the next interviewer would be the worst person in the company but I was wrong every time. All of them: Artem Aramdzhantz, Yuriy Zhukov, turned out to be very intelligent and nice people, accomplished professionals. We reached an agreement very quickly, they hold due diligence and we sold them our shares and continued the work on our projects. We are still friends with Yuriy and Artem. In my opinion, they have a unique combination of members in the team.

At the beginning you and Mr. Pisarev had Storm Properties, now – Wainbridge. Did you rebrand the company or create another one?

- I will explain. I founded my own company Storm Properties in 2005 December 1. Two years later PIK Group bought the controlling block of shares. At that moment one of the PIK shareholders was Kirill Pisarev. Then, the 2008 financial crisis occurred and made things in PIK quite unpleasant/things in PIK got worse, and I bought Storm Properties’ shares back. After Kirill’s leaving of PIK Group we met and I suggested him work on projects in Russia. By that time we had already had a positive experience of working together in PIK Group: they gave us all commercial projects under our control. We got on well while working as a team, that’s why Kirill agreed without hesitations. He became one of Storm Properties shareholders and at the same time he started to work on international projects. In London he founded Wainbridge. Now in the company’s profile there are more than 40 projects –London, New York, 3 projects in the South of France, St. Barths and Paris.

Thus, the two companies, Storm properties and Wainbridge, grew up simultaneously. But they didn’t crossed on the real estate market because Storm Properties had only commercial projects in Moscow. Then there was one more financial crisis, commercial property lost its value, and our team started to think about the alternatives. So we decided to try ourselves in residential property. It was agreed that Storm Properties would manage commercial propertyand Wainbridge would deal with residential. Now we have an international company, Kirill Pisarev holds 60% of Wainbridge shares and I – 40%.


- No, I’m talking about Wainbridge in Russia. The company’s projects located in London, New York and Paris is another story. The list of shareholders comprises a vast amount of various funds and partners. Mentally we are the one company and because of the company’s global character, annually we hold retreats: in 2017 we met in London, last December all senior managers came to Moscow and this year we organize it in Paris.

I still didn’t get. Does Storm Properties still exist or not?

- Storm Properties is still functioning but its owner is another person that wanted to buy a company working only on the commercial real estate market. It’s been 2 years already, Kirill and I have nothing to do with Storm Properties.

And who is the owner of Storm Properties now?

- It’s confidential. Anyway, the names of its new owners wouldn’t tell you anything.

What do you think about doing business in Russia? Don’t you think it’s risky to do business in Russia presupposes some risks? You probably know that Michael Calvey and the other senior-managers from Baring Vostok were put under arrest. I should mention that the reason for the arrest is disputable. What do you think about this?

- I have known Michael for many years and I consider him a respectable person. I am not familiar with the details of this case, therefore I don’t want to make any comments.

Legal innovations and future of the projects

What projects does Wainbridge in Russia profile include?

- We have three projects in active stage/in process in Moscow. To date the biggest one is AQUATORIA on the Leningradskoye Highway. It comprises approximately 650 flats and offices of 70 000 sq.ft. We started the construction last October. We also have the apartment complex SOHO + NOHO near the Belorusskaya metro station. The start of the construction was 6 months ago.

Are you investors or fee-developers in these projects?

- We are major investors in AQUATORIA project and in SOHO + NOHO project – minor investors. In these projects we are developers and investors as well. And the project in which we are fee-developers is BVLGARI HOTEL & RESIDENCES MOSCOW. We have been leading this project for 2,5 years already.

You don’t disclose your AQUATORIA and SOHO + NOHO partners, do you?

- They are passive financial investors. Probably, you are unfamiliar with their names.

And what about BTA Bank’s projects? Do you take them into account?

- The BTA Bank has assets on the Poklonnaya and Bratiev Fonchenko streets. The situation is the following: we worked together on the creation of the both project conceptions. Despite that local authorities intended to build something interesting there, both projects, as you know, are delayed contractions. The conception for the complex on the Poklonnaya street was agreed and they got architectural and urban planning solution in the end. About the project on the Bratiev Fonchenko street – it’s a building of an incomplete oceanarium, 4ha of land and foundation ditch of 18 meters. The location is good, but the project is difficult. By the end of the previous year the project conception has been made and agreed by the Moscow Council of Architecture.

If I understood correct, you probably won’t participate in these projects?

- We don’t exclude such opportunity. What are the difficulties? Firstly, they are situated close to each other. Due to this the simultaneous execution of two projects of the same location will be a difficult task. Secondly, last year new amendments in 214-FL were accepted. Now we haven’t got yet how to work with them in the future. One of these projects presupposes a five-star hotel and the other – a big oceanarium and a commercial center. That is to say, at the beginning we need to build them, invest money and then start building residential property. The projects, undoubtedly, are beautiful, with a good location, but today for us it’s problematic to work on them.

You want to say that these amendments made you refuse from the projects’ execution?

- You have hit it right, in the projects that we have launched, for example, in AQUATORIA project it doesn’t matter anymore according to which scheme we will sell the flats, because we already have project financing for it. There is an opposite situation on the Poklonnaya and Fonchenko streets. Moreover, the matter with escrow accounts is not clear yet. I do not say that we will abandon, we will work on them cautiously.

Do you think of/consider other locations?

- We think of less risky projects. They must be of less area and be closer to the city center. We take serious risks entering a project of 100 000 sq ft. But such projects as Fili Park, of 10 000 – 20 000 sq ft. is more preferable for us.

Of what residential property class?

- Business and premium.

What about offices? I know AQUATORIA project includes offices.

The offices are part of the land plot development plan of AQUATORIA, and we are obliged to build them. Otherwise, if we had opportunity not to do this, we wouldn’t.

According to the market situation, the role of a fee-developer should be more attractive for you. Am I right?

- You are a little bit wrong. We would rather invest money in projects that have potential, apply our experience that we got from managing projects and the use of our good investment base. Fee-development is a thankless work.

But less risky.

- And less exciting. We can’t afford to execute 20 projects simultaneously, though every fee-development project brings some profit every month, but it’s not the profit we need. It’s important for us to create our own unique projects.

Other words, it’s useless to expect the company to have a huge profile of projects in Moscow, correct?

- We are glad to have 5-6 projects in Moscow. No more. We don’t specialize in comfort class properties, each our project has a unique location and concept. From the ouset all our apartments are offered with design class fit-out. If we create design it’s important for us to think over every detail, to know what kitchen desk will be installed, what parquet. We must be qualified in many things, participate be involved in every process. Otherwise, clients won’t be satisfied with the results, the quality will suffer. Therefore there is no use in chasing for big numbers.


About finances. In these projects you also cooperate with banks. What is your loan exposure?

- Wainbridge loan exposure is very low. Every our project is an independent company with its own land and construction, that owns a land and construction. That’s why Wainbridge doesn’t have any loan commitments. Each project has its own pool of investors and its own project financing.

With what banks do you work?

- We work with all top banks. We have project financing from Sberbank, the VTB Bank, the MKB Bank, the Otkritie FC Bank.

How is it possible that the company’s loan exposure is low and it has almost no loan commitments?

- Each project has its own project financing, therefore the company doesn’t have loan exposure.

I remember Sberbank announced that because of debts, it could get a stake in the project “K2 Business Park” by Storm Properties. May be there were some mistakes in the debt exposure calculations?

- Our contracts with big foreign and Russian companies, project financing, rental charges were in dollars when we work on K2. In 2004 the dollar surged upwards and the tenants of the business center immediately initiated negotiations about the conversion of rental payments into roubles. As a result, we received proceeds in roubles but made loan payments in dollars. When we recalculated loan exposure in roubles, we got an impracticable amount.

We had negotiations with Sberbank as many real estate developers did. We were among those who came and said that they didn’t run away. We had an issue/a problem and the thing that we did to resolve it: at that moment our company was among the first companies that realized co-working idea worked with co-working spaces. We used the whole floor for this trying to create/ as many infrastructural units as possible. For the phase 2 of the project we had 4ha of land and we tried to change the conception and to build apartments, residences just to break even. The sticking point was in our partnership relations, not in Sberbank. We were minor shareholders of that project. In the end, we failed to reach a compromise with our partners. The major shareholders believed that the project would have a great success when there was a metro station, and they would be able to rent the offices out. That was the reason we left the project and gave them all our shares. They still keep working on the project. By the way, as far as I know, Sberbank didn’t manage to enter project’s share capital. In the end, Sberbank cooperating with the then current shareholders found the solution– they restructured the debts. Anyway, it’s a difficult project, but I truly believe it will be fully occupied in three years.

What financial indicators does Wainbridge have for today?

- We are satisfied with our financial performance. In development projects we try to get cash flow return on investment value of 20-25% (APR), now our projects overfulfil our plans.

In terms of investment profitability, is this comparable to the projects in New York or in other locations?

- It is difficult to compare because, for example, in the US they have various financing facilities. They invest their own money less than Russians do, but their real estate developers have higher loan exposure. In general, the revenue-generating capacity in Russia of similar projects in terms of risks is higher but this capacity is in roubles.

Future of the real estate market

You don’t believe in commercial property investing, do you? There is an opinion that this real estate sector is reviving. Several real estate developers have already announced their intentions to build offices.

- I agree with them. Housing development sector gives you a unique opportunity to enter and leave a project at any stage immediately in comparison with the selling and renting offices, they are less attractive investment products. This is not for us. Firstly, you need to get project financing, then you need to manage the whole process, then to stabilize and then to sell. All this prolongs investment terms. With residences it can be 3 years while with offices – much more. Indeed, I worked with Hines and I know commercial sector better than the residential. The investment situation on the market is the following, it’s worthy to build a good residential property/to construct something good in residential sector, sell it and then leave.

Sure, but the residential real estate market has a high level of competition.

- May be it’s high, but, for example, last year elite property sales hit record numbers. Business property as well. Moreover, what do we do today? We sell rather successfully because our team is good at producing/making products/projects of high quality. For example, the very projects in the Poklonnaya and Fonchenko streets – almost there is no other project that could compete with them. Or with the BVLGARI project. Who will be able to compete with BVLGARI?

It should be noted that Bvlgari has a very extensional pay-off period – around 10-15 years.

- Yes, it’s a long time but to have such projects in your profile is valuable. No other project could be better for this location. This place is perfect for a boutique-hotel and some residences.

And some apartments have already been sold there, right?

- We have residences there. The official sales launch is scheduled for this coming summer, we haven’t signed any co-investment agreement yet.

What do you think will happen with house prices within 3-5 years?

- I don’t believe that the latest amendments in 214-FL will boost property. The prices will remain the same, maybe there is going to be a small increase because of inflation but the boost in property prices because of the new rules on the market – no. We all build and we all need to sell. And if I am going to tell a client: “You know, I have a new financing system, give me 5% more” – they will buy something else. There are a lot of projects on the market and people have choice. At the beginning the price is lower, then according to the stage it grows and if I set the final price at the beginning, nobody will buy anything. Agree?


- Except for the BVLGARI project. This is a unique project, comprises a few residences - 14 and 3 townhouses. Besides, BVLGARI doesn’t offer discounts.

And other projects don’t have an influence on it? For example, Mandarin Oriental development?

- No doubts, it will be a good project but it comprises more than 120 apartments. This is completely another story. Moreover, BVLGARI has a different location. Therefore those who would like to live and walk along the Bolshaya Nikitskaya street, they will buy in BVLGARI. It’s true that they will consider both projects, but each project has its own target audience.

Besides, Capital Group sets out a very high price there, even for Moscow.

- I can assure you that our prices are not low either, but we have only 14 residences. By the way, to compare it with the similar BVLGARI projects in London, Pekin, Dubai, they are all sold out. Besides, in Dubai it is a big project while in Moscow it’s small. People understand it’s not just a property, it’s BVLGARI. If a person wants a penthouse, he/she will get a unique BVLGARI penthouse in Russia and it will be definitely sold. Every residence in this project (ranging 105-500 sq ft.) is unique. We think it will reach huge popularity that is why we are not in a hurry with the sales launch. This project suits BVLGARI style, it’s fine and exquisite and that’s why will be successfully sold.

What do you think about the property on the outskirts of the city? I know a lot of projects launching on this market. For example, the business center Comcity on the Kiyevskoye Highway, its main tenants are big companies such as Rostelecom. There have already been some projects and now there are more projects are coming. What potential do they have?

- I personally think that decentralization is a correct policy for commercial property. I was the first who built a mighty business center on the outskirts of Moscow - Pokrovsky Hills. At the beginning people twisted a finger at a temple and said that I don’t know what to do. They didn’t know that I had already signed an agreement with Microsoft on this project. I knew, even then back, there were people and companies that do not want to have offices in Moscow City, in the centre of Moscow. Besides, if people live on the outskirts it is more convenient to work near your home. Everyone got their benefits. Look, Sergey Sobyanin relieves pressure on roads launching new metro stations. Now it’s much easier to get to the city centre then it was 5-10 years ago because of low level of traffic jams. To go by metro – no problem. Before I didn’t go down in the subway but now I go by metro 3 times a week or near that, it’s more convenient and quicker. New wagons like in Europe. That’s why decentralization is a great idea. But we need a growing economy for that. These days there is no need in large amount of offices because the economy doesn’t grow. Of course, there are global corporations that try to consolidate their offices in one place, but please remind that previously every two years we all changed location and every time the place was bigger and bigger. Nowadays there is no such tendency and Comcity is popular for one reason – its plus is in proximity to the metro station with all infrastructure you need.

Can you compare real-estate market in Moscow today and the market that existed when you started? What has changed? When was it easy to work?

- Before there were a lot of foreigners who were involved in the real estate business, now – much fewer. The same situation is with brokers. And this is because Russian real estate developers, brokers and consultants have huge experience. They travelled through all over the world, they got the secrets of real estate development from abroad, they made good ties with top architects and real estate contractors.The picture of investment attractiveness has changed a lot. For example, in our first office project that we had in Russia the part of proprietary investments from the project budget was 18%, now it’s impossible. The construction value has grown fourfold while rental rate went down by 30%-40%. Absolutely, the market became more competitive and I think the today’s results are much better than they were 5-15 years ago, and it’s just the beginning. In the residential real estate sector there are few business class projects with developer’s finish while US (real estate) developers have 50 years’ experience of such practice. In 5 years if someone tells you that they offer apartments in shell form you will say: “What? How is it even possible to buy an apartment in shell and core?”

There are different opinions. Some buy flats without any design on purpose to create their own based on their own preferences.

- They just don’t understand that if they buy an apartment in the building of 500 units and engage a designer, the designer will offer a very expensive design. They will have to go to the Leningradsky Prospekt to choose tiles or to Kutuzovsky – for parquet. They waste their weekends and then they find themselves in this endless process of repairs. Finally, it’s done, within a week or a month they enjoy the silence in their new apartment. Then a neighbour on the right or left or from the upstairs starts his/her repair works. The question is why do you want to live in chaos when you are able to buy a flat with fit-out? You just get pillows, blankets in Zara Home, hang on a picture, lay your granny’s carpet and enjoy your life.

But it’s a matter of quality. The quality of developer’s finish in Russia doesn’t fill in the international standards.

- It’s true, but sooner or later it will come up to the international level.