Giants with a human face

Why build small intimate housing estates when 
a whole district can be created in one go? Investors in the CEE region are considering bold plans to develop micro-cities near large conurbations. but How many will actually be new towns and how many will end up simply as dormitory districts for larger cities? And how 
is it possible to make good money from such large scale investments

Mladen Petrov

At the beginning this was all just fields – a wide expanse, but near the beautiful Wilanów Royal Palace. The former residence of Polish monarchs is visited today by crowds of tourists, but investors and potential real estate entrepreneurs are attracted by the nearby meadows that have become one of Poland’s major building sites. An area totalling almost 170-ha has attracted 
14 investors, who are planning homes for 25,000 residents, with large areas of greenery, shopping, office complexes and a school. In other words – Miasteczko Wilanów (Wilanów Small Town). The project dates back to 2000 and was the first of its kind in Poland, but definitely not the first in Europe. Such ‘micro-city’ models have been successfully developed near Paris, in London, Berlin and Hamburg. And now Riga, Prague and Bratislava are also implementing this new model. Piotr Lorens, board member of the Polish Town Planners Society, feels that: “Projects on such a grand sale are just one of several trends in the contemporary investment process, especially in the West.”

Micro-climate

Town planners claim that micro-cities are the answer to the problems of the urban spill-over from cities – a major headache we are faced with today. Guy Perry is the president of the IN-VI architectural studio, which drew up the growth plan and strategy for Miasteczko Wilanów for Prokom Investments, and Centrop Valley in Bratislava for the Opera company. He believes that: “Over the past 60 years, city administrators have lost control of growth, while the mechanisms used by town planners to cope with city expansion have become obsolete. ‘Micro-city’ projects are a new approach to how they should be planned, allowing something to be created which is both profitable and environmentally-friendly, and taking sustainable growth into account.” 

Does size really matter?

According to experts, purchasing several hundred hectares or so of land is no easy task, though in the final account investing in a larger project may prove simpler than in several smaller projects.

Martin Hudec, the president of Opera, the Slovak company that is currently working on Centrop Valley in Bratislava (which will probably prove to be the largest ‘micro-city’ project in the CEE region), is aware of this. Opera acquired 850-ha of land for the project through several hundred transactions with owners of small plots in the area. Opera’s founder Martin Hudec, who has already overseen the development of the Rozadol multi-functional complex, refuses to be drawn on the price he paid. The purchased land, which is situated along the motorways to Vienna, Budapest, Prague and Kraków, is 
a mere 10 km from the border with Austria, and another 55 km to Vienna. Martin Hudec emphasizes the point that: “Bratislava is no standard location, being near to a number of other cities is a major advantage for our project. Our micro-city will be built near the border with Austria in an area which was entirely neglected during the communist era. The proximity to Austria will be of fundamental importance for our venture’s success.”

In terms of size, the Opera project is a European leader. Hamburg’s Hafen City, which is often cited as an example of a well-planned micro-city, is ‘only’ 155-ha in size. Is this big enough to be called 
a micro-city or just another dormitory district? Piotr Lorens’ opinion is that “the criteria to define a given investment as either a mixed-use community or a micro-city is that the latter should be at least 20-30-ha and have a population of between 
5 and 30,000.”

Micro-computing

According the plan drawn up by IN-VI, Centrop Valley will hold a university campus with a developed scientific infrastructure, a modern hospital and sports facilities together with a golf course. But this is just for starters. The micro-city is also to include 500,000 sqm of retail, hotel and office space. Parks and nature reserves are to cover 
155-ha of the total area, while 200-ha has been earmarked for flats and houses. Warehouse space, for which the demand will increase from the nearby car factories (Volkswagen, Porsche and Audi), will cover a further 55-ha. “Construction work is to begin next year, with the final building completed 
15 years from now”, promises Martin Hudec.

Micro-economics

The total value of the investment comes to EUR 15 bln, for which negotiations, now in advanced stages, are taking place in the Middle East and elsewhere, led by Opera’s bosses. The project is currently being financed by 6 institutional investors, including one investment bank, as well as Opera itself. A special investment fund is also soon to be set up, to raise more finance for the project.  Investors are warmly welcomed, but Opera has no intention of losing control of the project itself. Martin Hudec stresses that: “We are looking for partners, but we are not going to sell off small bits and pieces. We are aware that could lead to substantial modifications to the project, and that is something we want to avoid.”

One worthwhile idea might be to search for partners in the banking sector. The German experience reveals that such large-scale projects generate 
a good deal of interest from banks. However, this has been seen to be usually restricted to the rental market, argues Radosław Popko, a Polish agent for LandesBank Berlins. “On the German market investors are actively specializing in the purchase of new flats exclusively for renting. The average investment package is around 1,000 homes. This is when banks eagerly enter into such investments due to the specific characteristics of a leasing market that is increasingly well regulated and more like that of the office market, with concrete rents per sqm. Such an investment should be a guaranteed success, but the location and the risk connected with the local purchasing power must also be taken into consideration.” Mr. Popko adds that Central Europe is still unstable with many question marks over future policy.

Can success be exported?

Such large-scale projects are appearing both in the comparatively small Slovakia and in huge Russia. Guy Perry is convinced such large-format projects can be created anywhere. “The experience we gained through working on Miasteczko Wilanów revealed that such a project can be introduced to the market even in less than ideal conditions. When work started in 2000 the Polish housing market was going through a bad period. And as the development of the new community got underway we were still waiting for the good times to come back, which they finally did.” It must also be added that those good times (2006-2007) themselves have also come to an end, with companies now only able to look back wistfully at the golden age of residential development. Wilanów’s league of property developers are now being forced to fight furiously for each and every customer, who can pick and choose from the wide variety of homes on offer in the same area. To this must be added the complaints of the disillusioned residents of Miasteczko Wilanów, who still have no access to the retail outlets, offices and schools etc. that they were promised. The reason for the lack of such facilities is that first Prokom and then Polnord (the project coordinator) decided to develop the apartment buildings before anything else, since at the time they were a far more profitable proposition.

Warsaw city council promises that the errors committed when Miasteczko Wilanów was at the planning stage will not be repeated with the next large-scale investment: developing the land that used to belong to Huta Warszawa. Pirelli Pekao Real Estate, with Grove International and the Lucchini family (the owners of the foundry) intend to develop 8,400 apartments on 93.5-ha of land, just to start with. The council has made it quite clear that they guarantee that there will be jobs created there, as well as schools, kindergartens and public-access areas.

Who’s next?

Opera has a number of other micro-city projects in the CEE region in the pipeline, and has bought 
a 200-ha plot in Serbia, 100-ha in Hungary and another 38-ha plot in Montenegro. 

The company is also considering whether it would be feasible to enter the Ukrainian market as well.  Elsewhere this May, Arco Vera – one of Estonia’s largest developers – announced its own micro-city project on an 86-ha plot near Riga, 60-ha of which is to be built on. Urve Nogu of Arco Vera explains: “This is one of the largest projects of its type in the Baltic countries. Working on the earlier mini-city in Tallinn made further projects possible, while the new MB-3 Riga suburb project is something of 
a return to our roots.” Between 1996 and 2005, the developer was engaged with the Veskimoldre micro-city project (80-ha) in Tallinn.

Why not live near Prague?

The Czechs are also being given the opportunity to live in a micro-city built from scratch. American-Irish developer Quinlan Private Golub has acquired a 107-ha site near Mstětice outside Prague. Stephen Haigh, the company’s country manager in the Czech Republic describes the scheme: “We are currently drawing up a development plan, with construction due to start in 18 months. Due to its location near a railway station, we are counting on commuters as our prime target customer, people who work in the city during the day but appreciate the comfort of actually living outside the city.”  And that’s not all for the Prague market. Finep, one of the largest Czech developers, has started work on the first stage of Západní Město (West City). A 14-ha plot will be developed first, with the micro-city to eventually cover 115-ha. The entire project is scheduled to be completed in 2020, with the investors’ purpose being to transform Praga 13 into one of the city’s most significant districts. There are to be 20 smaller districts making up Západní Město, the architecture of which was inspired by great cities around the world. The British, French, Swedish, Norwegian, German etc. districts were designed by a team of 30 architects, with more than 10,000 people destined to live there. Finep is investing around EUR 250 mln for the first stage.

Micro-cities in huge Russia

The Rodex Group specializes in building large villages of single-family, ‘business class’ houses. The company mainly operates in the Moscow region, but now intends to use the format in other cities in Russia’s 21 fastest growing regions, by 2014. Urban infrastructure has to be designed for each project, as well as the single-family houses. Additional services are provided in individual projects, such as yachting marinas with the Mayak and Sosnovye Berega estates on Mozhaysky Lake, professional tennis courts with the Troitsa project, and a beach and spa in Zvenigore. Genadi Teryayev, Rodex Group’s development department director, claims that: “We decide to locate our projects in places easily accessible from cities, but also close to nature in charming surroundings. Our customers are young, educated, wealthy families, and members of top-ranking management personnel – a lucrative group of customers.”

Other companies have similar projects in the pipeline. The SU-155 company is to build on a 60-ha plot in the city of Tula. The project is called New Town and has already been approved by the city authorities. The plot is unique, as it is situated in the city centre between the Upa and Rogozhi rivers. SU-155 has announced that the plot will be occupied by 33 housing blocks with a total residential space of 475,000 sqm, within 5 years. They are to be high-rise buildings, each of between 14 and 18 storeys. It is estimated that 16,000 people will be able to live here, with 5 kindergartens, 2 schools, sports infrastructure, a clinic, a fire station and numerous retail and service outlets at their disposal. The company intends to invest EUR 40 mln in the project.

The positives and the negatives

Specialists warn that the sheer size of these multi-hectare ventures and the time needed to develop them means that completing the projects is something of a long-distance steeplechase, with every imaginable obstacle. The headaches do not even end with the stagnation of the property market. Indeed, a project often cannot be built according to the original plan. Moreover, projects impoverished by the postponement or cancellation of office, shopping and entertainment areas lose much of their attraction and appeal. Town planners do however admit that well-built mixed-use communities and micro-cities improve the living standards of the huge organic cities that we have today. The residents of such micro-cities and those working within their confines aspire to a return to a real community, in the traditional sense of the word, that of a large grouping of people looking to build and extend bonds between each another. ν (in cooperation with Emil Górecki)