For REC

This building at 1 Molochny Pereulok, built by RGI, is one of the best known developments on Ostozhenka's Golden Mile.

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Just next door from the multi-cultural, cross-class and eclectic Arbat, Ostozhenka could be a world away, or anywhere in the world, for that matter. It’s been some 10 years since developer RGI International broke ground on the first project of what has later become known as the “Golden Mile” of Moscow. Market prices for apartments in its most famous buildings on Korobeinikov, Butikovsky and Molochny lanes have since increased roughly tenfold.

These top-end buildings remain worlds in themselves, with neither obvious links to the city neighborhood that surrounds them at a distance, nor direct access to immediate infrastructure — although one elite supermarket has finally opened on Korobeinikov lane this year. It has been alleged that most of the apartments here were bought during the gold rush by those who never actually intended to live in them, making the whole place the world’s fanciest ghost-town. REC asked some of Moscow’s leading realtors about the past, present and future of the unprecedented enclave.

REC: What were the reasons that Ostozhenka became the site for Moscow’s Golden Mile? Why was it here that complete redevelopment of several city blocks took place, while in nearby Arbat lanes both Soviet and pre-revolutionary buildings are still standing strong and even attracting some premium buyers?

Olga Bogoroditskaya: The main reason was that there was nothing there in the first place. While there was some residential housing along Ulitsa Ostozhenka itself, the area going down towards the river was not developed. There was a large warehousing space called Proviantskiye Sklady, a factory and, literally, some barracks with clothes hanging on lines outside. The area was fairly run down and had no notable historic buildings except [singer Fyodor] Shalyapin’s house. So it was possible to build there without tearing down anything substantial. The only thing that was torn down was a textile factory at the site where [RGI’s famous] Crystal House was later built on Korobeinikov Pereulok. In fact, when construction of Crystal House just started, to get to the site you still had to go through the old factory turnstile.

REC: What kinds of properties are these? How many of them have an internal layout suitable for family occupation, versus those that have hundreds of square meters of space and yet only one bedroom? Much has been speculated about the allegedly low rate of owner occupancy in these developments — does anyone actually live there?

Yakaterina Guryeva: The wealthier the client, the less they are tied down to a particular place. For clients likely to own apartments on Ostozhenka’s Golden Mile, it is not uncommon that their families may be living somewhere else most of the time — maybe on Rublyovka, maybe in London. For them, an apartment on Ostozhenka is a token of their presence in the city. It is especially true for customers that come from Russia’s other regions. There is a trendy new term: “an apartment for a jacket,” as in people buy a place to hang their jackets when they come to Moscow on business. The same explains why there are some apartments that are 200 to 300 square meters in total, but have just one bedroom. They are simply not intended for a family, and no one buys them for that purpose.

Alexander Ziminsky: With so-called “elite housing,” it is almost never the case that this is the primary residence. It is usually not even a secondary residence, because most people already have a property on Rublyovka and a property abroad. It may actually be a fourth, fifth, or sixth residence, or not a residence at all. It is wrong to say that the neighborhood is not alive — but at the same time, it’s people’s personal business what, if anything, they do with their personal property, including apartments.

This market is one where there are unique owners, and everyone’s situation is unique. Some of them are young and unmarried, and some have six children.

Olga Bogoroditskaya: Since the crisis, there is a trend towards smaller and more family-oriented apartments, for example 160 to 180 square meters with three bedrooms.

There are also several boutique buildings that have five to 10 apartments each, and that is where you see nannies walking around with strollers. Yet there are still apartments, up to 15 percent in some buildings, which have not yet been internally decorated. In some cases it might have been the crisis that has stopped the planned renovation.

REC: So what, after all, attracts all these people to Ostozhenka and its elite compounds? Nearby Arbat, for one, has more infrastructure, more history and more life in it.

Olga Bogoroditskaya: Arbat has become such a busy place recently, a lot of people coming and going, a lot of tourists, and Ostozhenka, on the other hand, is a tranquil and peaceful area. It is right in the center of the city on the riverbank, you can walk to the Kremlin if you have to and yet there are no tourists and almost no local residents from other walks of life left here. Once the construction is finished on the last few projects, it will be a uniquely homogeneous social environment, and that appeals to many wealthy people.

REC: What of the old residential housing along Ulitsa Ostozhenka itself nearby? Much of it is still standing, some has been renovated, but many former communal-flat buildings are in dismal condition. What sort of a market is there for those?

Alexander Ziminsky: The older housing in the same neighborhood, of course, will cost much less and not differ as much from its analogues in other comparable areas of central Moscow: Offer prices range from $8,000 to $20,000 per square meter. This applies to those buildings that are still in decent, livable condition. But the higher the price is, the further the seller’s expectations are from the reality of the today’s market.

Olga Bogoroditskaya: The “Ostozhenka” brand has affected even the older residential buildings. There have been decent owner renovations in many of the apartments there, and for those there are offers between $16,000 and $22,000.

REC: We often hear about private sales of apartments in the new developments on the Golden Mile, and yet, most of these buildings were completed around five years ago or so. What could possibly motivate current owners to resell these apartments, provided they just bought them a couple of years earlier?

Olga Bogoroditskaya: The worldwide average term of a family’s ownership of a particular home, or residence in it, is actually five to seven years. Every apartment needs a cosmetic renovation or a redecoration once every five years or so, and many families nowadays prefer to just buy another apartment.

Alexander Ziminsky: In recent years, for many people it has become a hobby; they just buy real estate. It may be an apartment for the parents, an apartment for the children when they grow up, or, basically, they just buy it to sell later.

Many people saw it as a little private money-making opportunity: They bought these apartments during the “zero cycle,” before the buildings were even built, then they would take the apartment, renovate it, decorate internally and sell at a different price.

But in many cases, the reasons are exactly the same as everywhere else; people may have bought it for themselves and then it became too small because there was a marriage or a child was born.

REC: When Ostozhenka first started as the elite housing area more than 10 years ago, developers and realtors had certain hopes and expectations. In general, have they been met?

Olga Bogoroditskaya: When sales started in 1997-98, and there were some deals made first at $3,000 per square meter, then at $3,500, we all thought it was pretty great. When the price hit $10,000 per square meter in 2002-03, we thought it was crazy. No one had expected that. Now, the average price of those deals that are actually being made, is around $27,000 per square meter, and higher than that on some properties.

Alexander Ziminsky: The top offer price today in this area is $48,960 per square meter: This is how one of the sellers values his deluxe 250-square meter apartment at 5 Butikovsky Pereulok.

Olga Bogoroditskaya: Needless to say, it worked out pretty well for both developers and investors. It turned out to have been quite a profitable enterprise. Everyone made money.