Efficiency 2015 Annual Report

The Future is Already Here

According to Ieva Valtere, Chief Executive Officer at Pillar Management, SIA, “2015 allowed us to set various new priorities and became a milestone for Pillar, the group of property developers owned by its parent company ABLV”. New Hanza City, a new area in Riga, will soon become reality.

How did the Pillar group of companies fare in 2015? What was the biggest challenge? What brought you the biggest satisfaction?

2015 was a productive year. Firstly, we reached our set goal of reducing the portfolio of properties under our management. As you know, Pillar group was established in order to sell properties passed into the ownership of ABLV. The portfolio was rather big, and in 2015 we reduced it by half; the return on sales was EUR 18 million, which we consider to be a good performance. As for the remaining properties, they will be sold out in a few years.

Secondly, we succeeded in reorganising the group. Considering our plans, we decided to divide up the directions of our operations and set new priorities, and thus the process began. The reorganisation process took almost a year, in which time each of the groups of companies was formed in order to undertake a particular set of operations.

We established a parent group, Pillar Management, which now consists of a architecture company, Pillar Architekten and a real estate management company, Pillar RE Services. Over the years, we have managed our elaborated projects ourselves, but now we see this activity as a separate direction, as we need to gain experience and acquire new strength in order to implement and manage a new future project. We have also established Pillar Contractor, a company organizing construction works and controlling quality. We believe that the decision to establish such a company was quite logical, because we will need to do a huge amount of work in the near future, and it is vital that we keep a watchful and controlling eye on finances.
The second group of companies will maintain and sell the properties that were taken over, while the third one will develop the financial and business centre, New Hanza City (NHC).

Has the appointment of the person chosen to Chief Executive Officer of Pillar Contractor been approved?

Yes. The new CEO Jānis Lāčaunieks has already started work. He has over 15 years’ experience in this professional field. We hope his appointment will prove to be successful and that all of us will have the required endurance to successfully carry out the tasks facing us!

Name three remarkable events in the operations of the group in 2015 that you can highlight and explain what made them so.

There were many events, and right now it is difficult to pick just three of them that stand out from the rest. However, I would definitely like to mention the concert by Brainstorm, a legendary Latvian band, which took place at NHC. The event attracted over 45,000 spectators, and we’re glad everything went smoothly; the feedback was entirely positive. Projects on such a scale rarely take place in territories under development. Having said this, we thought it would be a good decision to green light this particular event.

Is this the start of a new tradition?

We are planning to begin the construction works at NHC in 2016. A concert on the construction site is a pretty much unreal task. The project involving Brainstorm was unique. It isn’t the first time we have collaborated with the band, and it was good to work with them again. The guys chose the concert venue themselves and we agreed — it was a great idea, so why not? Who knows, maybe we will have another concert there at the opening ceremony. But I can’t promise that, as people will trample down all the grass. (Laughs)

Returning to the topic of remarkable events, I can also highlight the completion of the Miera Park House project. Two years ago, when we bought the new-built building, the situation on the market was different, and we were laying our account to a particular segment of clients. Unfortunately, the timing and decisions by the government took their toll. Although we finished the project when the situation on the market was rather unfavourable, we believe that the project was ultimately completed successfully. The sales are looking good too, as one quarter of the apartments have been sold.

The third remarkable event that comes to mind is the approval of the technical projects of the bank’s headquarters and office building. In 2014, we took over the Riga offices of Schaller Kyncl Architekten Riga, a German architecture company, (now Pillar Architekten). In 2015, we completed the project smoothly and received unconditional approval for it. Things are tougher with other developers; it isn’t that easy for them to get approvals… We strive for perfection in everything. Approval of the projects means a great deal to us. The design project lasted for five years, starting from the moment when German architects got involved. We are seeking to commence construction works in 2016.

Why was the bank interested in the New Hanza City project?

The first thoughts about the territory date back in 1998. Now we can’t remember exactly what the city development plan was at that time and what was planned for the site.

Any growing company knows that it will eventually need more spacious, modern and comfortable premises. And what could be better than a site located near the centre of Riga? Therefore, we decided to buy a plot in the area of Hanzas Street and Pulkveža Brieža Street. Later, we purchased additional plots and now we are cherishing the idea of “a city within the city”, which will be situated on the plot between Hanzas Street, Sporta Street, Skanstes Street and Pulkveža Brieža Street.

The area named Skanste is also marked as a priority on the general city development plan. Although, in all probability, Riga can’t compete with London or Paris, each city should have its own Central Business District. Considering the location of the territory, namely, its proximity to the city centre, it is the best place for a business area.

Any growing company knows that it will eventually need more spacious, modern and comfortable premises.

Why the choice was made in favour of Skanste and not, for example, Ķīpsala, which was once considered a promising business area?

There were many ideas regarding the location for a commercial district in Riga. However, each area should “grow” on its own. Compared to our territory, all those districts of Riga located on islands, such as Ķīpsala, Lucavsala, Zaķusala, have their disadvantages in terms of the classic estimate of real estate property, i.e. according to the principle “location, location and once more location”. NHC is situated close to the historical centre of Riga, which isn’t true of the other potential development areas.

The second important factor is road communications and infrastructure. Office employees and people living in new houses need public transport. NHC is reachable by tram, bus, and trolleybus. These means of transport are so far unavailable, for example, in Lucavsala.

Another key moment is utility engineering. For example, the development of Lucavsala might pose a serious challenge for developers. This was recently confirmed by the unsuccessful results of tenders held by the municipality. Although the territory is located quite near to the centre, its price is relatively low and, on these grounds, it might seem promising; estimates of potential expenses per square meter of the end-product, which also includes design and utility engineering, totally changes the picture. Moreover, these expenses are not only related to financial resources, but also time.

In Ķīpsala, in turn, public engineering communications are in place, but the logistic solutions haven’t been thought through. The current transport communication seems acceptable for now, but big enterprises still have problems with it. Therefore, the further development of Ķīpsala without any fundamental changes will be difficult, but separate objects are likely to appear there anyway.

Moreover, we shouldn’t forget about gradual population decline; therefore, the development of such impressive territories should be treated with caution.

How much has already been invested in New Hanza City? And what is the provisional total amount of investments in the development of the project?

So far, finances have been actively invested in the improvement of the territory including the expenses of purchasing the plot of land, and come to more than EUR 30 million in total. However, it is very difficult, if not impossible, to define the amount necessary for the transformation of a territory of 25 ha.

NHC, like any big development project, is being implemented in several stages. At this particular moment in time, it is possible to talk about the first and the second stage. We are starting from the territory, which is closer to the historical centre of Riga. The core of NHC will be established there, and we will be expanding from that core.

The priority will definitely be the new headquarters of the bank. The idea about the bank’s own building was the key reason for developing the area. Therefore, construction will mark the first stage of the project. However, we need to make some prepa­rations and build the infrastructure first; also in several stages. In 2016, we expect to get the streets and utilities built. The construction of new buildings will commence in 2017. The bank’s headquarters and office centre will each cover an area of approximately 20,000 square meters, while the total area of the new buildings within the project is expected to be 53,000 square meters, including the underground floor.

The next stage includes the development of the area in terms of residential buildings. Specialists are currently designing the apartment blocks. One of the buildings will be a middle-class residence spanning an area of approximately 15,000 square meters, while another building is planned as a premium-class residence whose area will be over 15,000 square meters. Then, we come to the Latvian Museum of Contemporary Art which has already evoked a widespread public debate. The museum will be located at the very heart of the area, near the park, and will constitute the core of NHC. The museum is undoubtedly a key site within NHC.

In the next five or six years, our total expenses will reach approximately EUR 150–170 million.

How much will the first stages of NHC cost?

We don’t have precise numbers related to the first buildings, as we haven’t made an estimate yet. However, it is very likely that the construction of the bank’s headquarters and office centre will cost EUR 80–100 million. We still don’t know several items that will contribute to the final amount, such as the final architectural design of the bank. Moreover, the buildings will have complicated engineering systems. The office centre will comply with BREEAM standards. Therefore, the project is not only very high rated, but as the best in Latvia.

The Latvian Museum of Contemporary Art Foundation has promised to contribute EUR 30 million to the construction of the museum. However, this amount excludes the park, regarding which there are no calculations yet, as it will be created simultaneously to the construction of the museum. We’ll see what decision the architects will propose after the contest. The middle-class residence will cost EUR 13–15 million, whereas the investments in the construction of the premium-class area might reach EUR 25 million. So, in the next five or six years, our total expenses will reach approximately EUR 150–170 million.

Why have you chosen such a concept for the development of the area?

When developing an area, one shouldn’t forget about an office component and a residential component, as well as opportunities for outdoor activities. Should all of them be in place, the effective development and “full life” of the territory becomes possible.

It’s not the best choice to build office buildings only. Besides which, Riga doesn’t need such a huge number of them. In order for city areas to exist, an optimal combination, in other words, the right proportion, of offices and apartments is required. Typical office blocks in the largest cities of the world become empty during weekends. Try taking a walk in London’s commercial district, the City, on a Sunday!

The museum, in its turn, will generate a special atmosphere. A building of this kind would be a very valuable element in any area of Riga. It’s likely the citizens wouldn’t know where the A class office building or ABLV Bank are located, but the location of the museum will be widely known. Moreover, we shouldn’t forget about the synergy effect: museum visitors will want to enjoy a cup of coffee after the exhibition and to view the product offering available in stores in the area. All of this will make the area a hub of movement and live communication.

ABLV Bank continues to take care of its collection of contemporary art, which currently has no place where it can be exhibited. If one owns a collection, there should be a museum where the works of art may be displayed. And we’re not talking about a profitable piece of real estate in this case; this project is more for the soul, as all of us love art! (Smiles)

Does the development of the area meet your expectations so far? Have you introduced any changes? If so, then why and what kind of changes are they?

So far, the development process has more or less met our expectations. Things were unlikely to go wrong as we started planning the territory in details back in 2007, so we precisely know the structure of the inner sections and the location of particular objects. The architectural solutions haven’t been discussed at this stage, but the key aspects are in place. We’re sticking to the detailed plan, which makes our lives a lot easier.

The local planning of Skanste area also spans the territory of NHC, which is why we have difficulties regarding elaboration works and corresponding approvals. However, we have managed to escape the problems on a large scale because of the detailed plan. However, we have had to make several corrections due to local planning.

You mentioned that the territory of NHC will be developed in several stages. How much time will the whole process take?

That’s an interesting question. As with the investments, the precise deadlines are unknown. Everything depends on the situation on the market, events taking place around the globe, and the development of the economy. Once, we declared we would build the whole city until 2033. This deadline is still in place and while we consider it to be the benchmark, we can’t guarantee it 100%. First of all, we have to complete the first stages and then we’ll decide what to do next. We don’t build for appearances’ sake. The building must be filled in with life first. Then you can move forward. To be fair, I have to say we’re constantly generating new ideas and thinking, planning and designing.

What consequences may the changes in the real estate market and to the demand for properties bring?

Like offices, apartments will always be in demand. The issue here is the quantity and price category. It’s already clear that we’ll experience another wave of crisis in the real estate sector which will make adjustments to the set terms.

Apart from the new bank headquarters, the reconstruction of the historical building of the former railway station will be a priority within the NHC project

When?

(Laughs) If we knew, we’d open an account with a Swiss bank. More than once, we’ve made sure that the key to success is being active during the crisis; the experience of major investors around the world has also proven this assumption.

It’s more than likely that we won’t stop and that we will maintain our operations during that difficult period. Now, the volume of construction is falling and sales are dropping, you’ll hear everybody saying that.
However, we keep moving forward, taking advantage of time and the situation. For example, prices of construction materials could drop during the crisis.

Let’s get back to the timeframes. When do you plan to complete the construction of the first buildings?

We’re looking at 2021. I hope we’ll also have the museum ready by that time. Of course, a lot will depend on the design and competitions. Right now, for example, the museum conceptual design is taking place. We will see an architectural model in May 2016. We are really looking forward to the results.

So far, our plan is to complete the construction of the bank headquarters and office building by the end of 2019 or 2020. The buildings are big and complicated in nature. We’re going to build the block of middle-class apartments a year earlier, while the premium-class house will be under development together with the museum and park.

By the way, we are now holding the competition for the reconstruction of the historical building of the railway station. We like it very much. We’re thinking of ways to transform it into a multifunctional public centre with spacious halls for different events. Riga lacks buildings of this kind; it is a problem that we ourselves are confronted with from year to year.

The railway station building might be used also for cultural functions. We believe that we’ll celebrate the 25th anniversary of the bank there. Those are our aims and tasks until 2021.

You mentioned the discussion of the local planning of Skanste is not going as smoothly as you would like it to be. Were there any other difficulties during the project implementation? Why did they occur and how did you manage to solve them?

Although, we didn’t have any major problems, minor ones are always present. I can’t say that everything is going swimmingly and that everybody is welcoming with open arms saying, “We love your project, please proceed as you like”. However, we don’t have any serious problems worth mentioning. Of course, we could discuss the deficiencies in the law and in the drafting and approval of regulations, as well as in development rules, so there’s always a room for improvement. We’re a member of the National Real Estate Development Alliance, under the auspices of which we gather together and discuss how to change the current situation. However, there were no particular problems within the NHC project. If you elaborate a project of high quality and follow the regulations, everything should proceed smoothly.

Pillar already has detailed projects of planned buildings in NHC at its disposal

Let’s peer into the future. Who is going to live in the high-class quarter? Who will work there?

I believe we should start with those who will work there (laughs) and then proceed to the residents. Most likely, these will be the same people. In the office building, we would definitely like to see big international companies that have moved their offices to Riga. Right now, Vilnius is far ahead of us in this regard, as the city has managed to attract such companies. We’ll try to draw them in by offering them high-value offices. Moreover, we think any citizen would like to work and live in the same area.

As for the middle-class apartment building, our bank employees are often interested in the opportunity to buy a home near their work place. Bearing in mind that not all employees are top managers who can afford an apartment in the premium segment, we decided to build a middle-class building as well.

NHC will be a place for those who care about the environment. It will be a great area, where everything will be located within walking distance. If the municipality builds a tramline on Sporta Street, this will confer added value to the whole Skanste area. NHC is located along public transport routes, but the other part of the Skanste area is difficult to reach.

Many new and representative houses in Riga offer quite poor views from their windows. NHC will be nothing like that. However, nor can we promise a sea view. (Laughs) The environment will be well-kept. We would like to ensure everything necessary for urban life, even a kindergarten.

New Hanza City is a part of Skanste area which is gradually developing. Do you collaborate with other land owners and developers?

The development of the area in general is taking place thanks in large part to the Skanste Development Agency managed by Mārtiņš Vanags. He works with great enthusiasm. Like other developers, we know that one man does not make a team. A year ago, the local land owners decided to unite, and the situation started to change. For example, the municipality is now ready to hear our opinion. I believe that the collaboration of the city council and Skanste Development Agency will be fruitful. For example, now we’re discussing a unified plan for planting greenery along the central streets. As there is an intention to build infrastructure in the undeveloped part of Skanste, additional forces are required. We’re glad that this territory is marked as a priority in the city development plans. To some extent, this is also regarded as a plus on the public interest organization’s part. We come together, tell them how things are going, and discuss plans and investments. The council has started reckoning with us.

How do you see this part of the city in five, ten, twenty years?

Most likely, the environment will be very attractive here, as other developers have similar plans. Around Skanstes Street, mostly business premises will be built; residential houses will be located further away. The whole area will be something different from a business zone in its classical meaning, as nobody would want life to stop in Skanste after 6 p.m.

Numerous new buildings will appear for sure. It’s very interesting to observe a new part of the city developing and to take part in the process. This is a unique possibility to make our own contribution to the transformation of Riga!

Table of Contents

Creative team: Arnis Artemovičs, Ernests Bernis, Jānis Bunte, Anna Celma, Ilmārs Jargans, Jekaterina Koļesina, Sergejs Mazurs, Samanta Priedīte, Jūlija Surikova, Romans Surnačovs
Project managers: Anna Celma, Jūlija Surikova
Interviews: Jānis Bunte, Ingrīda Drazdovska, Konstantīns Gaivoronskis, Katrina Gordejeva, Ilmārs Jargans, Jekaterina Koļesina, Sergejs Mazurs, Romāns Meļņiks, Sergejs Pavlovs, Romans Surnačovs, Jānis Šķupelis
Text authors: Leonīds Aļšanskis, Jānis Bunte, Anna Celma, Vladislavs Hveckovičs, Jānis Grīnbergs, Māris Kannenieks, Ļubova Kazačenoka, Jekaterina Koļesina, Zane Kurzemniece, Aleksandrs Pāže, Gints Pumpurs, Dmitrijs Semjonovs, Jūlija Surikova, Kaspars Vanags, Benoit Wtterwulghe
Photography: Arnis Artemovičs, Uldis Bertāns, Mārtiņš Cīrulis, Ieva Čīka, Krišjānis Eihmanis, Andrejs Hroneloks, Alise Jastremska, Valdis Kauliņš, Valts Kleins, Marks Litvjakovs, Sergejs Mazurs, Reinis Oliņš, Samanta Priedīte, Gatis Rozenfelds, Polina Viljun, LETA foto, Marka.photo, Studija F64
Proofreader: Jānis Frišvalds
Translators: Jekaterina Koļesina, Nataļja Malašonoka, Lidija Marsova, Jūlija Surikova
Design: Aivis Lizums, Valters Horsts

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