How to invest in historical territories: the experience of Kazan and St. Petersburg, disadvantages of PPP and issues of recoupment
On July 3, at the Rebus forum, the use of investment instruments for the development of historical territories was discussed. Investors, architects, representatives of government institutions and regional authorities from different regions of Russia shared their positive and negative experiences. The focus was on how to use the support tools provided by the state and how to optimize them at the regional and federal levels in order to support investors and stimulate the development of historical territories.
“We need to create a cult of investment in culture”
— In our opinion, it is necessary to create a cult of investment in culture! — said Robert Khairullin, head of the construction company ASG. — It is necessary to strengthen the cultural capital of the region and fill it with new meanings.
As part of the PPP agreement, 26 ancient mansions in the center of the capital of Tatarstan were transferred to the company. In addition, the company is engaged in private collecting; the collection of the Great Collection of Fine Arts numbers more than 7,000 thousand items. Masterpieces of art of world significance return to Russia, are restored and fill the interiors of restored mansions. This work began in 2005.
In his speech, the speaker said that an entrepreneur should not only be a philanthropist, but also have the opportunity to receive income from his investments. And for this he needs the support of society, the state, and an integrated approach to the restoration of objects. As an example, Khairullin cited the “House of Receptions” complex on Karl Marx Street in Kazan. Here, in the interiors of historical mansions, surrounded by authentic objects of the 17th – 19th centuries, a space is created that promises to become a new point of attraction in Kazan. The new concept involves holding business events, round tables, business meetings, and creative evenings. The created environment allows you to combine art and business and obtain a source of income for the development of the project. The organization of the internal space allows for several events to be held at the same time. Historical buildings become increasingly valuable over the centuries when the meaning is complemented by integration into the tourist and business environment.
“The importance of interaction between tourism and historical heritage has come,” said Robert Khairullin. Now they are in minimal dialogue with each other, and Kazan has set a new trend in bringing tourism, culture, business, and history closer together. However, it is difficult to talk about profit at such facilities: you need to initially think through all the nuances and take into account the restrictions on existing facilities. We preserve the historical appearance and purpose as much as possible. Our historical sites have been restored almost from ruins!
Robert Khairullin reasoned that OKN require large investments, and it is very difficult to initially estimate the required amount of investment. Therefore, according to the head of ASG, the state should rely on greater openness to investors, constant dialogue, targeted solutions and a lot of work to reduce regulatory deadlines. This is important to have a clear roadmap and ensure rhythm of funding. In addition, the tax aspect is very important: the owners of OKN, who bear the colossal work of reconstruction, restoration and maintenance of historical buildings, should have tax preferences.
“We are looking at the entire legislative palette, which allows us to work with investors”
Roman Golovanov, Advisor to the Governor of St. Petersburg, also shared his experience in establishing interaction and supporting investment projects. He described the general scheme of work established in the Northern capital, and this work is very extensive: in St. Petersburg there are 8,464 cultural heritage sites - 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 framework.
The speaker described several successful projects that were implemented with and without the help of the state: the “New Holland” project is completely private; during the restoration of the Wawelberg Hotel, the city assisted in reducing approval procedures; when the Island of Forts was restored and adapted for modern use, several mechanisms for interaction between private investors and government bodies were used at once.
St. Petersburg uses a flexible set of mechanisms that allow working with historical objects. The speaker listed them all, briefly dwelling on each and showing the projects that were implemented with their help. For example, reconstruction projects are being implemented on the basis of concession agreements: the greenhouse of the Tauride Garden, the Ernest Igel mansion, the reconstruction of Petrovsky Stadium and King's Dacha. Some territories are considered for implementation only through the CRT (integrated development of territories) mechanism, since if different owners invest in each individual object of the complex without a single legally valid mechanism, then the unity of the complex will be lost. This will solve both the problem of the city and investment: both to attract financing and to obtain the expected socio-economic effect.
— We are looking at the entire legislative palette, which allows us to work with investors. And we choose the one that makes sense. Sometimes the choice is limited by the project itself - for example, Petrovsky Stadium should retain its sports function. Of course, support from the city is needed; it should be any model that will saturate the project with income. And each region must provide for this, and a concession is a mechanism that has been tested on other projects, not necessarily OKN.
The speaker gave a striking example when it is necessary to build on the KRT scheme: the territory of “Apraksin Dvor” is an entire block in the heart of St. Petersburg, which was formed in the middle of the 18th century. There are still discussions going on about which scheme to follow. The problem can only be solved holistically and comprehensively through the CRT, because this territory has a different range of properties. And it can be resolved holistically only by implementing a project for the integrated development of the territory.
The state should help with the development of historical territories
Sergei Lutchenko, First Deputy Chairman of the Committee - Chief Architect of the Leningrad Region, shared his experience in investing in architectural historical heritage. He drew attention to the fact that too serious restrictions can lead to bankruptcy of the investor if he cannot fulfill his obligations on the object. The speaker gave an example - the Welcome business center in Vyborg, a building from 1937, the redevelopment of which was carried out with private investment from 2006 to 2013. But due to the fact that the owner did not fulfill his obligations to the bank, the building was seized in favor of the creditor. This negative example, according to Sergei Lutchenko, suggests that each such project must still be flexibly supported by the authorities.
However, there are also opposite examples, when private investors created unique projects. So, not far from St. Petersburg there is the Maryino estate, which belonged to the Stroganov-Golitsyns, and now reconstruction and restoration have been carried out there, and the Leningrad region has received a real historical pearl, entirely at private expense. Lutchenko gave other interesting examples of the development of historical sites: Resin Cape in Vyborg, embankments in Shlisselburg and Ivangorod, Karl Marx Street in Novaya Ladoga and others.
The architect spoke about the regional specifics of supporting investors in historical heritage in the Leningrad region: for example, legal entities are provided with a subsidy to reimburse part of the costs in connection with the performance of work to preserve OKN: conservation, repair, restoration, adaptation for modern use, examination of design documentation and others . In addition, the government of the Leningrad region annually holds competitions to attract government funding: for example, for the best photo zone among municipalities, as a result of which the winner receives additional subsidies for the further implementation of a comfortable environment.
And in order to attract additional investors, it is necessary, according to the architect, firstly, to increase federal and regional funding for projects for the improvement of historical settlements (implementation of projects that are included in the best practices of the Ministry of Construction of the Russian Federation) within the framework of projects for a comfortable environment. Secondly, he proposes to enshrine the concept of territory development (that is, the master plan) in federal legislation, as well as introduce a provision for its approval and development. Thirdly, in order to work on historical heritage objects, I would like an additional opportunity to subsidize bona fide owners of these objects for the needs of service and engineering infrastructure (if the owners have a clear concept for the development of the cultural heritage site or the territory under it).
The PPP mechanism and what needs to be improved in it
Konstantin Makarevich, partner, head of infrastructure and PPP practice at Better Chance JSC, discussed specific problems in the preparation and implementation of the PPP mechanism as applied to historical heritage. According to him, the application of PPP specifically to these objects is a bright trend in recent years. There is a big demand from banks and investors to implement the structuring of these processes. But, firstly, most of these initiatives are not sufficiently developed, and secondly, at the regional and municipal level in most places in Russia there is not yet much 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 launch of such projects. But it is necessary, taking into account the complexity of payback and long restoration periods, to provide the investor with stability in the regulatory conditions 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, reflecting the risks in it.
The regulatory framework, according to Konstantin Makarevich, is quite well developed in Russia. But in the implementation of PPP projects there are still difficulties and points that need to be improved. Thus, for them, when working with OKN objects, a number of exceptions can be made, changes can be made to the procedural part, and substantive aspects can be simplified - for example, the institution of an operator contract can be established in the PPP mechanism so that both banks and financing organizations can more easily enter into such projects.
In addition, the PPP mechanism is still very complex, and a lot of time and effort is spent on “starting the flywheel.” Another problem is the team that will implement the project. Not all regions can boast of high competencies in the field of PPP and a well-functioning mechanism for working with investors (for example, in Tatarstan there is an Investment Development Agency, but this is a very rare case for the region). We need to work on replenishing the personnel reserve in the regions, who could work on preparing and coordinating projects.
The problem of the lack of a formed operator market also occurs in all regions. The expert drew the attention of those present to the fact that projects in the field of development of historical territories need to be managed competently - and this applies not only to the actual reconstruction of the building, but also to competent management of the project’s payback in the future.
“We’re not talking about breaking even in three years.”
This session was concluded by Alexander Chebotarev, Director of the VEB.RF Assets Block, General Director of ProGorod LLC. He, on the part of the funding organization, focused the attention of those gathered on the fact that his structure is interested in projects that have a strategic future. For example, ProGorod LLC is involved in order to promote urban economic facilities in addition to production facilities that are growing in different regions of the country. For example, VEB.RF is participating in the financing of a gas processing project in the Leningrad region, and ProGorod is participating in a housing construction project for this project on 22 hectares.
— For the development of historical city centers, there are all government mechanisms: 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 on the redevelopment project for Ivanovo Manufactories (a late 19th-century facility in the historical center of Ivanovo) is 10 years.
The session turned out to be intense: an architect, a top manager of a credit institution, a major investor in historical heritage, and a representative of municipal authorities spoke about various aspects of investing in historical territories. Based on the results of the work, as the moderator of this session, Elina Zhiganova, head of the PPP development department of the Investment Development Agency of the Republic of Tatarstan, said, many useful ideas and proposals were formulated that need to be worked on in the future.
How to invest in historical territories: “roll of honor”, “fly in the ointment” and the structure of investor pain
In the second part of the session, extremely interesting examples of the work of investors in historical territories throughout Russia from Crimea to Siberia were presented. Financial preferential instruments were discussed - in particular, infrastructure bonds. More and more pain points were opening up. And expert on investments in cultural heritage Yulia Patselya structured the experience of numerous colleagues and spoke about the most interesting tools implemented in the regions.
Laishevskaya Marina and Balaklava Bay
Denis Sekachev, First Deputy General Director of JSC Tourism.RF Corporation, slightly moving away from the topic of construction in the historical center, recalled the recently presented project, which will be implemented in Laishevo with the active participation of the corporation. This will be an all-season resort “Kazan Marina” on 70 hectares with a large yacht marina, several types of hotels and extensive entertainment infrastructure. It is expected that by 2030 the resort will host up to 620 thousand people.
An interesting investment model will be implemented to create the resort. The Republic of Tatarstan and JSC Tourism.RF Corporation signed an agreement. The land plot was allocated under the “Large-scale investment project” mechanism; it is now being formalized and leased to the Russian Federation Tourism Corporation. Now a master plan is being developed and 9 investment lots with different contents are being formed, where investors are attracted. After signing the agreement, a joint project company is created between the investor and the Tourism of the Russian Federation corporation (if the investor is interested in this). After he fulfills his obligations - for example, builds a hotel and puts it into operation - he will be able to buy the land plot under it. Such flexible mechanisms for working with government agencies can also be implemented at historically significant sites.
The performance of Evgeniy Novosadyuk, chief architect of the projects, partner of the architectural bureau “Studio 44” turned out to be brilliant. First, he spoke about the draft concept for the development of the historical center of Balaklava, a small city in Crimea. Studio 44’s portfolio includes enough works related to historical monuments, and now Balaklava with its rich centuries-old heritage is among them. Here is the Yusupovs' dacha, and the hunting lodge of Count Apraksin, and an ancient winery, and even a medieval Genoese fortress. The investor plans to create a large hotel cluster in areas adjacent to historical monuments. Currently, two separate hotel complexes are under development, located on two opposite shores of the bay. One develops the theme of terraced gardens, and the other picks up the principle of building cozy Mediterranean towns. Taking into account the work carried out by the investor to reconstruct the marina, Balaklava has a chance to undergo a qualitative transformation.
— We propose to implement the principle of a new type of development. Our project will cover the entire bay. Thanks to this solution, a cute Mediterranean town with large terraces and cozy streets can appear here. The matter is not limited to the concept: this ambitious project is developing, and we hope in the foreseeable future to provide our proposals for the master plan for the historical part of Balaklava, as well as for the design code that will unite the entire urban development with certain rules. This project is being implemented exclusively at the expense of the investor, without government participation. The situation is also surprising because of how much the investor is “sick” of this unique territory. And we, for our part, will be happy to contribute both to the preservation of the unique heritage of Balaklava and to the qualitative transformation of this city.
A fly in the ointment: is state participation always a good thing?
Answering the question about why there is no plan to attract state support for the development of the historical center of Balaklava, Evgeniy Novosadyuk cited as an example a negative case when state co-financing of the construction of a ski resort in the amount of 25% slowed down the implementation of the project: more and more unreasonable demands began to arise, which were dictated not so much by common sense and concern for the quality of the project, but by bureaucratic obstacles.
— Is government participation good or not? For me personally, this is an open question. For example, we cannot enter into contracts with subcontractors until we have received an advance payment, and this process is delayed due to a lack of approvals. Moreover, often everything depends on a specific incompetent performer who does not realize the degree of responsibility. Such “flies in the ointment” can not only slow down, but also “bury” the entire project, which was designed to promote the development of an entire region. It is important for the state to understand its role: if it really enters into the project in order to implement it faster, better and with better quality - this is one thing, but if as a result the project is slowed down or, in general, “frozen”, then this is a completely different matter, the architect reasoned .
Elina Zhiganova, after listening to this story, once again reminded the audience how much depends on an individual approach to each project.
Infrastructure bonds and how they will help the development of the historical center
Then the session participants moved on to financial instruments of state support for the development of the historical center. Thus, Alexander Lunkin, Head of Credit Analytics for Key Projects of the Infrastructure Bonds Division of DOM.RF JSC, spoke about preferential financing, the criteria for selecting projects to receive financing and the main features of using the infrastructure bonds mechanism.
— Infrastructure bonds are a mechanism for preferential financing of infrastructure for housing construction and urban development. The development of historical territories is an important project. But without the creation of modern infrastructure, it is impossible to put together the complete puzzle of the development of the historical territory. Engineering communications, transport infrastructure, and social facilities will be needed. It is very important to understand how to implement such projects, since they are not of a commercial, but more of a social nature for the development of the housing environment. The financing mechanism is to attract extra-budgetary funds for infrastructure construction - an analogue of loan financing with a preferential rate. SOPF Infrastructure Bonds LLC, 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,” Alexander Lunkin briefly explained the work scheme.
The mechanism is preferential, but requires collateral: this can be government guarantees, a guarantee from a development institution or an organization with a long-term credit rating of at least AAA. If the project is implemented on the basis of a concession or PPP, then the security is the pledge of rights of claim under the PPP/concession agreement. Having talked about these and other details and the procedure for obtaining funding, Alexander Lunkin cited statistics:
— Currently, 97 projects worth 648 billion rubles from 44 constituent entities of the Russian Federation are under consideration, 42 projects worth 138 billion rubles from 22 regions have already been approved. The source of funding for this preferential financing is 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, as part of the SPIEF, the mechanism received the “Best Financial Product” award at the Rosinfra Awards 2023.
What do investors in historical areas want?
Yulia Patselya, an expert on investments in cultural heritage and territorial development, author of the “Cultural PPP” project, systematized the issues of investment in historical territories in her extensive report. She focused on the fact that in regions where the authorities go beyond the mandatory procedures and begin to act more actively than narrowly defined legislative decisions, things move faster from the deadlock.
“There are different mechanisms for involving new objects in economic circulation: long-term lease (including “ruble per meter” mechanisms), privatization, PPP, gratuitous transfer to the management of NPOs,” the expert listed and noted that this is done largely for the purpose of in order to shift responsibility for the object and risks from the shoulders of the state. — Meanwhile, in Russia, about 75% of cultural heritage is regional or municipal property.
According to Yulia Paceli, investors, first of all, want the following assistance from the state:
• direct financial support measures;
• tax benefits (unfortunately, now legislative benefits are given only for objects of federal significance, and only in some regions are local regulations introduced to support owners of OKN of regional and local significance);
• benefits for renting OKN;
• compensation of costs for design and restoration work;
• preferential lending for certain types of work at OKN or types of activities.
The expert listed the most popular problems faced by investors in cultural heritage sites and work in historical territories:
— Firstly, there is a lack of information and opacity of administrative procedures. Sometimes even the participants in the interdepartmental process themselves do not know who is responsible for what and how powers are delineated. Secondly, there is a big problem of uncertainty in working with such objects - both in terms of timing and costs. Each historical architectural object is unique; it is impossible to standardize the assessment of work and deadlines for them. Therefore, we need to look for mechanisms, approaches and tools to solve this problem. Thirdly, measures of state support for investors are insufficient - and this is in the context of restrictions on the use of OKN and special conditions for their restoration and operation. Fourthly, the market for high-quality design and restoration work is not available to regional investors. And finally, fifthly, the symbolic capital of a place in society is underestimated. OKN is often spoken of as square meters, but if we consider them as real estate, it will be illiquid. But from the point of view of symbolism, the spirit of the place - we need to talk about this more and interact with investors!
“Roll of Honor”: Kaliningrad, Tatarstan, Nizhny Novgorod region and Novosibirsk
At the end of her speech, Yulia Patzelya listed successful, in her opinion, examples of supporting investments in historical city centers, which can and should be scaled to other regions of Russia.
“Ahead of the rest” was Kaliningrad, which, first of all, solved the investor’s main pain - gave him real money, an interest-free loan for 15 years under the “Buy a Castle” program. If the restoration project is completed within 5 years, then 50% of the loan is written off. 11 projects worth 700 million rubles have already been supported in this way. The next tool that was found in Kaliningrad is the preservation of historical background buildings through the Capital Repair Fund of the Kaliningrad Region - the regional subsidy amounts to 1.1 billion rubles, and they collect another 900 million from the population. We are talking about working with the historical environment of objects that do not have cultural heritage status. But this is very important for preserving the quarter’s historical buildings and atmosphere. In Kaliningrad, historical doors, shutters, and residential buildings are being restored that are not included in the heritage list, but create an important “entourage” for OKN. By the way, the population is actively involved in this work: the authorities in Kaliningrad actively meet with them, communicate, and even opened a school for restorers. Film projects that film in historical locations of the region (showing castles, churches, ancient streets) receive a subsidy from the Kaliningrad government in the amount of 20% of production costs.
The next example the expert cited was Tatarstan.
— This is an example of working with historical territory, which we should strive for. Firstly, the region has a good investment climate - 2nd place in the ASI National Ranking. For any investor, this is an indicator that it is possible to work with the region. This means that there is a high level of coherence in working with investments. Secondly, an important factor is that the region was able to formulate clear requirements for working with territories. The concept for the development of the historical settlement of Kazan has resolved a huge number of questions and introduced clear requirements for design and construction in the historical center. This is lacking in many areas. Thirdly, the region’s budget investments in engineering infrastructure and improvement of historical territories are high here. Such good will of the regional leader is a direct guide to action for investors. And finally, fourthly, here at the regional level, an exemption from property tax has been adopted for organizations that own OKN of local significance.
In the Nizhny Novgorod region, a large range of benefits has been developed and a regional budget has been allocated for compensation programs for owners of OKN. The population and municipal authorities are actively involved in the work through educational and grant programs in the field of heritage, culture and tourism. A specialized competence center has been created in the city - ANO ASIRIS. An integrated approach to working with the historical environment (at the street, block, city level) is being implemented.
And finally, in the Krasnoyarsk Territory, for the purpose of working with the historical center, a regional operator, JSC “Historical Quarter”, was created with the functions of a technical customer in the interests of the investor. The city uses the legal structure of a lease agreement for OKN with subsequent purchase after completion of restoration work. The heritage is popularized through tools for involving large businesses, various government bodies, educational and religious organizations, and the region also actively participates in all-Russian professional events and competitions.
This concludes the work of the section “Investment Tools for the Development of Historical Territories”. The guests in the hall listened to all the speeches with interest; 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.