Car Plant Surrenders Riverfront View

MTCarmaker ZiL plans to sell around 80 percent of its 323-hectare Moscow site, opening up prime development space.
Russia's oldest car firm, ZiL, is to sell off most of its Moscow plant to pay back debt, potentially opening the way for a large new business district on its prime riverfront site five kilometers south of the Kremlin.

The company, which once made cars for Stalin and trucks for the Red Army, will move its manufacturing facilities to a narrow, approximately 70-hectare strip at the edge of the site, releasing around 160 hectares of land for commercial development.

The plan will return the company to profitability by 2010, ZiL's general director, Konstantin Laptev, said last week, Interfax reported.

"ZiL is now more of a real estate value company than an automotive business," said Gairat Salimov, an automotive analyst with brokerage Troika Dialog, who suggested the car business would eventually be split off and moved out of the capital altogether.

Part of the sprawling 323-hectare site will be allocated to an IT park for small technology companies, to be run by a private company called the Moscow Business Incubator.

The IT park will cover 32 hectares, with the first 197,000 meters coming online in 2007, said Konstantin Romanov, a director at Knight Frank, which is consulting on the project.

The fate of another 130 hectares earmarked for commercial development has not yet been finalized, he said.

Plans for a further 100 hectares of the site, where an electrical substation is located, remain unclear.

Located close to the recently completed Third Ring Road, about five kilometers from the city center, developers are likely to be attracted by the area's good transportation links. The site could be used for commercial development, including Class B offices suitable for back-office staff of major companies, analysts said.

One drawback for potential developers will be the high cost of cleaning up the site for redevelopment.

ZiL's industrial past would be costly to erase, with development of the site likely to cost 30 percent more than a greenfield site, said David Brodersen, managing director of Noble Gibbons in Moscow.

The ZiL project could spark the renewal of the surrounding area, said Yulia Nikulchenko, associate director at Jones Lang Lasalle.

The area could eventually undergo a transformation similar to that of the Paveletskaya area of the city, once industrial but now characterized by high-class offices, Nikulchenko said.

The transformation would not be quick, she added. "It's a long-term project; it could take 20 years to develop," she said.

The redevelopment will mark the end of an era for the automaking giant, which made the luxury cars driven by Soviet leaders from Stalin to Gorbachev.

Established in 1916 and nationalized by the Bolsheviks a year later, the plant produced the first Soviet-made trucks. Evacuated from Moscow during World War II, the factory subsequently returned to the capital, and production reached its peak in the 1980s, when it employed 75,000 workers.

The company never recovered from the Soviet collapse, with production of trucks falling from 158,000 in 1991 to just 11,000 in 1995. It produced 15,000 trucks last year. Production of the company's signature limousines, which cost over $100,000 apiece, has ground to a halt due to a lack of orders.

 Defunct carmaker Moskvich plans to sell three buildings at its plant in southeast Moscow to pay off wage arrears, media reported last week.