The Cross Exit: What Awful Surprises Did the Bidding for the "Kresty" Bring?
The bidding for the properties of the former "Kresty" detention center on Arsenal Embankment was unexpectedly won by a large developer from St. Petersburg and the Leningrad region, surprising many market participants. The developer outbid the PMI corporation, which had promised the residents and guests of the Northern capital to build a "Museum of Good and Evil" and a festival venue on the site.
The next auction date for "Kresty-1," which had already been postponed multiple times, was announced by "DOM. RF" at the end of December 2024. The event was scheduled for February 21 of this year. The lot, with a land area of 3.9 hectares and buildings covering just over 40,000 square meters, was estimated at 1.04 billion rubles. At that time, market participants were rather skeptical: the complex has the status of a cultural heritage site, which limits the possibilities for its use and requires significant investments in reconstruction.
However, in February, two players submitted bids for participation in the auction. One of them was "calculated" by the media at the last moment. It was the head of the PMI corporation, Evgeny Finkelstein, who promised to create a creative public space with a "Museum of Good and Evil" and a festival venue in the area of the ancient detention center. To bring such ideas to life, he even agreed to raise his bid to over 1 billion rubles on February 21. However, it was outbid by a slightly higher offer of 1.136 billion rubles from the unexpected Group of Companies "KVS," based in St. Petersburg and the Leningrad region. The company traditionally specializes in residential construction, worked with the Smolny Construction Committee nearly two decades ago, consistently builds "social housing," but has hardly been "visible" in the redevelopment of historical properties, according to market participants. On the other hand, some experts argue that no one has the experience required for a project like "Kresty."
New Meaning?
Evgeny Finkelstein took his loss stoically.
— If I were a developer, I could have offered more money too. I offered as much as I could. Honestly, I didn't even think anyone else would participate in this, — he said in an interview with 78.ru.
However, earlier potential contenders had been named. These included RBI, which had implemented several redevelopment projects in St. Petersburg, Element Development, or a shareholder fund of co-investors, which, for example, built an Ozon warehouse in the Moscow region. Therefore, the appearance of "KVS" in the list of participants and, especially, their victory came as a surprise to many, who traditionally associate the company with housing and social infrastructure projects.
The company quickly released a press release, but there was little detail regarding the project concept. As stated, the "Kresty" complex will house a museum preserving the memory and history of the site, as well as a hotel complex, restaurants, galleries, and public spaces open to all.
— We understand the responsibility that our company is taking on. "Kresty" is not just a building, it is a historical landmark, significant not only for St. Petersburg but for the entire country. We will create a space where culture, heritage, and modernity will converge, and make it a place of attraction, capable of telling its true history, — said Sergey Yaroshenko, CEO of the "KVS" group of companies, in a press release.
There was no further detail in the "DOM. RF" materials, which only mentioned that the contract with the winner was to be signed within five days. Meanwhile, questions arise about whether the project will feature a classic hotel or apartments, what kind of museum it will be, when the work will begin, how long it will take, and how much investment will be involved.
Will Millions Be Earned Per "Square" Meter?
The head of the real estate agency Lapina, Ekaterina Lapina, sees nothing strange in the situation with "KVS," unlike her colleagues.
— Right now, many companies involved in residential construction are revising their strategies amid falling sales of "square meters." "KVS" is apparently no exception in this regard. No one wants construction equipment to be idle or the workforce to be underutilized. "KVS" builds quality housing, works professionally, and we hope everything will work out, — she emphasizes.
According to Ekaterina Lapina, the hotel will most likely be apartments, and given the location, quite expensive ones. Likely, they will include entertainment areas, commercial properties, and spaces oriented, in part, to tourists, who always enjoy walks by the water. It's quite difficult to calculate the price of purchasing the "square meters" and the land area, but it is already clear that this will be expensive from the start. It will be even more expensive considering current realities and trends.
— For example, not too far, but relatively close, there is the "Priory" residential complex by "Evrostroy." There, the "square" starts from 750 thousand rubles. In the future, the "KVS" project may reach 1 million. Moreover, the price differentiation in the elite real estate sector will only increase. Compared to the rest of the world, expensive housing in the city center here is relatively cheap. And more often, the term "collector's real estate" is being used instead of "luxury real estate," — Ekaterina Lapina tries to explain the developer's logic.
Everything is Unique for St. Petersburg
Olga Sharygina, vice president of Becar Asset Management, acknowledges that there is no experience in St. Petersburg in implementing such projects because "Kresty" is a unique site, and "everything there will, in fact, be unique."
— If we're talking about the experience of creating hotels in historical buildings, as far as I know, "KVS" has no such experience. It will be interesting to see how they handle such a bright and complex project, — she shares her thoughts.
It is noteworthy that the phrase "things will get very interesting" is used by many anonymous sources.
According to Olga Sharygina, the sum of 1.136 billion rubles from "KVS" is only slightly higher than what PMI had offered.
— And globally, it's not much higher than the starting price of 1 billion. That is, the price increase didn't even exceed 50%, which could have been considered significant. The site is so unique that with this price, it’s entirely manageable, and the financial burden per square meter has increased only slightly. The critical issue is the set of functions the developer wants to implement, — she disagrees with Ekaterina Lapina.
As Olga Sharygina reminds, the project should ideally be multifunctional, but achieving this is difficult.
— Moreover, the site has a very rich history, and it needs to be packaged into something that can support or even withstand this history. A hotel, a museum, restaurants, galleries, and public spaces would be the right choice, in my opinion. At the same time, attention will need to be given to the fact that there is quite a dense traffic flow there, and currently, there are issues with pedestrian access, — she reflects.
It should be noted that the term "unique" is used by the speakers in light of the following context. In Moscow, in 2021, a boutique hotel opened in a building previously designed for housing high-ranking employees of the Central Taganskaya transit prison. But this is hardly comparable in terms of scale and investment costs.
There are not many examples of "prison" redevelopment projects in global practice either. For example, in Helsinki in 2007, the "Katajanokka" prison was transformed into a 4* hotel, and in Istanbul, the "Sultan Ahmet" prison became part of the five-star Four Seasons family.
Meeting Market Demands
Stanislav Bibik, partner at NF GROUP, believes that such a price increase is quite acceptable in the context of auction bidding, considering the popularity of the site and the increased interest in it.
— In general, the concept proposed by KVS, including the museum, hotel complex, restaurants, galleries, and public spaces, is logical and meets current market demands and will certainly be in demand by the public, attracting both tourists and local residents. Examples of such transformations, where historical buildings are turned into cultural and creative centers, are widespread around the world, — he explains.
As Stanislav Bibik adds, no one doubts that the project will require significant investment, but it will still be lower than if the developer started building from scratch.