The project of creating district centers with a shopping and entertainment component on the site of 39 old Soviet cinemas in Moscow has not yet been fully completed, but it has fallen into a turbulence zone for the second time. During the pandemic, the project developer ADG group faced a delay in the supply of equipment, and now, due to Western sanctions, it is forced to look for a replacement for equipment and brands that have left the Russian market. Managing partner of ADG group Grigory Pechersky told Kommersant how the company has to change the concept of centers and why it is not worth waiting for the commercial real estate market to rise.
— Your project to transform 39 cinemas into Mesto Vstrechi centers began even before the pandemic, not to mention the hostilities in Ukraine. How many facilities have been opened and will you not freeze the unfinished ones?
— Now 12 facilities are open, another 13 centers will be completed this year, the rest will be opened in 2023. There are no freeze plans.
— How does a series of crises affect construction?
— In a pandemic we encountered difficulties in the supply of engineering equipment that was produced in China and other countries. Then we were able to cope with some consequences and delays. Today, due to sanctions, we are again faced with the impossibility of supplying a significant number of elements for the construction of buildings, engineering systems and other components. But we built relationships with contractors and suppliers, which allowed us to find a solution. There is everything necessary to complete the construction and replace inaccessible materials and equipment.
— What exactly were the difficulties?
— To a large extent with engineering equipment and systems that were produced in other countries and are no longer supplied to Russia, for example, elevators and escalators. For complex systems, we have found replacements in Southeast Asia and Turkey without loss of quality. Today, all important elements are in delivery or have already been installed.
— Did the mobilization affect the work of the company?
— Of course, we see the impact on attendance. But comparing regional centers with large shopping facilities, we understand that we do not have such drastic changes. We fix a slight deviation in traffic, within 5%. As for the company itself, we are working normally. We didn’t have internal changes and processes didn’t stop.
— The initial budget of the project was 40 billion rubles, by 2017 it had grown to 50 billion rubles. But over the past three years, building materials have noticeably risen in price and the cost of work has increased. Has the overall construction budget changed to reflect this?
—The cost of materials has risen tremendously in the past nine months.
But the last budget that I announced – about 60 billion rubles – has not changed yet. We have enough borrowed funds.
—Originally, it was supposed to open new centers on the site of old cinemas for the 2018 FIFA World Cup. Why was there such a serious shift in the timing?
— Probably, there is some kind of mistake here. We purchased the facilities in December 2014 and the championship was in the summer of 2018. It is, to put it mildly, short-sighted to expect to build 39 objects in such a period. We planned to open one facility for the World Cup, which was also very ambitious. And although we are talking about reconstruction, and not about new construction, we still faced a whole range of difficulties that we did not count on, so the first facility opened only in 2019.
Of course , all of them affected not only the cost of construction, but also the timing of the commissioning of facilities, and even the concept of the centers themselves. Therefore, to say that now is a difficult period for a developer, especially commercial real estate, is to limit oneself in emotions.
— How radically did the concept of objects have to change during the construction process?
— Initially, we started from the fact that our objects immediately fall into the center of a certain densely populated sleeping area, where it is necessary to give people the opportunity to spend their leisure time, shop, eat out , relax with friends and children. Such an idea, in fact, is a counterbalance to a typical large shopping center where you have to go for the whole day, plan time for the road, spend several hours in a huge building, where you can really get an exhaustive range of goods, services and entertainment. We want people not to go anywhere and to be able to relax without leaving their area – go to a cafe or restaurant, watch a movie, go to a children’s entertainment center, to a sports club. And this idea has not changed since the first day, when we just came up with the whole project.
— But now the retail market as a whole is changing.
—Yes, the speed at which the market is moving has changed. Almost everyone has learned to actively buy food, clothes online and, in principle, do many things remotely.
Changes in the content of our objects were significant enough. We tried different formats: somewhere more fashion-component, somewhere more entertaining, somewhere sports, somewhere more cafes and restaurants. Accordingly, depending on the specific area, we somewhat adapted the format. If we talk about the “average temperature in the hospital”, then today we see a very high demand for sports. In this category, we have found a reliable partner — DDX Fitness.
We also adapt supermarkets depending on the area. Somewhere we placed a more affordable discounter “Yes!”, somewhere we have “Perekrestok”, somewhere “Pyaterochka”. We must adapt each building to the needs and opportunities that the residents of a particular area have. By the way, this is one of the difficulties that we have learned to work with.
— You position your facilities as centers of activity for residents of the districts, and not just retail outlets. What exactly are the differences?
— We cooperate with the mayor’s office. For example, three centers have joined the Moscow Longevity project: Meeting Place Neva, Meeting Place Sofia, and Meeting Place Elbrus. We are considering the possibility of placing the MFC as a tenant. We interact with the city authorities to support entrepreneurial initiatives, on the placement of sports facilities, organizing events inside buildings and on the adjacent territory, we work with libraries.
— Collaboration with the city is beneficial from a commercial point of view?
— The traffic that we collect thanks to this is further transformed into consumption: people go to cafes, fitness clubs and supermarkets.
— Will there be a rotation of tenants after the opening of facilities?
— This is inevitable. The first reason is that only those who do nothing do not make mistakes. We also make mistakes, but the main thing is to admit and correct them. This is also often reflected in the changes that occur inside buildings. If we see that the proposal that we have given is not in great demand by the consumer, accordingly, we must promptly replace it.
Second, the market itself is changing. Recent events include the departure of a number of major international brands from Russia, which will have a significant impact on the concept of shopping centers. Previously, the number of non-food anchor tenants was quite significant. we have, but today, in fact, they are not left on the market.
It will definitely not be possible to form such strong brands that were before the crisis in three months – this is a huge job, which also certainly not in 100% of cases will be successful the first time. In this regard, we also partially suffered, because large international operators were present in the facilities: H&M was supposed to open here, JYSK was already working, and Starbucks was at the signing stage.
— What companies did you replace these brands with?
— We had an agreement with Starbucks only at the signing stage, and at the time of opening one of the facilities we had to make a choice in favor of the existing brand, and not wait until the process of transferring the Starbucks business to new partners is completed. We took Surf Coffee. On the site where H&M was planned, there will be a fashion department store of Russian designers. A similar situation with JYSK.
—The most affected industry both during the pandemic and with the start of the special military operation in Ukraine were cinemas. Do you plan to open them in facilities under construction?
— I will not undertake to predict what will happen to the film industry in the future. We continue to fulfill our promises regarding the cultural and entertainment component, it can be both children’s entertainment and sports. We still give our consumers something other than trade, services and cafes.
— So, it is not worth waiting for the opening of cinemas in future facilities?
— We do not refuse this function. If there is a desire on the part of film distribution networks to develop, we have every opportunity for this. We are building a building so that it can open a cinema. Can these areas be used for other functions? Of course, for example, under the children’s entertainment center. But we are ready to open cinemas and rent space for film screenings, if there is a demand for it. 2023, already contracted by tenants? Is it enough for the successful operation of the complex?
— Here it makes sense to talk about changing the process of renting out space or their commercialization in the light of the events of the last three years. Previously, all large networks planned their development for a year or two or more. At the design stage, we already signed contracts with anchor tenants, and closer to the opening, in a year and a half, with medium-sized ones, and with operators of kiosks and small islands – in four to six months. Everything has changed today. No one can plan life two or three years ahead. Now networks are ready to take on specific obligations to developers according to a completely different principle: two years have turned into six months.
— Does this term apply to large tenants?
— Yes, I’m not talking about the little ones at all. But, despite this, in the objects opening in the next couple of months, there is a fairly high occupancy rate, because for the last three months or so we have signed a large number of deals. By December, all facilities will be 80% or more full.
— In 2021, Edisonenergo LLC (owns and manages the construction and ready-made shopping centers Mesto Vstrechi) with a revenue of 568 million rubles. received a net loss of 1.9 billion rubles. When do you expect to reach a positive profit indicator?
— The development business is capital-intensive and requires a lot of time to develop. And we are still in the development stage and continue to invest in the completion of construction. This assumes that investment costs will be greater than operating income. But we look at the operational efficiency of each specific facility and by the end of this year, despite the difficulties, we intend to become a plus – all facilities will generate profit, some more, some less. The internal business plan assumes that in 2025 we will stabilize and reach the planned indicators and achieve our financial goals.
— In 2017, you expected that the profitability of will be 20% per annum. Have open complexes already managed to reach such an indicator?
— Probably, at the moment it is difficult and early to talk about profitability, and, of course, we cannot say that reached a yield of 20%.
– In 2017, in an interview with Kommersant, you denied participation in the capital of your project of the head of Channel One, Konstantin Ernst. Later it turned out that he still has a stake in the Cyprus offshore of the parent company Edisonenergo LLC. Why then was it a secret? ))
— For the last couple of years, there have been rumors in the real estate market that the project lender, VTB Bank, could take the objects into its portfolio – allegedly for problems with servicing the loan . How true is this?
— We service the loan in full, we have never violated any obligations related to the payment of interest, so today we have no problems with this see.
— Do you plan to exit this business or sell a stake in it?
— There are two thoughts here for a complete and understandable answer. The first is simple and primitive – in business everything is sold. To do this, we create a product that has its own value, which is constantly growing, and there are those who want to receive this product. At any stage, if we receive an interesting proposal, of course, we will consider it and, if circumstances are positive, we can sell the project.
that there is responsibility for the obligations assumed – to finish what we started, since this is a very large project in terms of the scale of the city.
– Do you have legal obligations in front of the city that it is impossible to withdraw from the project until the reconstruction of all objects is completed?
— There are no such obligations. We understand that this is an important large-scale social project for the capital.
— When, in your opinion, will the retail real estate market recover from the crisis?
– It seems to me, to the state in which he was – never. What we saw five to ten years ago in the retail real estate market will no longer exist. Developers, retailers, and restaurateurs will have to adapt, change the approach and products that we make, the environment, digital infrastructure and communication with customers.
If we talk about turnover and sales, now there is a significant decline in a number of retail segments. At the same time, food retail is growing by 12.1% year-on-year. The decrease in the purchasing power of the population is affected by negative expectations associated with the current economic situation and the trend towards the transition to a savings model of consumer behavior in an unstable economic situation. In Russia, this trend is especially pronounced in connection with the “historical memory of the people.” I hope that this is not a long-term trend and that in the coming months we will see a reverse trend. But this will happen if there are no events in the country that have a potentially strong impact on the economy. Any shocks affect the business negatively. Respectively Oh, we need stability, and then it will be possible to talk about the trend of retailers’ turnovers returning to growth.
Born on February 13, 1982 in Kaliningrad. In 2004, he graduated from the Moscow State Law University, later from the Moscow School of Management Skolkovo.
Since 2004, he has been working as a managing partner in ADG group, is engaged in the strategic development of the company, the implementation of key projects and relationships with partners. According to SPARK-Interfax, he is also the owner of a 22.68% stake in Project Management LLC. Since April 2014, he has been the General Director of Edisonenergo LLC, since March 2022 – A-Properties LLC.
Founded in 2004 by the former vice president of Alfa-Bank, Mikhail Pechersky, in partnership with the former co-owner of the Eldorado household appliance chain, Igor Yakovlev (withdrew from the project in 2008). ADG initially focused on the activities of large regional centers: by 2022, according to its data, the portfolio exceeded more than 1 million square meters. m of completed projects, including the Kaliningrad Plaza shopping and entertainment center, the Kaliningrad plant for the assembly of household appliances Baltmiks, as well as shopping centers in a number of Russian cities. In 2014, LLC Edisonenergo, affiliated with the group, bought 39 Moscow cinemas with an area of 166 thousand square meters from the Moscow City Hall. m for 9.6 billion rubles. for the creation of multifunctional regional shopping centers “Mesto Vstrechi” for 490 thousand square meters. m.