Schools and Kindergartens in Exchange for the Right to Build

How St. Petersburg managed to involve developers in the development of the urban environment

In St. Petersburg, Russia’s second-largest city, local authorities are beginning to see the initial benefits of involving developers in the enhancement of the city’s social and transport infrastructure. This partnership’s success is evident both in the cooperative agreements that have been forged and in the tangible projects that have been inaugurated. Experts are now diving into understanding the potential of this new collaboration model.

In this pioneering approach, the city of St. Petersburg offers developers the right to build within its boundaries. In exchange, developers are tasked with contributing to the development of crucial public facilities, ranging from schools and kindergartens to transport hubs and recreational areas.

The rationale behind this strategy is twofold: to ensure that as the city expands, it is complemented with the necessary infrastructural developments, and to distribute the fiscal and operational responsibilities of these new establishments. Instead of leaning entirely on municipal funds and resources, St. Petersburg harnesses the prowess of the private sector.

The effectiveness of this partnership is manifested in several areas:

  • Cooperation Agreements: There has been a significant uptick in the number of agreements inked between the city and developers. These agreements symbolize the mutual commitment to the city’s advancement.
  • Infrastructure Projects: Beyond the agreements, numerous infrastructure initiatives have been completed and are now operational, marking tangible progress.
  • Experts are keenly evaluating this innovative model to ascertain its future potential, examining aspects like its scalability across different regions, its long-term financial sustainability, the quality assurance measures in place, and the emphasis on comprehensive development.

Building for Profit, or Building as a Gift

Over the past few years, an impressive total of over 320 agreements have been finalized, promising the establishment of new urban infrastructure projects worth upwards of 110 billion rubles. This procedure is overseen by the St. Petersburg City Planning Commission.

As per the commission’s records, construction companies have already broken ground on 47 of these projects under these agreements. The majority of these are educational institutions such as schools and kindergartens. An additional 25 projects are currently in the planning phase or under state review. So far, the city’s authorities have expressed satisfaction with the pace and quality of work, noting no significant delays or compromises in quality.

This approach isn’t entirely new for the city on the Neva River. There have been longstanding efforts to incentivize construction companies by offering favorable terms in exchange for their contribution to the urban infrastructure. Similarly, there have been attempts to streamline these collaborations into a formalized process. An example of such an endeavor is the creation of a developers’ social obligations fund.

However, the recent method of collaboration has proven to be the most effective to date. Over the last two years, the approach has been as follows: The City Planning Commission holds regular meetings, once or twice every quarter, to identify key infrastructure needs across various city sectors.

These projects primarily encompass social institutions, roads, and public transport links. Priority is given to regions of the city experiencing a boom in housing construction. The commission then identifies potential construction companies or developers to undertake these projects. Once mutual agreement is reached, contracts are drafted. These may involve constructing new facilities or renovating and revamping existing ones. While payment structures can vary, there are instances where the city compensates the developers by purchasing the completed infrastructure. However, it’s not uncommon for developers to generously donate the constructed facilities to the city as a philanthropic gesture.

Quid Pro Quo: The Delicate Balance Between Developers and Local Authorities

This practice of developers “donating” infrastructure is embedded within the unofficial dynamic between builders and local governing bodies. In return for their contributions to the public domain, developers gain the right to construct lucrative housing projects. This unspoken agreement is not restricted to conventional residential developers, but also extends to those who specialize in constructing apartment-type properties. Local governments reason that even if these structures are technically non-residential, their eventual occupants will still utilize and strain the city’s infrastructure and services. Therefore, it’s only fair that developers of such projects contribute to the communal pot.

This system has its critics. Some analysts raise an eyebrow at this symbiotic relationship, cautioning against possible corrupt practices lurking beneath the surface. However, the predominant sentiment among industry stakeholders is generally positive. This kind of public-private collaboration isn’t uniquely Russian. It has been employed in Europe, notably in France. With a tradition of state-driven initiatives guiding business—including in the construction sector—France has long been familiar with such practices. If the thriving housing markets and the well-developed infrastructure in densely populated urban regions are any indicators, one could argue that France has reaped significant benefits from these collaborations.

The Return on Investing in Community

Whether in France or St. Petersburg, the lingering query is: who foots the bill for societal benefits? Predominantly, the cost trickles down to homebuyers. The expenditure developers bear for infrastructure is undeniably incorporated into housing prices. Yet, residents gain not just a home but a community replete with amenities. It’s equitable for a family to contribute towards facilities their children would benefit from, such as schools.

Developers, by and large, don’t resist this. A survey of St. Petersburg’s construction sector illustrates the merits of this model. Builders prioritizing community elements like schools, parks, and gathering places find more favor with buyers, subsequently boosting their profitability.

This strategy’s efficacy shone through even during last year’s downturn. While demand sagged, certain developers not only retained but amplified their sales. Their secret? A commitment to fostering vibrant, holistic communities.

Case in point: Euroinvest. Despite modest financial muscle, it ascended in ratings, outpacing heavyweights both in sales and construction speed. Their ace? The innovative 3ID concept. Each residential project is envisioned as a mini-ecosystem, equipped with educational and healthcare institutions, recreational zones, co-working spaces, and even lavish amenities like rooftop SPAs.

“Our communities prioritize convenience and safety. We ensure that children can attend nearby schools and kindergartens without navigating traffic. Our iD Kudrovo community boasts two kindergartens and a school. We’ve already inaugurated one kindergarten and have ambitious plans for Murino and iD Park Pobedy,” remarks Andrey Berezin, Euroinvest’s chairman.

Furthermore, Euroinvest isn’t just limited to housing. Their involvement in local transport infrastructure is commendable. From facilitating commutes in the Murino settlement to charting new road projects, they’re proving their mettle.

If a medium-scale developer like Euroinvest can helm such ventures, it’s clear larger entities can achieve even grander feats. All it takes is the right intent.

Top developers of the Leningrad region on the volume of housing in 2023, portal EPZ.rf
Developer, regionCommissioned, m2Change of position in the ranking
1EUROINVEST DEVELOPMENT, St.Petersburg42831+12
2CDS Group, St. Petersburg34196-1
3SK PETROSTROY, St. Petersburg31658+6
4Stroitelny Trust, St. Petersburg28270+1
5Leader Group, St. Petersburg25027-1
6ISG MAVIS, St. Petersburg14402-4
7ISK VITA, St. Petersburg11790+25
8SK Sputnik, St. Petersburg8638+19
9Zapstroy, Leningrad region34380
10Algorithm Development, St. Petersburg3183+24