The Baltic Course  

We made it in time to the Baltics

The Pro Kapital Group is well known in the real estate market of Latvia and Estonia with its grand projects. The secret of success lies in a very carefully thought over strategy and persistent attention to every, even seemingly the most unimportant, detail. The president of Pro Kapital Group, Paolo Michelozzi, gave us an insight to the company’s success so far in the Baltics

Paolo Michelozzi

Photo: A.Ioelson

Each project in its own time

Your company has been working in Estonia for seven years already and for five years in Latvia. What has happened in the real estate market during this time?

When we started our operations in the Baltic states, the market had just started to develop, and at the time, not many people believed in it. We believed, started to invest money and won. Today my opinion has not changed: the local real estate market still has great potential for the future.

What were the most important issues for you in the initial stage?

From the very beginning, we divided our work into two main parts. The first part, so to say, has been accomplished by immediately starting to purchase perspective land lots in the best-situated areas in the capital cities of Estonia and Latvia. Currently, the second stage is under way, which involves the construction planning of these lots and building certain units there. It is very important to understand that we act as investors, i. e., we invest money in real estate and wait for a favourable situation on the market in order to start development of the lots. The main thing for us is to make a project profitable, that is, it should gain profit and be necessary for the consumer. But we needn’t hurry, because an investment is a serious thing. But even when we do nothing, the invested money still works for us: all purchased lots have gained several times in value, and their prices continue to grow. This means that the choice of lots was right. Actually, it is easy to be an investor: development of units can be started exactly when they are needed in the market, when they can be offered for the most favourable prices, and not only when it’s time to pay bank loans.

What trends on the real estate market today are your priorities?

Currently, for us as developers there are two trends: commercial or market prices and housing estates. The shopping centre market has already become stable, therefore we can say that its needs and development trends can be seen even with a naked eye. A very good example of this is our shopping centre Kristiine in Tallinn. It is a very successful project: it was put into operation three years ago, but last year, we doubled the retail area in use. According to statistical data, the number of clients and turnover for Kristiine increases constantly, and all retail space has already been leased.

There is another important thing that has sprung up during the last 5 or 7 months. When it became clear that in the nearest future, both Latvia and Estonia will become EU member countries, many potential investors (investment funds mainly are from the USA, UK and Germany) expressed their wish to invest money in the real estate of future EU countries. Some even proposed an offer for the Kristiine shopping centre. We are not yet ready for such action (we want to use it ourselves a little), but we are very satisfied that our work has been evaluated according to what it deserves.

The Multi-functional Domina Shopping centre, currently under construction at the territory of the former VEF electronics plant in Riga, to my mind, is an even more successful project than Kristiine. Firstly, the Riga shopping centre is much larger, and in our business, there is a rule – the larger the unit, the more possibilities to make it successful. Secondly, Riga is larger than Tallinn and has the most favourable location in the territory of the Baltic states. I am so sure of a successful result that I can already say that Domina Shopping has not yet been put into operation, but there are already plans for its expansion. We have so many applications coming from companies wanting to open shops there, but there is not enough space.


Future projects

All your recent projects are still connected with housing. Does this mean that this sector will become more pressing in the nearest future?

 Speaking about penetrating the real estate market, there are different strategies in developing housing and retail projects. Currently, we are trying our best in developing Domina Shopping due to the fact that the local market is ready to accept a project of such scale. The main thing in the successful development of commercial projects is a very carefully drafted concept. It is not enough to build a house; with money anybody can do that. It is also necessary to find the optimum size of premises, attract brands to be offered there, and to work out the compatibility of shops. There are also other important factors such as advertising, marketing and other elements, which only together can provide success to a project. It is a huge job that can’t be seen from aside.

As for housing, this market segment in the Baltics is developing gradually, and you can believe in my 20-year experience in the sphere of real estate development – it has great prospects. In the current situation, if some project is not completed this year, but a year or two later, then maybe we will lose something, but gain later much more due to the growth of prices.

Taking especially this as a basis, we set our priorities: firstly, we will develop shopping centres, because this market already exists, and only after that – housing projects. The correctness of our strategy can be proved by the fact that in completed projects on Stabu, Palasta and Vecpilsetas streets in central Riga, all land lots have been sold.

Recently work on Pulkveza Brieza Street has been started. It is a really exclusive project that will include apartments and also a hotel. This project is unique due to the fact that the owners of apartments will be able to use all the luxuries of the hotel at discount rates.

The next stage is development of a shopping centre in Kliversala on the banks of the River Daugava, near the Radisson SAS Daugava hotel. We have been working on it for quite a long time, paying attention even to the most intricate details, since we don’t live just for one day, but we are working on things that will be necessary for people and the city in 10 or 15 years time. Kliversala is a project for the future. Moreover, it is not just an exclusive place. This lot is the only of this kind – there is no similar project in the city, and I am proud that I will be in the development team. In my experience, I have dealt with more than 3 thousand building projects in Italy, but there hasn’t been such an important and unique project as Kliversala, and most probably, there will not be any in the future. The point is that currently, there are no such exclusive places in any big European cities: the very centre, sight of the President’s palace and the Old Riga, its own pier for boats and yachts, and a land lot of 50 thousand square metres. Therefore I am absolutely sure that there is no project alike.

We have purchased also two land lots in Tallinn for developing new housing projects in the future. This area is not so unique, but it has its own advantages, for example, the sea being within a reach. I have already received offers from seven Scandinavian investors willing to purchase the land lots. Nevertheless, as I already said, we are not going to sell our land lots neither in Tallinn, nor Riga, because development of such projects in future is much more important than an immediate profit.


Between East and West

As it is known, you plan to develop projects in Lithuania and Russia.

We have purchased several successful land lots in Vilnius. Currently, the projects are being coordinated, and after that work will be started. Here we will also develop a complete centre – apartments, shops, several offices and a wide range of various services: tennis courts, swimming pools etc.

For now in Russia, we are working in St. Petersburg, where we are developing several commercial and housing projects. One example – one and a half year ago, an office building on Zukovsky Street was put into operation. I am sure that the Russian market will always attract the attention of western investors, because the country has enormous space. From the very beginning, we planned to settle in the Baltics and only after that would be enter the Russian market from a stable position after having implemented a number of exclusive projects. The Pro Kapital Group policy is based on the principle that all things we do are considered and done well. Therefore we check and research the market.

The Baltics with its favourable geographic location acts as a bridge between West, East and North. Disregarding its small size, it can attract western capital. And I am glad that our company understood the prospects of this market much earlier than other investors and got here just in time.


Projects under way by Pro Kapital Latvia

1. Domina Shopping – multi-functional shopping centre.

In the territory of 80,000 square metres (former VEF electronics plant), a multifunctional shopping, recreation and commercial centre is being built. It will be one of the largest commercial centres in the Baltic states with more than 50,000 square metres of retail floor space. There will also be a parking lot (for about 2,000 cars), the largest supermarket in the Baltic states with more than 7,000 square metres or retail space and a gallery of 80 medium and small-sized shops.

  • Function: commercial shopping centre.
  • Total area: 110,000 square metres.
  • Cost of project: 60 million US dollars.
  • Commission: 1st stage – September 2003, 2nd stage – March 2004.

2. Centre on Pulkveza Brieza Street, 11/13.

    A Centrs, a subsidiary company of D Latvia, plans to develop this as a housing project that includes also a hotel. Pulkveza Brieza Street has one of the best locations in Riga. Several already existing buildings will be renovated to modern houses. The housing premises will be equipped with amenities of the highest standards.

    • Function: exclusive housing project and hotel.
    • Total area: 9,000 square metres.
    • Cost of project: 7.5 million US dollars.
    • Commission: year 2004.

    3. Housing project Kliversala.

      The plan is to reconstruct a former office building on 26 Kugu Street, and to settle in a territory of 5 thousand square metres on the left bank of the River Daugava. The best view of Old Riga can be seen from this place. In the summer of 2001, near the above-mentioned property, company Pro Kapital purchased the territory of Kliversala RE, which covers 41,400 square metres. This land lot will also will be reconstructed as a housing project with an equipped pier for boats and yachts.

      • Function: exclusive housing project with developed infrastructure and recreation area around the territory.
      • Work expected to start: 2003.

      4. The former Sarkana Zvaigzne rubber boots plant on Brivibas Street, 193.

        These Premises are located on the main street of Riga – Brivibas Street, only a 10-minute tram ride from Old Riga. A multifunctional centre with commercial and housing premises (including penthouses) are planned for this area.

        • Function: multifunctional centre.
        • Area of the premises: 4,800 square metres.
        • Estimated cost of the first construction stage: 4.2 million US dollars.
        • Estimated area of the premises in second construction stage: 16,000 square metres.

        5. Premises on Tallinas Street, 5/7.

        A set of buildings, which were previously the property of a textile mill and are located in the centre of Riga between the main Brivibas and Valdemara Streets. Buildings will be reconstructed into modern dwelling premises.

        • Function: housing project.
        • Total area: 12,000 square metres.