4. Net profit/sales to be positive by the 7^th year of project realization.

1.2. Keys to Success

1. Compliance with world latest achievements in industrial property development.

2. Governmental support via reasonable utilities prices retention and tax remissions providing for regional petrochemical industry development.

3. A comprehensive range of services along the whole value chain.

2.0. Project Opportunity

Though a number of real estate market players is by the moment a considerable one and there constantly appear new entrants, the local (and even Russian on a whole) real estate market is an emerging one where the major working principles are just being established (which is explained by such a market absence in the former USSR, and its formation start after the USSR disintegration). The most developed part of this market is at present moment office and trading space lease market.

As far as industrial real estate lease is concerned, it may be identified as a completely new product (service) to the local market. The grounds of this phenomenon may be described as follows:

1. till the USSR disintegration there existed mostly huge industrial governmental enterprises in the country;

2. right after the disintegration until recently the establishing local companies were mainly occupied in services industry and trade industry, since the profit margins were high in those sectors of the country economy;

3. nowadays the economic situation has shifted, due to change in people’s consciousness, to a larger number of small industrial enterprises establishment and their successful work at local and even international markets. But small and medium-sized enterprises lack appropriate production facilities ready for lease, and very often the production is organized in premises not intended for those purposes.

All the enumerated factors prove the mature necessity for local industrial parks establishment. Such institutions are common to European countries, e.g. in Germany there exist 53 industrial parks in the chemical industry only, but in Russia these are only emerging and pure innovative.

The challenge of the project consists of several aspects:

1. The industrial site neglected “sorry state”.

2. Absence of regional experience in managing industrial property, since till recently there was no necessity to professionally develop and manage the industrial property and, moreover, there were no property complexes, assigned for more than one client, to manage.

Industrial parks are new phenomena to Russian market and we are going to make the best of the opportunity. A company capable of establishing a working pattern of an industrial park in Russia has all the probability to become leader to the market, gaining a substantial measure of control in the market place; attaining pioneer status; blocking competitors and achieving above average sales/profit growth.

The investment needed for site redevelopment (utilities reconstruction and new construction of 600 thousand sq.m industrial and 150 thousand sq.m office premises amounts to $390 mln., including $15 mln. of front-end investment. The project payback period constitutes 7 years.

We expect, that by the 10^th year of project realization over 250 companies with 10 000 total number of workers will work within industrial park territory.

3.0. The Market Analysis

According to Jones Lang LaSalle Survey “Moscow City Profile”, dated September 2006, “the commercial real estate market in Russia has become more transparent for global investors. The market has entered a new tier in the Jones Lang LaSalle Global Transparency Index, placing it in the same league as Israel, South Korea and Thailand. Market entry of large scale Western European banks and lending institutions suggests that this positive trend will continue over the medium term”[1] .

Generally, investment in real estate assets market in Russia’s regions dominates the regional investment market. The growing demand for rental spaces is a major force driving rental spaces growth. The Moscow and St.Petersburg markets are close to saturation, and rental premises boom has started in the regions. Kazan belongs to 13 Russia’s cities with a population over a million people. So the trends of Moscow’s and St.Petersburg’s office markets find quick response at the Kazan market as well.

Nowadays high rental level, constantly increasing number of companies rivalling for rental spaces make Kazan real estate market an attractive industry to act in.

A brief analysis of the Russian real estate market under the Porter’s diamond model:

Firm strategy, Structure and Rivalry. Being a developing market, the Russian real estate market possesses one not a positive characteristic, consisting in absence of strategy of the first entrants to the real estate market and market analysis. Nowadays, however, the companies turn to development according to the all-over-the-world established rules. Nevertheless, local companies are hardly capable of competing with international market players.

Demand conditions. The customers on the local real estate market are becoming more and more scrupulous and demanding. But globally, demand in Russian real estate market continues to exceed supply, leaving opportunity to compete.

Factor conditions. The Russian real estate market is characterized by lack of professional specialists (“skilled labour”); lack of infrastructure, caused by mainly adaptation of existing old buildings, instead of building new ones according to the international standards; and a growing amount of capital invested in real estate development.

Related and supporting industries. This factor is also uncultivated within Russian real estate market framework. E.g. there exist only 3-4 facility management companies in Kazan city, which is obviously scanty for a city with a population over 1 000 000 people. Real estate consultants and real estate agencies are till present moment also rare in the market. In two words, the Russian real estate market lack of development seems to prevent the country market players from entering international market for at least 10 years more.

3.1. Market Segmentation

The limitation of “Himgrad” Industrial Park target customers to small and medium-sized companies occupied in chemical and petrochemical industries is made in order to single the project out of other industrial real estate complexes. The petrochemical utilities infrastructure present on the site territory allows increasing the efficiency of the mentioned companies business. The chart defining the target companies more precisely is presented at Graph 1 .

Graph 1