Supported by:
July 3, 2023
Investment instruments

for the development of historical territories (part 1)

  • Sergey Lutchenko
    First Deputy Chairman of the Committee, Chief Architect of Leningradskaya Region
  • Roman Golovanov
    Advisor to St. Petersburg Governor
  • Taliya Minullina
    Head of the Tatarstan Investment Development Agency
  • Egor Dontsov
    Director of the OKN GC Sector
  • Robert Khairullin
    General Director of Management Company Capital-Trust-Invest, LLC (ASG INVEST Group of Companies)
  • Aleksander Chebotarev
    Director of the VEB.RF Asset Block, General Director of ProGorod, LLC.
  • Konstantin Makarevich
    the Partner, Head of Infrastructure and PPP Practice at Luchshiy Vybor (Better Choice), JSC
How to invest in historical territories: experience of Kazan and St. Petersburg, disadvantages of PPP, and payback issues

The application of investment instruments of historical territories development was discussed at the Forum “Rebus” on July 3. Positive and negative experiences were shared by investors, architects, representatives of government institutions and regional authorities of different Russian regions. The use of the support tools provided by the state, and their optimization at the regional and federal levels for supporting investors and stimulating the development of historical territories were in the focus of the discussion.

«We need to create a cult of investments in culture»
Robert Khairullin, General Director of Management Company Capital-Trust-Invest, LLC (ASG INVEST Group of Companies) spoke about his rich experience in working with historical architectural objects. The company has been recreating and restoring ancient mansions in the center of Kazan, manor centers in Moscow and in the Moscow region.

Within the scope of the PPP agreement, the Company received 26 old mansions in the center of the capital of Tatarstan. In addition, the company is engaged in private collecting, the Great Collection of Fine Arts embraces over 7,000 thousand items. Art masterpieces of world significance are returning to Russia, and after restoration filling the interiors of the revived mansions. This work has been started in 2005.

- In our opinion, it is necessary to create a cult of investments in culture! - said Robert Khairullin. - It is necessary to strengthen the cultural funds of the region and fill with new meanings.

In his speech, he mentioned that an entrepreneur should not only be a philanthropist, but also be able to receive income from his investments. And for this he also needs the support of the society, the state, and an integrated approach to the restoration of objects. Khairullin brought an example of the “Dom Priyomov” (Reception House) complex on Karl Marx Street in Kazan. Here, a space is being created in the interiors of historic mansion, surrounded by authentic objects of XVII - XIX centuries, which promises to become a new point of attraction in Kazan. The new concept involves the opportunity of holding business events, round tables, business meetings, creative evenings. The created environment enables to combine art and business, get a source of income for the development of the project. The organization of the internal space renders the opportunity to hold several events simultaneously. Within centuries historic buildings become more valuable, when the meaning is complemented by integration into the tourist and business environment.

- The importance of tourism and historical heritage communication has come to be realized,-
Robert Khairullin said. - Now they are in a minimal dialogue with each other, and Kazan has set a new trend for the convergence of tourism, culture, business and history. However, with such objects it is difficult to talk about profit: you need to initially consider all the details, the restrictions on existing facilities. We save as much as possible the historical appearance and the building purpose. Our historic sites are restored practically out of ruins!

Robert Khairullin reasoned that CHS requires large investments; and from the start it is very difficult to estimate the required amount of investment. Therefore, according to the ASG Head, the state should rely on greater openness to the investor, permanent dialogue, targeted decisions and a lot of work to reduce the regulatory deadlines. It is important to have a clear roadmap and ensure the rhythm of funding. In addition, the tax aspect is very important: the owners of the CHS, who are responsible for the enormous work on the reconstruction, restoration and maintenance of historical buildings, should have tax preferences.
«We consider the entire legislative palette, which allows us to work with investors»
Roman Golovanov, the Advisor to the Governor of St. Petersburg, also shared his experience in establishing intercommunication and supporting investment projects. He described the general scheme of work established in the Northern capital, and this work is rather huge: there are 8,464 cultural heritage sites in St. Petersburg: 10% of the total volume of cultural heritage in the country!
The governor's adviser emphasized that the cornerstone of attracting investment in the historical environment is the legal basis.

The speaker described several successful projects that have been implemented with the help of the state and without it: the project “Novaya Gollandiya” (New Holland) is completely private; during the Wawelberg Hotel restoration, the city assisted in reduction of the approval procedures. When “Ostrov Fortov” (the Island of Stockade Forts) was being restored and adapted for modern use, several methods of of private investors’ interrelation with state bodies were used.

St. Petersburg uses a flexible set of mechanisms which allow working with historical objects. The speaker listed them all, briefly dwelling on each and showing the projects which were implemented with their help. For example, the following reconstruction projects are being implemented based on concession agreements: the greenhouse of the Tavricheskiy Garden, the Ernest Igel's Mansion, the reconstruction of the Petrovskiy Stadium and the King's Dacha. Some territories are considered for implementation only under the KRT (Integrated Development of Territories) mechanism, because the unity of the complex will be lost if you invest in each detached object of the complex by different owners without a unified working legal mechanism. This will help solving both the problem of the city and the investment: both to attract funding and receive the expected socio-economic effect.

- We look at the entire legislative palette, which allows working with investors. And we choose one the most expedient of the variants. Sometimes the choice is limited by the project itself: for example, the Petrovsky Stadium should preserve its sports function. Of course, support from the city is essential; it should be any model that could saturate the project with funds. And each region should envisage it, while concession is a mechanism which has been tested on other projects, not necessarily on CHS.

The speaker gave a vivid example of when it was necessary to use the KRT (Integrated Development of Territories) scheme: Apraksin Dvor territory is a whole residential block in the heart of St. Petersburg which was formed in the middle of the XVIII century. There are still discussions regarding the preferable scheme to follow. It is possible to solve the problem holistically and comprehensively only through KRT, because there is a versatile palette of ownership on this territory. And it is possible to settle it holistically only implementing the project of Integrated Development of Territories.
The state should help in the development of historical territories
Sergey Lutchenko, First Deputy Chairman of the Committee, Chief Architect of Leningradskaya Region, shared his experience of investing in architectural heritage. He drew attention to the fact that extremely severe restrictions can lead to the investor’s bankruptcy if the latter cannot fulfill his obligations regarding the object. The speaker gave an example: the business center “Welcome” in Vyborg, a building of 1937, the redevelopment of which from 2006 to 2013 was being implemented through private investment. But due to the fact that the owner did not fulfill his obligations to the bank, the building was confiscated in favor of the creditor. This negative example, according to Sergei Lutchenko, suggests that each such project should still be flexibly supported by the authorities.

However, there are opposite examples, of private investors creating unique projects. Thus, not far from St. Petersburg is the Maryino estate, which used to belong to Stroganov-Golitsyn, and now it has been reconstructed, restored, and the Leningrad region received a real historical gem, entirely at a private expense. Lutchenko cited other interesting examples of the historical sites development: Smolyanoy Mys in Vyborg, embankments in Shlisselburg and Ivangorod, Karl Marx Street in Novaya Ladoga and others.

The architect told about the regional peculiarities of supporting investors in historical heritage in the Leningrad region: for example, legal entities are provided subsidies for part of the costs reimbursement due to their performance of CHS preservation: conservation, repair, restoration, adaptation for modern use, examination of project documentation and other types of work. In addition, the Leningrad region government annually holds tenders to attract state funding: for example, for the best photo zone among municipalities, when basing on the results the winner receives additional subsidies for further implementation of comfortable environment.

And, according to the architect, in order to attract additional investors, it is required, firstly, to increase federal and regional funding for projects of historical settlements improvement (implementation of projects, which entered the RF Ministry of Construction list of best practices) within the framework of comfortable environment projects.
Secondly, to consolidate the concept (the master plan) of the territory development in the federal legislation, as well as introduce a provision on its approval and development.
Thirdly, an additional opportunity to subsidize the diligent owners working on historical heritage sites would be highly desirable to meet the needs of the servicing and engineering infrastructure (provided the owners have a clear concept for the development of the cultural heritage site or the territory under it).
The PPP mechanism and what must be corrected in it
Konstantin Makarevich, the Partner, Head of Infrastructure and PPP Practice at Luchshiy Vybor (Better Choice), JSC discussed specific issues of preparing and implementing the PPP mechanism as applied to historical heritage. According to him, the use of PPP specifically for these facilities is an outstanding trend in recent years. There is a great demand on the part of the banks and investors for the implementation of these processes structuring. However, firstly, most of these initiatives are not sufficiently developed, and secondly, the regional and municipal levels in most parts of Russia still lack sufficient attention to objects of cultural and historical heritage.

-However, the market is interested in such projects, - said Makarevich. - There is already a request from system investors who are interested in studying the way such projects are launched. But it is necessary, taking into account the complexity of the payback and the long terms of restoration, to ensure the stability of the regulatory conditions to the investor for regulating activities at the level of the entire life cycle of the project. It is necessary to develop an agreement on the protection of investments and to reflect the risks in it.

The regulatory framework in Russia, according to Konstantin Makarevich, is fairly well developed. But there are still difficulties in the implementation of PPP projects, moments that have to be finalized. Thus, you can make a number of exceptions for those working with CHS objects, make changes in the procedural part and simplify the content aspects: for example, you can consolidate the procedure of an operator contract in the PPP mechanism, so that both banks and financing organizations could more easily enter into such projects.

Besides, the PPP mechanism is still very complicated, the “start of the flywheel” takes a lot of time and effort. Another problem is the team which will implement the project. Not all regions have much to be proud of high competencies in the field of PPP and a well-functioning mechanism for working with investors (though, Tatarstan has an Investment Promotion Agency, but it is a very rare case in the regions). We need to work on replenishing the personnel reserves in the regions, which could have effect on preparation and coordination of projects.

The problem of the lack of a stable market of operators also exists in all regions. The expert drew the attention of the audience to the fact that the development projects of historical territories need a competent management, and this applies not only to the reconstruction of the building itself, but also to the competent management of the project's payback in the future.
«It's not about paying off in three years»
This session was concluded by Aleksander Chebotarev, Director of the VEB.RF Asset Block, General Director of ProGorod, LLC. Speaking on the part of the funding organization, he focused the attention of the audience on the fact that his structural entity is interested in projects which have a strategic future. For example, ProGorod, LLC is being invited to promote objects of the urban economy in addition to production facilities emerging in different regions of the country. For example, VEB.RF participates in financing of a gas processing project in the Leningrad Region, while ProGorod participates in a housing construction project on 22 hectares supporting this project.

- There are all state mechanisms for the development of historical city centers: federal and municipal programs. And our task is not to lose the funds that were invested. But we are not talking about paying off in three years! For example, the payback period of the Ivanovo Manufactories redevelopment project (an object of the late XIX century in the historical center of Ivanovo) is starting from 10 years.

The session turned out to be active: the architect, the top manager of a credit institution, and a major investor in historical heritage sites, and a representative of municipal authorities expressed their opinion on different aspects of investing in historical territories. According to the results of the work, as reported by the moderator of this session, Elina Zhiganova, Head of the PPP Development Department of the Investment Development Agency of the Republic of Tatarstan, a lot of useful ideas and proposals were formulated, which need to be worked on in the future.