Kiev: A Byzantine Market for Builders, Renters

KIEV -- A stroll down Khres-chatik, the Ukrainian capital's main pedestrian thoroughfare, reveals a commercial real estate market mired in stagnation -- a stretch of mostly colorless storefronts devoid of the Western hotels and office complexes growing steadily in other Eastern and Central European capitals.


Not helping matters is Kiev City Hall, a visit to which has sent many foreign and Ukrainian firms wishing to develop hotels, offices and shops fleeing in despair.


Earlier this year, Gradobank president Viktor Zherditsky, one of the city's most powerful businessmen, called a press conference to protest bureaucratic obstacles preventing him from building a 27-story World Trade Center in the capital's center.


Despite his initial investment of $1.2 million, not a shovel has hit the pavement since an Orthodox priest blessed the cornerstone last summer.


"Today, real estate deals are done in isolation," said Ihor Geller, a property market specialist for City newspaper. "There is no real demand on the one hand, and no legal base on the other."


The growing number of domestic and foreign real estate firms in the city function in an environment lacking the capital and legislation needed to give birth to a working marketplace.


Most often, firms seeking commercial space enter the residential market -- a world of tiny partitioned rooms, where tall stacks of cash and title deeds are exchanged.


Hundreds, if not thousands, of deals are done each day in these compartments, located in real estate exchanges throughout the city. Here, notaries and city registrars maintain their offices, while Kiev's real estate agents establish offices nearby where they can assemble catalogs listing available apartments.


But the flurry of residential activity goes beyond privatized offices. Many of the transactions involve ephemeral lots -- titles to various square meters of living space awarded to all Ukrainians under a 1992 law. Deciding who gets how many square meters is derived from a complicated mathematical formula, and it is a person's lot of space, not buildings or land, which is now changing hands.


Often, residential deals involve swaps, whereby families in communal apartments take private flats in the capital's far-flung neighborhoods.


These communal apartments, many of them in elegant 19th-century brick buildings, are frequently turned into offices. According to the Kiev office of Jones East 8, a British realty firm, apartments currently rent for $35 to $60 per square meter, and offices for between $50 to $77 per square meter.


That companies turn to the residential market for their office space is attributed to the complicated, time-consuming and expensive process of locating true commercial space.


For all practical purposes, privatization has been limited to residential space, while the ingredients of a commercial market remain under the purview of the state -- land is owned by the city of Kiev, all buildings are owned by the Kiev region, and the right to use buildings is controlled by state organizations and institutions.


Delineating which "owner" controls what is often a complicated task, according to Philip Hudson, a partner in Jones East 8.


"A deal can unravel if any one of them does not [agree]," he said. "They can't agree how to divide the spoils, and they are in constant conflict."


As for renting office space versus owning, invariably companies find it impossible to do the latter.


"I don't know anybody who owns their location," said Avdey Pinaloff, Ukraine manager for the U.S.-based footwear giant Reebok.


Reebok's shop on Kreschatik Street, just meters from the city's main crossroads at Independence Square, offers a look at the world into which firms must step if they wish to move beyond the residential market.


Here, in the developing commercial market, deals are done through colleagues or business contacts cultivated over many years -- contacts that can not only save money, but provide a way around the rampant fraud that plagues real estate in the Ukrainian capital.


"Kiev is a small city," said Pinaloff. "You have a lot of relationships, and you use them to help you."


According to Jones East 8, typical retail space rents for between $15 and $30 per square meter per month. Pinaloff sought to do better by culling his contacts, and chose the Kreschatik location because his partner had already paid $60,000 for rental rights for five years.








Etc ...


?The Western Group Inc. has been appointed to represent Swatstroi in the leasing of office space at 6 Brigadirsky Pereulok.


The company will also represent Domostroitelny Kombinat No. 1 in the leasing of office space at 8 Rosanova Ulitsa.


?Turnkey Office Solutions has leased 1,000 square meters at Elder Place to Sakhalin Energy, an oil-development project including Shell and Mitsubishi.