A. Rudakov

Last year, RGI returned to its "historical" name, Rose Group. The company's founder, Boris Kuzinets, made a name for himself as a developer of Ostozhenka, but in the post-crisis period, he launched an economy-class project in the near Moscow region. At the beginning of this year, Boris Kuzinets sold his stake to financial institutions. Will the company's strategy change, will it return to Ostozhenka, and how is it working now as a public developer in the still opaque Moscow market? Rose Group CEO Andrey Nesterenko talks about this.

1997

KPMG, Auditor Assistant.

2000

Andersen Consulting (Moscow representative office of Accenture A (UK), financial specialist.

2005–2007

"Dixie Group", Financial Director, Vice President of Finance.

2007–2009

Capital Group, First Vice President for Financial Affairs, Managing Director.

2009

"Sistema-tals", President.

2011

"Trend Development", Managing Director.

2012

Rose Group (LSE: RGI International), CEO. Marital status: married, three children.

Rose Group

Rose Group has been involved in investment and construction activities since 1993. It has implemented more than 15 projects in the Moscow region. In 2006, it changed its name to RGI International and held an IPO on the London Stock Exchange. In 2012, it returned to the Rose Group name. Major shareholders: Direct Finance LLC and AMG Group Limited – 40.22%, Synergy Classic Limited and/or its affiliated structures – 24.13%, Sigrun – 20.08%, Prosperity – 3.68%, Ren Cap – 3.88%. Capitalization (LSE) – $314.7 million.

– You don’t want to sell the Tsvetnoy department store, a kind of flagship project of the company?

– There was a time when we wanted to sell. “Tsvetnoy” is a new format of shopping center for the market. We are a public company, and according to the rules of the stock exchange, as soon as we think about selling something, we have to tell everyone about it. So that none of the stock exchange speculators could use this information and somehow make money on it. At that time, I had a conversation with the shareholders something like this: “We understand that it’s not a fact that we’ll sell it?” – Yes, we understand, but we want to sell it, don’t we? – Yes, but we want to sell it well. – And if they offer a bad price? – Then we don’t sell.” And so on 20 times. As you can see, we haven’t sold it yet. The department store format is complex, but interesting from the point of view of the prospects of this business.

– You are one of the most famous, if not the most famous, crisis managers on the Moscow market.

- Unfortunately, it stuck. I always get out of crisis situations.

– What crisis did you resolve at RGI?

– There was no crisis at RGI when I came. On the contrary, there was a big upswing then. The crisis label stuck to me when I worked at Dixy Group, there were several shareholders, the situation was difficult, I was called to help make an IPO to resolve the situation.

– What tasks did RGI shareholders set for you? Who invited you?

– I knew the shareholders and top managers of the company. From time to time, they all called me in turn: come on, help me. But I left to do my own business and was a happy man.

– Your business didn’t work out?

– My move to Rose Group was part of a compromise that Boris [Kuzinets, founder of Rose Group] and I made. I did not have enough resources to develop my own projects. Negotiations began, which resulted in an offer to work as the company’s CEO. However, before heading Rose Group, I met with three shareholders and six more board members.

– What happened to your company?

- She lives, but my partner is in charge of her. We have now exited two projects. I am listed as the owner, but I do not conduct any business there. As a public company holder, I have no right to develop my own business.

– Will Rose Group conduct an additional issue?

- It all depends on the market. We want to, yes, but under what conditions can we do it? There is no clear answer to this question yet.

– How are the company’s shares performing?

– In 2012, we had more than 65% growth. We are one of the best for the year in terms of profitability. LSR, for example, had 23.5% growth.

Now the difference between what developers expected when they did an IPO and what they got is obvious. Financiers no longer listen to stories about “there will be 3 million sq. m here in the future.” Investors want to know what is happening in the present, they do not evaluate expectations from future projects, but, on the contrary, scrupulously examine the “history of the object”, its progress, which is expressed in money. The development business is generally difficult – and especially for a public company. Retail is understandable – there is a constant flow [of funds], you play with the margin, shoot an idea-initiative – and one kopeck gives an effect of several million dollars at once. But in development, if you make a mistake once, put something wrong in the “DNA” of the project, five years later the trend has changed, and the project is not for sale.

- "Microcity in the forest" is designed until 2018 for 1.5 million square meters. For Russia, this is a long period of time. How to correctly calculate such a long-term project?

– This is the talent of a developer.

- I understand that. I don't understand what kind of demand the multi-million dollar Moscow region projects are designed for.

- Let's start with what a person who wants to buy an apartment faces. The secondary market is a depressing picture. Social heterogeneity, long-term negligence of housing and communal services, lack of culture of using public areas, entrances and courtyards - all this is slowly but systematically destroying houses. There are exceptions, of course, but these are isolated offers, they must be sought with nerves of steel, a bulldog grip, free cash, unlimited time and a legal education.

After running around, people come to the new building market, where there is an opportunity to save money if you buy at the construction stage, calmly select a mortgage, choose a floor, layout, sunny or cool side of the world, where a single social environment is formed, since the price of 1 sq. m. serves as a kind of filter.

– Do you hope that people running away from “bad” neighbors will buy from you?

– I repeat: there is a lot of housing in Moscow that does not meet modern conditions – and especially the prices dictated by the market. This gap will increase over time. This is partly why the construction boom is happening. Then there is another problem: many developers are selling something other than what will actually be. The picture is radically different from what is built. In this regard, RGI has always been an example for me of a developer that was distinguished by very high-quality construction and did not “lie”.

- Back when it was called Rose Group? Why, by the way, did you go back to the old name?

- Firstly, they confused it with RDI; secondly, it was difficult to explain to people who bought apartments why the RGI International website was one big exchange. Boris said that he simply bought it with that name, Rose Group is not something connected with roses. A lot has already been invested in this brand.

– This brand is primarily associated with the objects on Ostozhenka, which are now suspended.

– The government has changed in Moscow, the rules have changed: some things are done sensibly, while others are simply a nightmare. The global crisis and the change of the ruling elite in Moscow have led to the emergence of new key developers. For example, the Gutserievs and Mikhail Shishkhanov are creating a new development company on the basis of Inteko, O1, Kievskaya Ploshad and others are working. But we are a public company, a long time ago we were listed on the AIM exchange, and we are not affiliated with the ruling elites. Yes, we know Ostozhenka better than anyone, but the rules of the game in Moscow are now different, still not entirely clear. For example, what is the legal status of GZK?

– Even officials are afraid to talk about it.

- That's why there was no clarity and, as you mentioned, we are "in limbo". We are following the standard paths that other companies are following, and they are also in limbo. Economy class projects in the previous volumes in Moscow have died, developers have gone to the Moscow region.

– In fact, you currently have one “Microcity in the Forest” in active work?

– We are working on all eight projects known to the market. “Microcity in the Forest” is the largest and newest of them. It is fundamentally different from the others. For example, we deliberately leave the forest inside the development, although we could cut it down. This is a strong decision – and 100,000–200,000 sq. m of housing are lost.

We are actively working with the Tsvetnoy department store – we manage it as a real asset. We don’t call once a month: “Hello, where is my rent?”, but work on each event, collection, purchase. We have a time crunch there every day: to put up installations, place advertisements, etc. At the same time, for example, Ginza’s turnover suddenly starts to fall, and we, since we earn on a percentage of the turnover, have to get into it and figure it out, start changing something, etc.

- How to control tenants with such a payment scheme as a percentage of turnover? In the Vnukovo outlet, the developer wanted to install cameras - the tenants were outraged.

- It's true, they are against cameras. Because we will immediately see the inefficiency of their business - they don't necessarily steal. How do we control it? Unfortunately, we have large expenses for private security companies. Everything goes through one cash register, the exceptions are the 5th and 6th floors: there are several cash registers there, because there are several restaurants, a farmers' market. On the 7th there is a night club. The private security company checks to make sure that no one steals, no one takes out, that they don't install another cash register.

– Let’s get back to your projects...

– Next we have Khilkov. As with any developer, there is a struggle between fear and greed. It is impossible to choose which state will win. In fact, we wanted [to approve] much more square meters. We currently own this project – a 4,000 sq. m building and land. We can always reconstruct what is there, and thus partially return our money. Currently, densification is not welcomed in the Central Administrative District. There is a certain limit – 10,000–30,000 sq. m. Although I have seen cases where permission was given for 50,000 sq. m. We understand that, in principle, it is possible to build from 12,000 to 18,000 sq. m on a site in Khilkov Lane. The decision on this issue is currently being approved. In addition, we have two more projects in the works on Ostozhenka. They remained practically at the same planned sizes, perhaps the increase [in volume] will be 30–40%.

– Hasn’t Ostozhenka become cheaper?

– Any good product always sells. For example, everyone wants to buy an iPhone. There is Ostozhenka, and there is RGI-Ostozhenka. This is the top Ostozhenka. In 2011, the largest deal took place in Crystal House. In mid-2012, one of the restaurateurs I know bought an apartment here, and at the end of last year, I know, there was renovation in a newly purchased apartment here. We make a slightly different product than other developers. And this is what we count on to a greater extent in our lives. I was lucky to work with Boris Kuzinets, his position is this: even if we build 2,000 sq. m, and not 10,000, we can sell them not for 10 rubles, but for 20. And if we build 100,000 sq. m, we will sell them cheaper. It has never been like this: let's sell it for more and build an extra 20,000 sq. m. We have always proceeded from the fact that there is a project, there is a place, we are confident in it and we are doing it. If you do it well, it will always be bought.

I would say that 95% of developers want to do well, but not everyone has the experience, the right knowledge, aesthetics and practice. Development is not a profession, they don’t teach it at the institute. And the chain is long from the idea to its final implementation.

– Why is fee development not developed in Russia?

– Taste still plagues everyone. In Russia, there is no established reputation for people with taste. Plus, with such a volume of ambiguities with product approvals and market volatility, it is impossible to agree on the shore how to swim to the end. The task immediately begins to fragment: let's run there and then figure out what to do next. That is why there are many people in this business who say that they are fee developers, but no one makes projects out of them from start to finish. For us, development is a full-fledged complex: we took the land and in the end sold a functioning shopping center.

- What is the status of the Victory Park project? And Zemlyanoy?

- In progress, it is part of a large-scale reconstruction of the entire block. Inteko planned to build a large multifunctional center there, Rosoboronexport also had a large project. They have several stadiums next to us, which they planned to modify and build something new. And we with our small piece fell under the general comb of consideration of development plans. Zemlyanoy was sold for $6 million, but according to the terms of the signed deal, we cannot name the buyer.

– Has the company’s policy changed in connection with the change of shareholder (in January 2013, the company’s founder Boris Kuzinets sold shares to Direct Finance LLC (22.87%) and AMG Group Limited (17.35%)?

- Our new shareholders are financial institutions in their purest form. They see our figures, sales volumes, and understand that the projects generate a stable cash flow. In the future, they want to maintain positive dynamics and increase the portfolio. Of course, with them, the company gets the opportunity to attract additional resources for project development. They do not plan to change the company and management.

In turn, I agreed with the new shareholders that I want to preserve the "DNA" that Boris Kuzinets laid down. For example, another important and old project in the Central Administrative District, previously called "Chelsea", is on the way. This is the reconstruction of four buildings with the construction of a 5,000 sq. m. multifunctional complex. And among them, we want to preserve the oldest Moscow cinema "Forum". This is one example of preserving the old "DNA".

– Will you buy new sites?

- Yes, I am currently communicating with two [sellers]. We are looking at sites where our product will be in demand by the market.

For now, due to the heavy load on networks and social infrastructure, the marginality of "Microcity" is lower than that of smaller projects. The main profit will be when the next stages are built and sold; at the current stage, I have not accumulated free money to buy large lands.

Interview: Business in Public