Michail Kurnev, Storm Properties

Storm Properties, founded in 2005, is one of the leading real estate developers in Moscow specializing in all aspects of real estate development, investment and asset management. Here, CEO Mikhail Kurnev describes the state of the Russian real estate market and shares his plans for future development.

What has Storm Properties been up to in the past 12 months? What are you focusing on at the moment?

The 2008 financial crisis has affected all fields; construction and real estate development have suffered dramatically. Storm Properties survived but we had difficult times; we had to reduce the staff almost by half and to reject a number of projects.

Over a year ago we made a strategic decision to diversify our business and started developing our first residential project totaling 300,000 m², located 11 km west from Moscow in the prestigious residential area.

The concept of the project comprises the development of a residential compound combining middle-rise buildings, townhouses, a retail and entertaining center, sports facilities (tennis courts, universal sports ground), a kindergarten and a school. Our creative approach to project marketing and its attractive infrastructure will allow to stimulate the market demand and achieve the maximum sale rates.

How has your business changed along with the changes in the real estate markets?

An example of the changes we had to make is our K2 Business Park project, which was started before the crisis. Initially the project consisted of six office buildings totaling over 100,000 m² with underground parking and indoor facilities. When the crisis hit in 2008 we had to freeze the project and adapt it to the new market conditions. We reduced the number of buildings to four and its total leasable space to 70,000 m², got rid of underground parking but kept a unique ratio of 1:28 m² as well as all amenities to ensure the comfort of tenants.

An important advantage is our project’s location at 2 km from Moscow along Kaluzhsky highway, which recently became a part of Moscow city. The project is located across from Kommunarka, the relocation destination of the federal government which will exponentially improve local infrastructure around K2 and create a strong center of attraction for all spheres of the business community.

Kaluzhsky highway is slated to be widened from four to 10 lanes, so its accessibility is going to significantly improve in the coming months. Construction is anticipated to begin in Q2 2013. The construction of the first phase of the business park will start early next year and will be completed in 12-13 months. Several anchor tenants have shown their interest in leasing space in K2 Business Park.

What are your plans for growth, and where will your growth be directed in the coming years? Are you planning to expand into other markets?

We are constantly looking for new deals in Moscow, Moscow region, Saint Petersburg. Unfortunately, some of these deals do not fit our requirements due to entry price, market demand, various restraints, etc. We want to choose the best projects to add value for the investor and ourselves. This summer we made a decision to enter the Primorsky region market as we see its development potential.

The Russian Far East is a territory with an extensive, but not yet realized, investment potential. I think Vladivostok is a great city, being Russia’s gateway to the East. Moreover, a number of activities were implemented for APEC in construction, telecommunications, energy, and education. Our first project will be the redevelopment of the retail complex in Vladivostok and then we will work on office/residential projects.

In your opinion, what is the outlook for the real estate market in Russia over the next 12 months? How does this compare to what’s happening in the neighboring markets and beyond?

The main driver of the Russian economy remains the commodities exports, which are becoming more profitable with the growth in oil prices. The constant increase in demand for oil leads to a stable growth in prices and adds a great deal to the recovery of Russian economy. Global office market performance was positive in the past years; steady leasing activity in the first half of this year resulted in rising rents in the majority of markets.

The Moscow office market shows stability in demand and rental rates; the supply in the office segment slightly increased. Investors show high interest in the acquisition of properties in Russia, although there is not much foreign investment. Russian investors are still the ones who make up the largest portion of the market. In my opinion, the residential market is currently more dynamic and promising than other real estate sectors.

There is extremely high demand for reasonably priced apartments, especially if there is a special character to the project. There is a tendency for development of low-rise communities outside Moscow and I think it’s the right direction to develop the city. People choose to live in out-of-town residences for the same reasons as in any other major world center; in search of a healthier lifestyle. The air is fresh and clean, nature is close by, and there is much less security concerns.

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