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July 3, 2023
Investment instruments of development Part 2
  • Roman Golovanov
    Advisor to St. Petersburg Governor
  • Denis Sekachev
    First Deputy General Director of the Corporation Tourism. RF, JSC
  • Yuliya Patselya
    The Expert on investment in cultural heritage and territorial development, author of the “Cultural PPP” project
  • Evgeniy Novosadyuk
    Chief Architect of the projects, a Partner of the Studio 44 architectural bureau
How to invest in historical territories: “wall of honor”, “fly in the ointment” and the structure of the investor's pains
Discussion of investment instruments for the development of historical territories continued on the first day of the Forum Rebus: “Economics of construction in the historical center.” Extremely interesting examples of the investors’ activity in historical territories throughout Russia from the Crimea to Siberia were presented at the session moderated by Elina Zhiganova, Head of the PPP Development Department, of the Investment Promotion Agency of the Republic of Tatarstan. The participants discussed preferential financial instruments, in particular, infrastructure bonds. Even more new trouble spots were being revealed. Yuliya Patselya, an expert on investment in cultural heritage, structured the experience of numerous colleagues and spoke about the most interesting tools implemented in the regions.
Laishevo Marina and Balaklava Bay
Denis Sekachev, First Deputy General Director of the Corporation Tourism. RF, JSC, slightly deviating from the topic of construction in the historical center, recalled the recently presented project, which will be implemented in Laishevo under the active participation of the Corporation. It will be an all-season resort “Kazan Marina” located on 70 hectares with large yacht marina, several types of hotels and extensive entertainment infrastructure. It is expected that by 2030 the resort will receive up to 620 thousand of visitors.

An interesting investment model will be implemented to create the resort. The Republic of Tatarstan and Corporation Tourism.RF, JSC have signed an agreement. The land plot was allocated under the Large-scale Investment Project framework; at present it is in the process of registration and lease to the Corporation Tourism. RF. Currently the master plan is under development, and 9 investment lots with different content are being formed, and investors are being attracted. After the signing of the contract, a joint project company between the investor and the Corporation Tourism. RF (provided the investor is interested in it). After he fulfills his obligations, for example, builds a hotel and puts it into operation, he will be able to buy the land under it. Similar flexible mechanisms for cooperation with government agencies can be implemented on historically significant objects.

The speech delivered by Evgeniy Novosadyuk, Chief Architect of the projects, a Partner of the Studio 44 architectural bureau, turned out to be really bright. First, he spoke about the draft concept for the development of the historical center of Balaklava, a small town in Crimea. The Studio 44 portfolio contains enough works related to historical monuments, and now Balaklava with its richest centuries-old heritage sites is among them. The Yusupovs' Dacha, and the hunting lodge of Count Apraksin, and the ancient winery, and even a medieval Genoese fortress are located here. The investor plans to create a large hotel cluster in areas adjacent to the historical monuments,. Currently two separate hotel complexes located on two opposite shores of the bay are under development. One is developing the structure of terraced gardens, and the other is sticking to the principle of building cozy Mediterranean towns. Taking into account the works carried out by the investor on the reconstruction of the marina, Balaklava has a chance change of a qualitative restructuring.
- We offer to implement the principle of a new type of development. Our project will cover the entire bay. Due to this decision, a sweet Mediterranean town with large terraces and cozy streets can appear here. We are not limited by case concept: this ambitious project is developing, and we hope in the foreseeable future to give our proposals concerning the master plan for the historical part of Balaklava, as well as for a design code uniting all urban development under certain rules. This project is implemented solely at the expense of the investor, without the participation of the state.
The situation is surprising also by the fact how much passion the investor has for this unique
territory. And we, on our part, will be happy to contribute both to the preservation of the unique heritage site of Balaklava, and to the qualitative transformation of this city.

A fly in the ointment: is state participation always good?

When asked why there is no plan to attract state support for development of the historical center of Balaklava, Evgeny Novosadyuk cited a negative case when the the implementation of the project of the ski resort construction with 25% state co-financing has been slowed down; more and more new unreasonable demands that were dictated not so much by common sense and concern for the quality of the project, but more by bureaucratic restrictions.

- State participation: is it good or not? For me personally, this is an open question. For example, we cannot enter into contracts with subcontractors prior to receiving an advance payment, and this process is delayed due to the deficiency of approvals. And very often all process is stuck due to a certain incompetent executor who does not realize the degree of responsibility. Such “fly in the ointment” can not only slow down, but entirely bury the project, which was meant to contribute to the development of the whole region. It is important for the state to understand its role, if it really participates in the project, to implement it faster, better and with higher quality is one thing; but if as a result the project is slowed down or, in general, is totally “frozen”, then this is a completely different matter,- the architect reasoned. Elina Zhiganova, after listening to this story, once again reminded the audience of individual approach to each project, which means a lot for its realization.
Infrastructure bonds and how they will help development of the historical center
Afterwards the participants of the session turned to the financial instruments of the state support for the development of the historical center. Thus, Aleksander Lunkin, DOM.RF, JSC Head of Credit Analysts of Key Projects of Infrastructure Bonds Division spoke about concessional financing, the criteria for selecting projects to receive financing and about the main features of the infrastructural bonds mechanism application.
- Infrastructure bonds is a mechanism of infrastructure concessional financing for housing construction and urban development. Development of historical territories includes important projects. But without creating objects of modern infrastructure, it is impossible to put together a complete puzzle of the development of a historical territory. Engineering communications, transport infrastructure, social objects will be in demand there. It is very important to understand the way of implementing such projects, since they bear not commercial, but more social character in nature for the development of the housing environment. The attraction of extra budgetary funds becomes a financing mechanism for infrastructure development, which is an analogue of credit financing with a preferential rate.
Infrastrukturnye Obligatsii (Infrastructure Bonds), LLC SOPF a subsidiary of DOM.RF, JSC places its infrastructure bonds, and issues the raised funds to investors in the form of infrastructure loans at a preferential rate, - Aleksander Lunkin briefly explained the mechanism of the activity.
The mechanism is preferential, but requires security; these can be in the form of state guarantees, guarantee of a development institution or an organization with a long-term rating of creditworthiness not lower than AAA level. If the project is based on concession or PPP, then a pledge of claims under the PPP agreement /concession will serve as an agreement security. Having told about various details and about the procedure of receiving funding, Aleksander Lunkin cited the statistics.
- Currently, 97 projects worth 648 billion rubles from 44 RF subjects are under consideration, 42 projects worth 138 billion rubles from 22 regions have already been approved. Funding source of this concessional financing are infrastructure bonds, they have already been issued for 60 billion rubles. In 2021 they were recognized as the best social bonds of the year at the CBonds Awards, and in 2023, at the SPIEF (St. Petersburg International Economic Forum), the mechanism received the the Rosinfra-2023 award as the “Best financial product”.
What do investors of historical territories want?
Yuliya Patselya, the Expert on investment in cultural heritage and territorial development, author of the “Cultural PPP” project, in her extensive report systematized the issues of investment in historical territories. She focused on the fact that in the regions where the authorities go beyond mandatory procedures and start acting more actively than in compliance with the tightly regulated legislative decisions, and things get off the ground faster.

- There are different schemes for involving new objects in the economic turnover: long-term lease (including “ruble per meter” procedure), privatization, PPP and gratuitous transfer to the management of NPOs, - listed the expert and noted, - What is being done is largely done to shift the burden of responsibility and the risks for the object from the shoulders of the state. Meanwhile, about 75% of the cultural heritage in Russia is regional or municipal property.

According to Yulia Patseli, investors first of all want the following support measures from the state:
•measures of direct financial support;
• tax benefits (unfortunately, at present legislative benefits are given only for objects of federal significance, and only in few regions a local norm have been introduced to support owners of CHS of the regional and local importance);
• privileges for renting CHS;
•compensation of expenses for design and restoration works;
• concessional lending for certain types of work on CHS or types of activity.

The expert also listed the most popular problems faced by investors in cultural heritage sites and in work on historical territories:
- First, the lack of information and the lack of transparency of administrative procedures. Sometimes even the participants in the interdepartmental process themselves do not know the person in charge of a certain aspect and the division of authorities.
- Second, there is a big problem of the uncertainty in working with such objects, both in terms of time and costs. Every historical architectural object is unique, it is impossible to standardize the assessment of work and terms. Therefore, it is necessary to look for schemes, approaches and tools for solving this problem.
-Third, the measures of state support for investors are insufficient; and this happens in conditions of restrictions on the use of CHS and special conditions for their restoration and operation.
- Fourth, regional investors have no access to the market for high-quality design and restoration work. And finally,
-Fifth, the iconic value of a place in society is underestimated. CHS is often talked about in terms of its area in square meters; and if you consider it as a property, it will be an illiquid. But taken from the symbolic point of view or the spirit of the place - we still have to talk more about this and cooperate with the investors!
“Honor Wall”: Kaliningrad, Tatarstan, Nizhny Novgorod region and Novosibirsk
At the end of her speech, Yuliya Patselya listed the successful, in her opinion, examples of supporting investments in historic city centers which can and should be transferred to other regions of Russia.
- “Ahead of the whole planet” was Kaliningrad, which was the first to relieve the main pain of the investor: it gave real money to the investor, an interest-free loan for 15 years along the program “Buy a castle”. If the restoration project is completed in 5 years, then 50% of the loan is written off. 11 projects worth 700 million rubles have already been supported this way.
The next tool applied in Kaliningrad is the preservation of historical background development by the Capital Repair Fund of the Kaliningrad Region: the regional subsidy amounting to 1.1 billion rubles, and apart from that, they collect another 900 million from the population. What is meant here is dealing with the historical environment of objects which do not have a status a cultural heritage site, but are very important for historical atmosphere preservation of the housing development. They restore historical doors, shutters, residential buildings which are not on the heritage list, but provide an important entourage for the CHS.
By the way, the population is actively involved in this activity: the authorities in Kaliningrad arrange active meetings with population; they communicate and even have opened a school of restorers. Film projects carrying out filming in the historical locations of the region (showing castles, churches, ancient streets) receive a 20% subsidy from the Kaliningrad government of production costs.

The expert cited Tatarstan as the next example.
- This is an example of work with the historical territory, which should be taken as an example. Firstly, the region has a good investment climate: the 2nd place in the National rating of ASI (Agency of Strategic Initiatives). This is an indicator for any investor that it is possible to work with the region. This means that a high level of work coordination with investments has been developed here. The second important factor is: the region has managed to formulate clear requirements for working with territories. The concept of the development of the historical settlement of Kazan removed a huge number of questions and made clear design and construction requirements in historical center. Many territories are lacking this. Thirdly, there are high budget investments of the region in engineering infrastructure and landscaping of historical territories. Such goodwill of the Head of the region is a direct invitation to activities for the investors. And finally, here the exemption is accepted at the regional level from property tax for organizations which own the CHS of local importance.

In the Nizhny Novgorod Region, a large range of benefits and regional budget for compensation programs has been developed for the owners of CHS. The population and municipal bodies are actively involved in the work through educational and grant programs in the field of heritage, culture and tourism. The specialized competence center, ASIRIS, ANO, has been created in the city which has implemented an integrated approach to working with the historical environment (at the level of the street, residential block, city).

And, finally, the regional operator, Istoricheskiy Kvartal (Historical residential block), JSC, has been established in the Krasnoyarsk Region, for the purpose of settling the issues of the historical center, with the functions of a technical customer in the interests of the investor. The city applies the legal structure of the contract for the lease of CHS with subsequent redemption after the completion of restoration work. The cultural heritage is popularized through the tools of involving large businesses, various authorities, educational and religious organizations; and the region is also actively involved in all-Russian professional events and competitions.

This concludes the work of the section “Investment Development Instruments of Historical Territories”. The participants listened with interest to all speeches; there were practically no empty seats in the hall. Based on the results of the experts' presentations, a list of proposals will be formed, which will be combined with the results of the first session at this site.