The Beauty Margin
Art as a Weapon
With the real estate market becoming increasingly competitive, the aesthetic component of a project is a major weapon that allows developers to justify higher prices for floor space with greater cultural value. After all, it is impossible to put a price tag on beauty. Striking, original architecture can easily bump a project up to a higher class, and it is becoming increasingly popular for mass housing developers to take such an approach.
For example, the Krost company long ago adopted this technique, employing famous foreign architects to design its projects as early as in 2000. The company’s housing has traditionally occupied a higher niche than its neighboring counterparts. For its recent Art complex project, Krost turned to Benin Bureau for the architectural concept and enlisted avant-garde artist Mario Arlati to design the façade. The resulting 45-storey building, located in Krasnogorsk, formally belongs to the “comfort class”, but could also qualify in part as a business class structure.
Best Novostroy Board of Directors chairman Irina Dobrokhotova adds that the absence or presence of landscaping and the quality of the architectural design have long been part of the system for classifying residential real estate. Buildings are assigned a particular class based in part on those criteria.
Experts agree that the high-end segment absolutely must have strong aesthetics and non-standard architectural design. British interior designer Kelly Hoppen was engaged to design the Barkli Virgin House. For the Barkli Residence project, developers brought in U.S. architect Robert Stern, who had already completed more than 400 projects in 25 countries. The Polyanka/44 housing complex employed British designer Aidan Potter to create the architectural look for the project.
The Capital Group also has experience working with such foreign and domestic architectural stars as the Ostozhenka Bureau, Reserve, NBBJ, SOM, Zakha Khadid and others. “Even in the standard housing segment, developers more frequently use such elements as non-standard finishes for entrance lobbies and elevator areas and conceptually landscaped yard areas,” said Capital Group commercial director Alexei Belousov. Developers lose only an insignificant amount of saleable floor space by incorporating aesthetic elements in their designs. Belousov said that such losses in the Litsa project amounted to less than a tenth of 1 percent.
The recent premium class project Dykhaniye on Timiryzevskaya, built by the Leader Finance and Construction Corporation, utilized the talents of Frenchman Philippe Starck and his YOO Studio to plan the project and to design the apartment interiors, the entryway and lobby. Leader’s Commercial Director, Grigory Altukhov, estimates that the average expense for employing world-class architects totals 2-3 percent of the total cost of the project.
“Unique options almost always attract the attention of buyers. If the developer can figure out the right ‘hook,’ he can complete the project quickly and with a good Margin,” said Irina Antonova, Director of Urban Real Estate for Soho Estate.
The Value of Creativity
Order 613 of the Regional Development Ministry recommends that 40–60 percent of a residential development plot should be landscaped. However, that is only a recommendation. In practice, an average of only 15 percent of the available space is set aside for landscaping.
“Far from all projects, even in the elite class, can boast their own parks and play areas,” said Metrium Group Board of Directors chairman Maria Litinetskaya. For example, in developing the Barkli Residence project, Robert Stern of the Robert A.M. Stern Architects bureau initially designed the interiors and living space, and only afterward “attached” the building’s façade that included a small but functional courtyard.
Counter-examples also exist on the high-end market. Fully 2 hectares of the 2.8 total hectares of the Knightsbridge Private Park by the Restoration-H company are devoted to an English-style park.
Of course, the scale is much smaller for business and comfort class projects. The “City on Tushino River 2018” comfort class residential complex devotes 15 hectares, or less than 10 percent of the 160 hectare total area to landscaping — and that includes the naturally-occurring Moscow River embankment areas. There are also exceptions in this class, such as the above-mentioned Art housing complex by Krost that devoted approximately 80 percent of its area to landscaping.
According to Knight Frank, the “beauty mark-up” in the mass housing segment is 15–20 percent and 70–80 percent in the premium segment, although developers devote only 3–7 percent of overall expenses to incorporating aesthetically pleasing elements in their projects. At the same time, the better lifestyle that such projects offer tenants increases a project’s liquidity. A Krost representative explains that buyers pay not only for the apartment itself, but also for having a courtyard, park, fitness equipment and so on.
For its Litsa project, developer Capital Group decided to give the entrance lobby a 15-m. high ceiling and four panoramic elevators. That, coupled with the multi-functional courtyard, enabled the company to charge 260,000 rubles per sq. m., or 20–25 percent more than comparable offerings in the same area.
Grigory Altukhov of Leader believes that developers can achieve 10–12 percent faster average monthly sales if they combine ergonomic planning, modern construction technology and an interesting and functional “package” in their projects.
In foreign elite housing projects, the artistic component coupled with high-end internal infrastructure typically increases the price by 10–15 percent, depending on the class. But according to Knight Frank Foreign Property Director Marina Kuzmina, the real difference lies in annual maintenance fees. For example, annual maintenance fees for a property in London with high-quality infrastructure can total 2-3 times more than a building with only a concierge and dedicated parking. At One Hyde Park in London — one of the world’s most expensive residential complexes — the annual service cost for 3-4 bedroom apartments with “beautifications” can total 30,000–40,000 pounds per year, but for those without, just 15,000–20,000 pounds annually.
“Frills alone cannot justify raising the price too far beyond the normal market range,” said Dobrokhotova. “If the margin exceeds 10–15 percent, something such as unique social infrastructure must be provided in addition to the ‘beautification’ elements.”
Kuzmina points out that elite European projects include on-site fitness centers, spas, beauty salons, wine and cigar rooms, business centers and concierge services. “Modern wealthy customers value their time above all else and are willing to pay for solutions to their everyday needs — for example, to have a warm bath drawn upon their arrival at the apartment or to have pre-booked theater tickets,” she explained.
Millhouse Real Estate Marketing Director Stanislav Lobanov believes that with integrated urban development (IUD) projects — such as the company’s Skolkovo Park for Life — the investment is not only in the residential complex itself, but also in the surrounding area, thereby increasing the attractiveness and selling price of the property. “In our IUD project, of the 600 total hectares, 8.5 hectares are devoted to housing, and of that, the actual buildings occupy just 1 hectare — or less than 1 percent — of the landscaped area,” Lobanov said. “It would be impossible to justify the price of 250,000–300,000 rubles per sq. m. to potential buyers without all of that infrastructure.”
A stellar team of architects from Great Britain was hired to create the Skolkovo Park for Life project, located outside the Moscow Ring Road. Architects from the British HED bureau — designers of the fifth terminal of Heathrow International Airport and London’s Olympic Stadium — designed the landscape for the complex in the form of an amphitheater.
London-based architect Scott Brownrigg — who designed offices for Google, KPMG, BP and others — produced the designs for the public spaces and lobby interiors at Skolkovo. “We relied on international experience for this project,” said Lobanov. “We looked to a mixture of international examples for a new type of suburb that has all the elements needed for a comfortable life, such as those found in the Uccle commune outside Brussels or the Boulogne-Billancourt in Paris,” he said.
Russian developers have yet to use all possible methods for increasing liquidity and price. For example, it is common in Europe to combine apartment buildings with hotel service wherein building managers guarantee customers high quality service, construction and design. Four Seasons, Kempenski and Mandarin Oriental are a few examples. Depending on the location, prices for such residences can run 25–30 percent above the market average, Kuzmina explained. Such projects also include the opportunity to conclude the transaction even before the official opening of the property. For examples, sales have not yet started for the Four Seasons Hotel Madrid, but there is already a waiting list.
However, such projects are generally unique. For example, nothing comparable to the Four Seasons Hotel is currently available in Madrid. The same is true of the sensational One Hyde Park project in London. The complex is linked by underground tunnel to the Mandarin Oriental — a residence that offers five-star service to apartment tenants at a price of 40,000–50,000 pounds per year, according to market experts.