Daniel Satinsky: I know that your experience is pretty deep in real estate, and real estate is one of those sectors which didn’t exist, so it was created beginning in the collapse of the Soviet Union. So if you could just start by, like, why did you go, what drew you to go there, and then how you were involved with the creation of that industry. What was that like? What obstacles did you face? How did it grow? And the interaction between you and Russians and Russian society. So that’s the progression of where I’d like to go with this, if that fits with your sense of things.

Bill Lane: Sure. I’m happy to do that.

Daniel Satinsky: So why did you go?

Bill Lane: So I ended up studying Russian language in college by pure chance. I studied Latin in high school and—

Daniel Satinsky: In Boston?

Bill Lane: In western Massachusetts. I grew up in western Massachusetts, and I studied Latin. And then undergrad went to Dartmouth. It has very strong language programs, and I decided I would take French, because I, like many, had traveled to Canada, but I had never been to Europe, and so take French for two semesters and go to France. So I went to the French class, and everyone had had four years of high school French, they were all speaking French. I had zero. I asked the professor. The professor said just study a couple more hours every day, and that was in addition to class, language lab, drill, so it added up to like seven or eight hours a day to catch up. And so, I’m like I’m not going to do that. I was playing a sport. I was doing other things. So, I said I’m going to take a different language.

And there were things happening at that point—this was in the mid ‘80s—and some discussion about the Soviet Union and some changes in the press, and so I said why don’t I go take the Russian language, with no intention other than to take it for a couple semesters and go to Russia. And then it turned into my entire career. So that’s the way that happened.

When I went to the Russian class one person had had two years of Russian at Phillips Andover, and everybody else had zero, so it was a level playing field. And I was like great, that sounds fair to me. But then I realized it wasn’t two semesters, like German, Spanish, French, to go. Because the Soviet Union was more exotic it was four semesters. And then you start looking at all the other things that were going on, and history, and literature, and how interesting that is, so I ended up double majoring in Russian and government. And I went to the Soviet Union for the first time in 1986 and I studied—

Daniel Satinsky: Eighty-six, okay.

Bill Lane: Eighty-six. And I studied there for a semester during the summer of ’86.

Daniel Satinsky: In Moscow?

Bill Lane: In Leningrad. Leningrad State University. Dartmouth and four or five other universities and colleges had a program. I think there was about 120 of us. I think it’s probably the same one that Rich Soble went on, but I think he was a year or two before me. So, there were 20 students from Dartmouth, and 20 from Georgetown and what have you. So, I studied. So, we had, you know, so that’s where I got to see everything. And it was still the Soviet Union, so restrictions. We were not in dormitories; we were not in apartments. They made us stay in a hotel.

Daniel Satinsky: Which one were you in?

Bill Lane: I was in the Sovetskaya.

Daniel Satinsky: That giant one on…?

Bill Lane: It still exists. It’s on one of the canals. It’s the Gostinitsa Sovetskaya. I can send you the exact address.

Daniel Satinsky: It’s okay. I went in 1989 in an Intourist program to study Russian in Leningrad and we were in the Pribaltiyskaya.

Bill Lane: Pribaltiyskaya, so that’s out on the Gulf of Finland?

Daniel Satinsky: Right. Yeah, yeah.

Bill Lane: Yeah. That was one of the most new, modern hotels at the time. But we were more central, in a—it’s called Gostinitsa Sovetskaya, so you can imagine it wasn’t the most fancy place. So, we studied a semester there and we traveled. We went to Riga; we went to obviously Moscow. Chernobyl had just happened. I guess it was that spring. We were supposed to go to Kyiv. Obviously, we didn’t. We went to Yerevan and Baku. So we got a flavor for it, but the vast majority of time was spent in Leningrad, and then maybe a week or a week and a half in Moscow.

And so, while it was still very Soviet at that time, and very restrictive, one or two people in our group were sent back because the visas were very restrictive. You had to stay within 20 kilometers of the hotel. You were occasionally followed. We were told who to interact with. But at the same time, with all that structure, you’d go out on Nevsky Prospekt* you can meet anybody you want. And then during late nights you’d go to the Neva and you can do pretty much whatever you want. And as long as you got back to the hotel before it got light—actually, not before it got light. During the white nights it was light pretty much all the time. But before 6:00 a.m. or whatever it was you didn’t really get in trouble. And so that’s where we learned the most. Yeah, the classroom work was fine, but you learned the most there, out on the streets, meeting people and speaking with people.

And you could see things. You know, there was a black market that was trading money, and the Beryozkas*, and it was like, you know, it was trying to figure the whole thing out. And I just, you know, I was like this is really interesting, there’s all this potential here. And so, I went back to the U.S. with that sort of, you know, this is a really interesting place, I’d like to go work there.

And so at the time there really weren’t any jobs. I didn’t want to go the diplomatic route. I wanted to go into business. So, I began reaching out—this time starts in ’87, ’88. I graduated in ’87. I took a job with a bank in Chicago for two years, and I just started to do what I could, you know, reaching out to Ben & Jerry’s, McDonald’s, all those things, not getting anywhere, really. Nice letters in response.

And so then I’ve always been sort of entrepreneurial, and I started writing letters to some of the poster manufacturers, some of the groups that—poster publishers of the communist posters in Russia, the USSR still, the Soviet Union at that time. And eventually someone—you know, I said these posters are interesting, especially the ones promoting peace, some of these summits and different things with the U.S. and the Soviet flag, and a flower coming up, I’d like to buy some and sell them in the U.S. And so after a bunch of letters, you know, there’s no emails or anything like that, I received a big shipment of posters for free.

Daniel Satinsky: For free.

Bill Lane: So, I lived in Lincoln Park in Chicago, and I went out to all the record stores and other things like that in that section of Chicago door-to-door and I sold these posters to these stores that would in turn sell them. And so, I was all excited. And so, it was just something, nothing major. I didn’t make a lot of money, but it was fun and interesting. Still nothing in terms of real jobs, so I went to law school and graduated in ’92, and continued to work on my Russian, and continued to reach out.

And at that time there were a few U.S. lawyers that were shuttling back and forth. There really weren’t…they didn’t have a presence there. They would stay in a hotel or what have you, you know, from New York. And I thought I could get a job with one of them, and there was nothing. It was like we’re not hiring anybody, it’s still very preliminary. So, I said okay. So, I took the bar in Massachusetts and New York, and I convinced my parents to buy me a plane ticket to Moscow, and they agreed. And I said okay. I’ll find a job over there. Maybe if I’m on the ground I’ll find a job with a law firm, you know, with a lawyer there.

And long story short, as I was organizing my trip, I had plenty of student loans to pay. My parents, you know, you’ve got to take this job. I was going to work as an attorney in Massachusetts. And I said I’m going to put that off, I can come back, I’m going to go try to do this, and I’m not able to do it from here, so I’m going to go there. So, as I was organizing my trip—you may know this. I don’t know if you ever came across a guy named George Cuker.

Daniel Satinsky: Oh, yeah. I remember George. He was part of our chamber. And his wife.

Bill Lane: Rita.

Daniel Satinsky: Rita. And they were doing exchange and educational exchange programs, if I remember correctly, travel and tourism.

Bill Lane: That’s right. So, by chance I opened up the phone book to get my visa, and she had an advertisement in the Yellow Pages that said Russian visas. And so, I was actually in Boston at the time. I just walked over to where—it was right over by Quincy Market. And I walked in, and I said I need a Russian visa to whoever was at the front, and someone yells out, one of the offices in the back, why do you want to go to Russia?

And I like explained. And she’s like come here. And she’s like we’ll help you get a visa, what do you want to do in Russia? And I’m like I want to get a job. And she’s like my husband is starting one of the first real estate businesses there, and he’s in the air right now, he’ll be here tonight, he’ll have coffee with you tomorrow. I’m like okay. So, I stayed another night in Boston, I met him the next day, and I agreed to go over and be there. He was shuttling back and forth, and I agreed to go over and be there full-time and set up his office.

And so she was doing those tours through the travel agency, and he was—his strategy was to go in to these institutes—as you know, there’s a number of institutes that were supported during the Soviet times, and then all of a sudden that’s it, and they had no financial support. But they all sat in these buildings. And there was starting to be some demand beyond the hotel rooms for, you know, the Mezhdunarodnaya Hotel, so people wanted a little bit more space. And there was some regulation that said you really shouldn’t, you know, you’re not supposed to have an office in a residential apartment. Plenty of people did that and got away with it, but if you’re a real company you want to try to follow the rules, and they need office space.

And as you quite rightly said, 70 years of communism, there was no real estate industry there. Everything was owned by the government, and you were told this is your apartment, you’re assigned to live there. And the businesses were given the space, but they didn’t own it. So, there was nothing except hotels, and maybe apartments. But if you wanted to start to build your business you needed some office space.

So George’s strategy was to go into some of these institutes—and they had plenty of available space—and sort of cosmetically renovate it, and put a Western face on it, and quote/unquote “lease” it. But you really couldn’t lease it because there was no legal infrastructure at the time to lease it. So, there were these things called joint activity agreements, which weren’t—you know, I as a lawyer from the U.S., I’m like these aren’t real, these don’t, you know. But you get over that pretty quickly, and you say okay, they aren’t real, but they’re a piece of paper, and there’s something there. And there aren’t leases because these people don’t own the property, so they don’t have the rights to lease it.

So it’s real simple, with my business hat on it’s you can occupy this space on this joint activity agreement, and take some risk, and have that space, or if you don’t want to do that there’s no other place that you can go other than the hotel rooms, and that’s it, and make your decision. And I’m sorry if it’s not like New York or London, where you have everything, you know, so you just make the decision and take the risk or don’t.

Daniel Satinsky: Right. And the agreement was between the institute and the person or company renting that space; you were just a broker?

Bill Lane: No, we were… With George we actually, so we had another entity. So, we quote/unquote “leased” the space from the institute, and we subleased or leased it to the multinationals. There wasn’t any—it’s very important, because there was no Russian company—any Russian company was just using existing space, and they didn’t appreciate sort of modern office space, and open space. They had the halls with the doors. And that’s important because that came later. When the Russian companies started to be part of the demand, that really distinguished the market and helped the market tremendously compared to other Eastern European cities.

So this was what we did with George. And I was living in a dormitory, and a fax machine, and one phone number, and all of those things that were just like very, very difficult to, like, you know, do anything. Really no mobile phones. Way too expensive, the few people that had them in those little briefcases. So, you just figured it out.

Daniel Satinsky: And you traveled around on the Metro, or flagging cars down? You didn’t have a Mercedes or anything.

Bill Lane: I was in the category—exactly. I made an agreement with George, a thousand bucks a month, okay? My student loans at the time were probably eight or nine hundred dollars a month. And he would pay for this dormitory. It was supposed to be an apartment. It was a dormitory. So, we did a couple deals, and we started to make a name for ourselves. First Russian Real Estate was the name of the company.

Daniel Satinsky: Was the name. And were these George’s contacts with the institutes or did you just cold call them?

Bill Lane: No. These were George’s contacts. George had been in business for a long time, he spoke Russian. He did some of these tours back to the U.S., paid for them to come back and tour around and everything, and very exciting. And so, he was able to come back and make agreements for that empty space. And so the idea was international company A would pay us a rent, and then we would pay part of that rent to the owners. But those were George’s relationships, and I sort of came on.

And he showed me the buildings. He was like we have this building, and we have that building. One of the buildings was in a pretty good location, and we had a fair amount of success with it. One of the buildings was way, way out by Izmaylovsky Park, which at that time, if you know where that is, it’s almost like you’re back, you know, you’re in Leningrad, you’re in St. Petersburg.

Daniel Satinsky: I stayed usually in a Best Western at Izmaylovsky, so I know exactly where it is, yeah.

Bill Lane: Yeah. I mean, it’s different now, but back then, in 1992, it’s like in the middle of nowhere. And we actually did some leases there with Samsung and some others, so we did a couple deals. L’Oreal, the big French cosmetic, you know, big companies that needed office space. And they made that decision, yeah, we’re going to sign this joint activity agreement and just go with that. And the rents were pretty expensive at the time because there just wasn’t that much supply. And so, another American guy that I met, also from Massachusetts, just by chance, joined us and became—I’m still partners with him today. And we—

Daniel Satinsky: What’s his name?

Bill Lane: His name is Jack Kelleher.

Daniel Satinsky:  Jack Kelleher. Okay. No, don’t think I’ve heard—

Bill Lane: Jack and I were working for George, and we created all this cash flow. And of course, I don’t want to get—I’m just giving you the big picture, but this is—

You know, and we had an agreement, and he didn’t honor it. So, Jack and I left. We went to my apartment. I had a three-room apartment, and one of the rooms had a desk in it. We went to the apartment. We flipped a coin to see whose name came first on the business card, and Jack went across the street to Dom Knigi* and printed business cards, and we bought a laptop computer and a fax machine, and we started making phone calls.

Daniel Satinsky: What year was this?

Bill Lane: This was Ninety… I went over there October ’92. I worked with George ’93, and this was, you know, January ’94, something like that, February ’94. Q1 ’94. So, we came up with the name Kelleher & Lane. Jack won the coin flip. And we started a real estate brokerage company in my apartment. We were right on Tverskaya. And the industry, at that point there were a few other expats like us doing similar things, and they were all sort of along Tverskaya, just one or two people, or three people, no employees. Then we got our first intern, you know, an American guy that was, I don’t know, he ended up in Moscow and he needed an internship. And we didn’t have to pay him, because we didn’t have any money, and so we had an intern. And he ended up working with us when we could hire him, and he was a great guy.

So yeah, that was it. And so, we started doing residential and office, because residential, as you sort of referred to, there were all these expats that were coming over with packages. And a lot of that was USAID projects, and then there was the consultancy, Ernst & Young and all that, and then the law firms. And they had very good budgets to rent apartments. And so we were able to start doing that type of business. And—

Daniel Satinsky: How did you get the apartments to lease?

Bill Lane: Oftentimes it was a couple Russian friends of mine, or people I developed relationships with that would find the apartments, and we would find the expats that would rent them. And then we’d just split the fee.

Daniel Satinsky: Had apartments started to be privatized by that time?

Bill Lane: Yes. And that’s a huge, huge part of the story for Russia that I think is overlooked by a lot, in the fact that Yeltsin allowed people to privatize their apartments. People just don’t appreciate what that did for the mentality of people in Russia. They didn’t own—because we come from different backgrounds. These people didn’t own anything for 70 years. And then Yeltsin said you know what? You guys can privatize your apartments. Now of course there was some abuse and some other things that happened there. I mean, it would happen anywhere in the world. But the real story is people like to talk about oh, this person was cheated, and that and that. Of course.

But the real story is all of a sudden instead of the government telling me that’s my apartment, and I don’t own it, and so why should I take care of it, it’s like I own this thing, and I can sell it, I can rent it, or it’s mine. And that’s really something. It’s mortgage-free, so there was that whole piece of the story. And then the mentality piece of it, which was huge. And so yeah, so people said yeah, they start to, you know, I can rent this apartment for a couple thousand bucks a month, and I’ll go move out to my dacha*, or we’ll move in, you know, I don’t know, go somewhere out of the center. So, we did that for a little while, but we really focused on the—we started to focus on the office sector.

Daniel Satinsky: Okay.

Bill Lane: And we started to meet a few of the other entrepreneurs in the market. We started to communicate a little bit, which is natural in any real estate market. And some of these guys I’m still friends with today, and I still speak with them today. And we ended up, Jack and myself ended up forming a partnership with two other guys, one other American guy and a Russian guy. And so, there were four of us, and we moved out of the apartment—we were all in apartments—and we got an office.

And at that time the international, big global brokerage companies like JLL, and Cushman, and CBRE, their clients—AT&T and General Motors and everybody was like we need office space in Moscow. And so, all the entrepreneurs like myself started to form associations with JLL, or Cushman, and we formed a relationship with Richard Ellis, which became CBRE, C.B. Richard Ellis, CBRE. And that was in the mid ‘90s. And so we started to get some very interesting office requirements that came in from CBRE, and also other ones that we developed ourselves. And then you had some more professional groups start to develop office space, and the legal infrastructure started to improve a little bit. It wasn’t perfect, but—

Daniel Satinsky: Meaning Russian professional groups preparing office space that you could then lease?

Bill Lane: Yes, Russian and foreign. Hines was one of the early groups in. They initially weren’t developing. They came in as a property manager, but then they started to develop, so you had some—McHugh out of Chicago—you had some of these groups come in, and then you had Russian groups that had access to buildings. And at that time, you could get one year rent upfront, and so when you can get it—and they were some of the most expensive rents in the world. And so, you get that upfront, you can use that money. And a lot of these groups had their own construction companies from their Soviet time, and so they could very quickly take that money and renovate a building. And if you said well, I want to wait until you actually do it, they would be like okay, next. Because someone else was going to sign it. In the very early days people were signing leases for whatever, six years, and they were paying six years upfront rent. That was what was happening.

Daniel Satinsky: So that’s your construction finance then.

Bill Lane: Yeah, because the banks weren’t lending any money. The banks, all of that stuff…everything was ru—it was dollar denominated rents and all this stuff. I don’t want to…I’m happy to go into a deep dive of the specifics of the real estate market because there were a lot of different things happening during that period of time. But what we did was we started to grow with the market. And so initially with brokerage, but then we started with the construction management, project management, and so we brought in professionals, architects and other professionals where we started to be construction managers and project managers for some pretty big projects in Moscow. And then—

Daniel Satinsky: And so those were Russians you brought in or foreigners?

Bill Lane: Mostly…very few foreigners, mostly Russians.

Daniel Satinsky: Yeah. Okay.

Bill Lane: Yeah. So, I mean, that’s one of your questions. I mean, I speak Russian. I didn’t have a big expat package. I was there in the dormitories and in the Metro and trying to find food at different places and stuff like that, so I was much more interacting with Russians. Of course I had plenty of expat friends, and still do, but I was not in the expat compounds with a bunch of people that may or may not want to be there that are being paid a ton of money. And they are, you know, and a number of them are my friends, they’re great people, what have you, but it was a big deal to go to the Bolshoi Theater and maybe bump into someone there or talk to a Russian. It’s like my experience was completely different from that. So I was, you know, so my partner—I had a Russian partner. He remains one of my closest friends today. And the vast majority of our employees were Russian. Of course there were some expats.

And so yeah, we built the business up. Then we ran into the ’98 crisis which was quite challenging. But it was…the market came back very, very quickly, which saved us. So some people left. That was it, we’re done, meaning in my industry. We stayed. One of my partners left. We called everybody into the room. We probably, at that point, already had like 50 people, I don’t know, something like that, and we said look, this is not easy, we’re not taking any salaries, we can’t pay you guys salaries this month, next month we’ll pay you half, those types of things. No one’s paying us anything right now. We’ll be the last ones to take anything. We’re going to do the best we can. If you want to stay with us, great; if you don’t we understand it. And the vast majority stayed.

And lucky for us, by the end of Q2 ’99, all of a sudden, these Russian companies that had sort of been a small player in the class A office market took up all this empty space that was there. And also, all the foreign companies that had leased a few years earlier, there was an opportunity to renegotiate because the market conditions had changed, and so we focused on that.

And for us, as long as the market’s moving, you can make money. If it stops, that’s when you can’t do it. So it froze for a minute because it was pretty catastrophic when the ruble devalued, but then all of a sudden it moved down, so it was moving and we could do something. It’s not the funnest thing to do, but that’s what we did. And we recovered quite quickly, and my competitor colleagues in the market did as well. And then we built our business up from there. We almost sold our business in ’98 before the crisis to Richard Ellis.

Daniel Satinsky: You had already sold it by then?

Bill Lane: No. No-no-no. We almost sold it. And I’m so happy we didn’t. At the time I was extremely disappointed, me and my partners. We had a term sheet with them, and I was extremely disappointed that we didn’t sell it. Of course, they pulled out of the discussions because the market collapsed, so no problem, understood, but it’s like wow, you know. And we ended up selling between 2004 and 2006 at a completely different multiple and with completely different numbers. And so, I look back and I was like I was upset at that point, but very happy.

So, we built our business up to a market leadership position on the office leasing, and we had a big, robust property management business, and construction management business, did some retail and some industrial. And one thing we didn’t do is we never really…we did a fair amount of business up in St. Petersburg, but we never opened up an office up there. And we did some business in Kyiv, but we never opened up an office. And I’m glad we never did. I mean, those are nice cities, and important cities, and St. Petersburg is one of my favorite cities in the world, but we just made associations with other real estate companies there. Because some of our colleagues in the market, they opened up offices, and they had to put partners there. And it’s really, those aren’t—they’re a fraction the size of Moscow.

And so many people, again, you and I understand this, but you ask them what city in Europe has the highest population, and they’re like oh, London, Paris, I don’t know. I say no, it’s Moscow. And then someone who’s really smart might say Istanbul, and then you get into well, half in Asia, half in—we can do that. But it’s Moscow. And people just underestimate the size of it and what’s going on over there, how big the city is, how robust it is. And especially now, you know, how, you know, smart city, how advanced it is in so many different ways over other cities around the world. It just doesn’t get that exposure.

So I’ll do it real quick and then you can ask me the questions, get into this. But we sold the business. Definitely we partnered with Rich. We sold part of our business to Russian private equity with the strategy that myself and Jack would go over and work and partner with Rich to set up a fund. We knew CBRE would buy us when they were ready. And we very quickly together sold the business to CBRE.

And then I was with Rich for a number of years. We set up an institutional real estate fund, $321 million. And then after that there was the financial crisis, and some of our U.S. partner had their business globally negatively impacted, and they sort of just rejected Russia at that point. And that unfortunately was the end of the fund because our U.S. partner pulled out.
And that was absolutely the best time to invest. Absolutely the best time. And Rich and myself and the people there on the ground, even the U.S. partner’s people that were there on the ground, they were like this is the time to make the acquisitions. Because asset prices and things, the market got out in front of itself before that in 2006. We were like looking at this, and like cap rates were compressing down, so getting rental rates in like West End of London, and cap rates approaching, you’re like wait a second, there’s got to be a delta there, and things are overpriced here. So we were very—we put a little bit of that money out, but not all of it. We were not comfortable with these asset prices. And when the financial crisis came, that was the perfect time to go in, and that, unfortunately…

So I ended up, I rehooked with my original partners from my brokerage business which we sold to CBRE—that was called Noble Gibbons—which we sold to CBRE, and we set up a development business, boutique development business, and we started to develop warehouses in the suburbs of Moscow, because you have all this retail going on, and so you need the logistics. And so, we did that.

And we built a very nice, 400,000 sq ft warehouse out near Vnukovo. We partnered with a Russian landowner. They contributed that to a JV, we contributed some money, and then we run the whole thing from concept, construction management, leasing, etc. Then you run into the oil crisis in 2014-15, and at that point everything froze, banks stopped lending on projects. I had been there for whatever number, 23 years, and I decided to come back to Boston in 2015.

Daniel Satinsky: So, what’s the difference between 1998 and 2014 in terms of your commitment to that market? Was it personal or was it some other analysis of the difference? Because in 1998 a lot of people left, and you stayed, and it was the right thing to do, but you couldn’t know that at the moment that it was happening. You had to have some reason that you had confidence in that market that you didn’t have in 2015. I’m just curious about that.

Bill Lane: Yeah. You know, in ’98 it was…you’re right, there was no way for us to know if this was the end of the world or what was going on. It just came back so quickly. If you wanted to pack your bags you could, and get out, but we saw movement, and so we’re like we can do something here. One of the other Western real estate groups, we acquired their business for like almost nothing, because they had some buildings that they were managing, and we’re like we’ll take that portfolio. You know, they just were leaving, and we’re like okay. And so there was like things to do, and then it came back quickly. And then in 2010, or whatever the—’09, ’08.

Daniel Satinsky: Yeah, ’08, ’09 when the financial crisis, right.

Bill Lane: The financial crisis, you know, that financial crisis was not Russia’s crisis. Obviously, the world was impacted by it, but that was Lehman and all the craziness, people buying, selling things that they didn’t believe in and buying—

Daniel Satinsky: Subprime mortgages and other things.

Bill Lane: Yeah, buying things they didn’t understand and that. And so that was not fun because we—and Rich will say the same thing—it’s like we were right there to like do this, and we on the ground knew it, but when 50% of your partnership says no, then that’s the end of it. So, we saw this opportunity in logistics and doing development, and we knew we had the skill set and relationships to do that.

Daniel Satinsky: You had clients in mind when you did this that you knew that there were people who would use this warehouse space?

Bill Lane: I mean, we knew the market extremely well, and so, I mean, that’s all we do is just—I lived there just straight on the ground living and thinking about real estate. So yeah, we knew it was—and my partners were the same way—so we knew there was an opportunity to do it, and we knew we could do it if we find—you know, the challenge is finding the right partner. And so when I talk about my partnership with the guys I’d been working with together on our consultancy business, but then we’re partnering with someone who owns the land.

And you want to do this in an institutional way so you can build it, and lease it, and then sell it to a fund that’s going to pay you that premium because you did it right, as opposed to cutting all these… That’s the thing. You can… The market in Russia, almost from the beginning, you can make a thousand mistakes and still make a gazillion dollars at the beginning, you know, and along the way. And especially some of these groups, the Russian groups, they got the land for free. So if you don’t have to—you can ask any real estate—if you don’t…if you can put a zero for land cost, you’re like doing pretty good. And if you have a bank, if you own a bank and you’re going to get a loan that doesn’t require you to put up security, then that’s pretty good, too.

We couldn’t do any of that stuff. So, you find the… So, a lot of… There’s sort of two groups. And again, not faulting anybody, but if you can do this and not have, you know, these are your inputs, and you don’t have to care about like doing everything perfect because you know you’re going to make a lot of money anyways. That being said, there were a number of Russian developers and investors that said okay, I get it, this class A office asset right next to mine sold for a seven cap or an eight cap and no one wants to look at mine; why? And then we explain. They’re like okay, I get it. This next one, let’s do it like that. So, you’ve got to find the right partner. But that’s anywhere you’ve got to find the right partner.

Unfortunately, some groups—this is not necessarily real estate, but it happened a little bit in real estate, but in a lot of other industries—people come in, they fly in business class, they stay in one of those fancy hotels, they go to the Bolshoi, they go to a really nice restaurant, they do a couple shots of vodka, and they shake hands, and they don’t really know what they’re getting into, and all of a sudden, they didn’t do the right due diligence, they got caught up in that moment, and of course the JV falls apart. And the New York Times, what do they write about? That. Not about the successes. They write about that, and then everybody, you know, you can’t, as an entrepreneur, if someone wants to listen, great, but most people, all they can—well, wait a second, I read in the New York Times that XYZ Fortune 500 company got screwed in Russia, so I’m not going there. And that was the thing. So, like our fund with Rich, every, you know, it was an institutional fund. We had university endowments, pension funds.

Daniel Satinsky: So, you had a high standard for due diligence, obviously.

Bill Lane: Right. But to get that money to Russia, it was not easy. And if someone said, you know, when we were doing our fundraising, well, I’m just reading this New York Times article about how bad it is, and there are bears in the streets, and you don’t really live there, if we can get them—there were some saying wait a second, there’s something going on over there, and if it’s priced correctly, yeah, let’s take a look at it. If we could get them on a plane and get them to Moscow, they’re blown away. They see Ikea. You know, you’ve been. You see Ikea. And Auchan. They’re like what is this? I didn’t know about this. They see people moving around with their grocery carts filled with products, and they start to see the office buildings and stuff. No one ever talks about it. I mean, of course if you want to figure it out you could, but the majority of people were like… I would come back to…I was invited to whatever, I don’t know, Carlisle’s annual investment conference, and it’s like the people up on the stage are like, when it came to Russia, they loved to talk about China. You know, China’s great, this. And like Russia, oh, you know, they make matryoshka dolls. No one wanted to… And it’s like…

And then I’m at a table, you know, having dinner at one of these events with, I don’t know, the Ohio Teachers Pension Fund, and they’re like…they’re blown out—they couldn’t believe that we were raising this fund for Russia. They’re like there’s no way in hell we would ever even consider. So, we couldn’t go out and I’m like okay, I’m not going to try to convince you. I’ve got to find groups that have done things in Eastern Europe or a way into… And if we got them on the plane, we would take them. We’d go to Ikea, the mega malls. We’d go to Auchan. We had a set thing. And they were like, you know. We’d go to the nice restaurants, of course. And they’d say wow, this is interesting, and it’s priced…there was that spread over London and Paris, and so yeah, we’re not going to put all our money here, but we’ll put some of it.

Daniel Satinsky: Yeah, yeah. Well, let me go back in time a little bit. In terms of, you know, my primitive understanding of some of the market there is sometimes tied to certain projects. So, I know that there was the, what was it, Pokrovsky…

Bill Lane: Pokrovsky Hills.

Daniel Satinsky: Hills was one of the first Western style developments. Were you there when that was first developed?

Bill Lane: Absolutely. Yeah, we almost bought that with Rich.

Daniel Satinsky: Really?

Bill Lane: Hines developed that. They got themselves… Hines is the big U.S.—they’re international, out of Texas. They’re still in Moscow, thankfully. A lot of the foreign institutional groups have left, but Hines is still there. They still own properties. They’ve been there the longest. They went in, they partnered with GlavUpDK* in the early ‘90s, you know, the diplomatic part of the government that deals with embassies and housing for foreign diplomats and all that. They had Park Place down in Yugo-Zapadnaya*. And so, they built…they’re trusted. They build good product. They did some office buildings.

And they had an opportunity to acquire a unique piece of land. As you know, this is inside the MKAD* in—not within the Garden ring, but not far from it. They got a big piece of land and they partnered with the U.S. Embassy, Canada and the U.K., and they said well—there’s an Anglo-American school. It was not there. It was somewhere else. But like we’ll build you the school and there you go. And they realized if they built the school, then all the expats, especially those that are on the big packages, that can spend $10,000 or $15,000 a month on an apartment—a townhouse is the best way to put what was there—they had a captive audience. It was brilliant.

So, they built the school. My kids went to that school for a few years. And right next to it they built the Pokrovsky Hills townhouses. And they leased them all out. And a lot of times it was who’s the tenant? Exxon, with a corporate guarantee. The U.S. Embassy, Shell Oil. So, when they wanted to sell it, it’s like we can…this is almost like a bond. This is a unique asset. And you’ve got the anchor right next to it. It’s all…that’s owned by the U.S. government, Canada. And so, it was a home run.

Daniel Satinsky: When was it developed? In the early ‘90s, right?

Bill Lane: Yeah, in the early… I can get you that. Mid ‘90s. Mid ‘90s it was built.

Daniel Satinsky: But you’re saying they did it from conception to construction. That was all Hines?

Bill Lane: Yes, Hines.

Daniel Satinsky: So, are there other iconic kind of real estate developments that were important in terms of how the market developed in Moscow? Was there like a breakthrough office building or a period in which there were a number of sort of modern office buildings that sort of began to signal the change in the market?

Bill Lane: Yeah, I think, I mean, that started in the mid ‘90s, where… Early ‘90s was the institutes that we talked about. And then sort of immediately after that where was the mansions, the oso bnyaks. Like Perestroika, these Russian groups that had access to these small buildings where they could do a quick renovation on them and rent the space out. And then you got people actually building an actual office building. And there were some, like McHugh and Hines—McHugh is a general contractor. They weren’t taking…they weren’t owners.
But Hines, like Gogolevsky 11 and Ducat II*. That was with Ben LeBow. You know, Ducat is right on Ulitsa* Street Gasheka, right off of Mayakovskaya. Ducat I—so Ben LeBow is a well-known businessman who had a big tobacco business, and he had a partnership with Apollo, which was huge. And I don’t know what form the money came in, but they went in and bought the Ducat cigarette factory. And this is a theme that’s still going on. These factories that are in the central part of Moscow didn’t need to be there, but when you have a Soviet central planning, they don’t really pay attention to that. So you’ve got right off the garden ring a huge plot of land with a bunch of buildings on it that was a tobacco factory or something, cigarettes, Ducat.

So then LeBow said I’ll build you guys a state-of-the-art facility within the MKAD, but out on Kaluzhskaya shosse*, and in return—so you’ll be able to do all this fancy equipment and all this stuff—in return I get this. And so, they did three projects there. And this was big. The first one was Citibank’s headquarters, which was more or less they did a façade retention and did a significant renovation, but it wasn’t a complete new build. And then Ducat II, where they brought in New York architects, Ted Liebman, who I am still in contact with, Liebman Melting Partnership, and they built a class A office building and leased it out. We did the leasing there, and others. And then across the street they did Ducat III, which is now owned—has been sold a couple times—is now owned by O1 Properties, our first client. And if you walked in there, I mean, it’s a class—you know, you’ve got Boston Consulting Group in there, and other—Goldman Sachs in there. So that’s important.

And then Moscow-City, everything that’s gone on there, it took a while to get going. And ENKA went in first, and we leased up their initial building, put General Electric in there, and IBM. But it’s hard to get to, and there wasn’t any infrastructure, and it was an ongoing construction site. And slowly but surely, then you get off the mall, and they bring the Metro in, and then all the other skyscrapers go up. That place is booming. If you walk—last time I’m in there, and I thought, I’m walking around, if you don’t look out the windows you have no idea where the hell you are—New York City, Boston, you’re in Dubai? It’s like you don’t know where you are. The people are all well dressed, very professional, and it feels like you’re in some big metropolitan city. And so, everything, that Moscow-City is a huge, huge part of the story. I’d have to do some—

Daniel Satinsky: Who initiated Moscow-City?

Bill Lane: Mayor Luzhkov.

Daniel Satinsky: Yeah, okay.

Bill Lane: It was his vision. It was never master planned properly, and all that stuff. I’m just looking at something here as we’re speaking to help my memory a little bit. But Mayor Luzhkov, he had that vision. It’s very central. He said we’re going to do this. It would have been nice if they master planned it a little better. They never figured out how to connect everything there, and it was always like where do I stop and where does the next guy begin. So you have like these passages, sometimes the tunnels don’t match, so they had to fix all that stuff. Now the Metro, there’s, I don’t know, three Metro stations that go in there.

Daniel Satinsky:  Yeah. I know, what is it, Professionalnaya or something, one of them. I can’t remember the names of the stations, but yeah, I’ve taken the station to get there. I remember when it was under construction how difficult it was to get there. You couldn’t do it by Metro.

Daniel Satinsky: Now ENKA, the big Turkish group, big, big Turkish conglomerate, E-N-K-A, they had a huge impact on the market. They are contractors. They do huge oil fac—they do all the big stuff. But they started to do office, and they got into retail as well. They have shopping centers. But their story tells—I mean, what they did, if you look at them, that sort of tells the story. They started with a joint venture with Moscow, just like McDonald’s did, and they called it Mosenka, and they built, I don’t know, six buildings. But they were renovations, and they were small buildings in the center of the city.

So, ENKA was doing big infrastructure projects and things like that, and then they formed a joint venture with the city, and they took a couple small buildings, and they either just renovated them or like oftentimes you have a historical component at the front line and then they could build up behind. And they were extremely dependable. If they said the building’s going to be ready on April 7th, it was ready on April 7th. Probably ready on March 7th or February 7th. And so, the market is like I’d rather these guys, and they honored—if the lease said this, there was no issue, that’s what it is, we’re not renegotiating. And if you need more space, we’ll try to help you. And they were very professional.

These buildings now, they were class A buildings in the mid ‘90s. Now they’re class B buildings, because it’s normal. They’re older buildings, and that’s what was built to meet demand at the time. And you wouldn’t build a big skyscraper or anything like that. It just didn’t make sense. And so they did six or seven of those. The city liked them. The city liked that cash flow. And then like yeah, we’re going to start doing some of our own. And the city knew them, and they’re like yeah, why not? Go ahead and do it. You can buy that site there. And so, they built that, and they built another one. And then they built Paveletskaya Towers, and they did some others. And they did some others as joint ventures. Riverside was a joint venture with the Ministry of Culture. And then they built Moscow-City’s first office building.

Daniel Satinsky: Okay, so they were the first office building there.

Bill Lane: First office buildings in Moscow-City, Naberezhnaya Tower. And then they bought, just like McDonald’s did, bought the city out, out of the Mosenka building. So, they own those now. Just like McDonald’s bought the city out. So, it’s normal. So yeah, so the building, any time ENKA had a building, we represented ENKA. We did tons of deals with ENKA. And they were a great client to have in the market. And that was huge cash flow for us. And they’re still there, and they’re still doing things.

Daniel Satinsky: Right, so in this period what’s driving the market is the integration of Russia into the world market, the influx of foreign companies and expats and so on, and the raising of the standard of Russian business, so to speak. So that drove the market at that point, correct?

Bill Lane: Yes. And it goes to your point, like, you know, it’s like it’s very important when you started, these new segments of the economy. There was a willingness, as long as, you know, I mean, some people said we know how to do it better than you, and this is the only way. Of course that’s not the right way to approach it. But if you went in and said look, this is how we do it, some of that is probably applicable here, and people were open, and say yeah, how do you do it? Because they hadn’t been doing this for 70 years in real estate. And there were others where people would say, you know, yeah, they came in and like we know better than you, and don’t tell me differently, and that doesn’t work. So yeah. And that’s why ENKA had a JV with the city. They knew they had to work with the city, and that’s the best way. Start small, and figure it out, and work. But yeah, it’s a very important point with those industries.

Daniel Satinsky: So, is there a point at which the demand, the majority demand begins to shift away from foreigners and more real estate market driven by Russians, and Russian companies?

Bill Lane: Yeah. The first big step was in Q1 ’99. Or Q2, whatever. First half of the year in ’99.

Daniel Satinsky: So, at that point Russian demand starts to replace the foreigners as the driver of the market?

Bill Lane: Yes. But I need to say a few things there.

Daniel Satinsky: Okay.

Bill Lane: So, the foreigners had been leasing up, you know, there’s no vacancy in the market leading up to the ’98 crisis. Now the market’s not big. It’s small, because it’s smaller buildings and it’s getting going, you know, 70 years. And Enka’s starting to deliver their first things. And the foreign companies are taking the space right away, in advance, pre-lease, things like that. So, when the ’98 crisis comes, all of those…they all have their office space, and they’re, like the head offices, wherever, London, New York, it’s like ooh, hold on, what the hell is going on over there? If you’re looking for new space, everything’s on hold.

The Russian companies had been watching what’s going on, and these companies, some of them are privatized now, and there are banks that have money, and Russian oil companies that have money, and they’re sitting in these old buildings with these—I’m sure you’ve been in them—these hallways that go on for a mile, and there’s like doors, you know. And then they go into these other offices, they’re open, and raised floors, and lighting, and nice entrance, underground parking. None of those old buildings had underground parking. It was extremely rare. You’re more likely to find a bomb shelter under one of those buildings than you are to find underground parking.

Daniel Satinsky: Right.

Bill Lane: There were plenty of bomb shelters. We saw those. We tried to convert those, too, That was difficult. So, the Russian companies were flush with cash that were selling oil and had dollars. And then there’s this pipeline of space because there was demand. And so they’re like we’ll take that building. So, the market wasn’t huge, but we get a couple deals in ’99, some of the first deals with big Russian companies, RAO UES and others, where they’re like we’ll take that entire building of 7,000 square meters, which was a big deal at the time. And it’s like we did a couple, my colleagues in the market did a couple, and there’s no space left, in ’99. And people are like what the heck is going on? And some of the foreign companies are like we want to renegotiate or whatever, and they’re like well, we’ll let you take less space because we can fill it, but we’re not going to lower the rent because you guys can get out, because I can rent it to someone else. And people, we know, we, you know. So that started it.

And from that point forward the Russian demand, if you looked at the pie chart of all the companies, I don’t, you know, some of the good research guys in the market can help you with this. I don’t know the percentages. I forget those. But that’s never gone away, and it’s only gotten bigger. I don’t know what it is, but it’s an important component to the market, and it’s helped the market tremendously in some situations where, whether it’s Russia based issue or international, where foreign companies have gotten smaller, or the demand is less, the Russian companies have taken it up.

And that difference, you know, there are more, you know, these—I don’t like comparing Moscow to Warsaw, but it’s Central and Eastern Europe, they’re small markets, it’s like they don’t have that. It’s like people are like wait a second, how is this possible? I was like because we have these Russian companies. And some groups are like well, we don’t want to buy that building because the covenant on a Russian tenant. And okay, so they don’t know who they are. But then all of a sudden, those companies, some of them go public, and there you go. So, it takes time, you know. You go into these class A office buildings now, if you went in the ‘90s it was like 99.9% foreign companies. Now it’s 50-50, 60-40, 70-30. It depends on the building. There’s 90% Russian, 10% foreign. It’s a huge, huge part of the market.

Daniel Satinsky: So along with this, in other industries, there became a decreasing demand for foreigners as that decade goes on because Russians learn the skills that foreigners were providing, and the foreigners, the expats, were getting so much more money than Russians that it sort of displaced a lot of the expat community because Russia recovered, in a way, and in the human part, the human resource part. Did you see that process also in the real estate sector?

Bill Lane: Absolutely. I told my colleagues, I’m like I’m not going be here doing this, you guys are, and you guys are going to be the leaders in the market. And they are, that’s… You know, you asked about successes in your thing. Obviously, the success of selling my business to the largest commercial real estate advisory, publicly traded company in the world, yeah.

Daniel Satinsky: That’s a big one, yeah.

Bill Lane: That’s a big one. So monetarily and all that, great. But mine is just the same, different category, but just as important is all of our colleagues, they have a profession, and they’re spread out all over the market at senior levels. And that’s, you know, they’ve bought apartments, they’ve gone on trips, they’ve got, you know, it’s like that’s their career, and it’s awesome. And I knew that was going to happen. Now there’s a few expats still sprinkled in there that haven’t left and speak great Russian and just have a Russian wife and want to stay there or whatever. That’s fine. But this is the way it should be.

Now you may have a specialist, just like you would in London. You may have a specialist that deals with German companies, or French companies, or what have you. Some people, they have that, or you have this specialist or that specialist. But yeah, they know the market better than me now. And that’s the way it should be. So yes, is the answer, definitely. Where expats were running the whole thing now it’s all—the vast, vast majority is run by Russians. And it’s not just—some of them have left Moscow and work in New York City for JLL, or work in London for CBRE. They’re very talented.

Daniel Satinsky: Right. So, there is a narrative of the time that, well, there was a period in which Russia was open to integration in the world, and foreign influence, and that window closed, and there was a reaction against American models and Americans telling them how to live. And that was a narrative that I think I started with when hearing about—I mean, at least as a backdrop. But it seems less and less valid the more and more I talk to people, that this was an entirely different process of growth in that market that wasn’t necessarily anti-foreign as it was not necessary for foreigners anymore. Would you agree with that?

Bill Lane: Absolutely. Absolutely. I think part of that…that’s like people like to say things like that. But I think a lot of that is they maybe start with like the commercial side of it, and they veer off into politics very quickly, and that’s what they’re really talking about. And they incorrectly thought that Russia was going to turn into the United States in terms of how they do elections and how they—I don’t know who told them that, other than just their hubris that, you know. It’s like no, they’re going to be who they want to be, and they’re going to do their thing. And you know what? It’s tough after 70 years, it’s tough. And this privatization, which probably could have been managed better, definitely, but, you know, it is what it is.

So you’ve got all these really wealthy people, and they’re doing things, and there’s corruption, just like there’s corruption everywhere. But they love the corruption in Russia more than the corruption that’s occurring in their own backyard. And it may be more systemic. It’s institutionalized. When you explain lobbyists and other things, and how, you know, I don’t want to get political here, but they say well, wait a second, George Bush was President, then his son was President, and his brother is governor and was almost President, and Bill Clinton was President, and then his wife was almost President, and then, you know, it’s like wait a second, you’re telling me—it’s like it’s all family. It’s like the same perception, you know. I don’t agree with a lot of things that are going on in Russia, but it’s like people don’t… So yeah, they thought okay, here’s that first election, and now there’s going to be other elections, and it’s going to move like this, and in five years it’s going to be just like the United States.

Daniel Satinsky: Right, yes. Well, I do think that there was that sense—

Bill Lane: Definitely.

Daniel Satinsky: —in the ‘90s like wow, this is moving so fast, the Russians are going to be, you know, there’s so much opportunity, so much integration, so much interchange, Russia’s going to be like the U.S. And that was completely incorrect.

Bill Lane: Right. But at the same—so people love to focus on that. And what I focus on is what do we have in common. First of all, what you’re doing. It’s like let’s make sure the entire story is told so people have the, you know, you’re not just hearing one line.

Daniel Satinsky: Yeah, yeah.

Bill Lane: So that, to me—and then it’s like okay, what do we have in common. Or if you haven’t been there, and you haven’t spent time trying to figure it out and understand it, stop coming up with all these conclusions that aren’t correct. What do we have in common. And like I said, everyone we brought over to raise, you know, we ended up raising money with on our fund, they were just blown away at how sophisticated and how international, and even more so now.
It’s like I was blown away after three years. I hadn’t been back there. I was like oh my goodness. A smart city. You know, the transportation there. When I had my mother-in-law here, I mean, I know Boston is much smaller, but I was embarrassed to take her into town on the train. She couldn’t believe it. When the train pulled in and how much noise and other things happened. She just couldn’t… And how slow, and it stopped, and how long it took, it was delayed. And she’s like what? I’m like yeah, this is what we’ve got. And it breaks down all the time, you know, so…

Daniel Satinsky: Right. No, absolutely true. And even small things, signs in English, announcements on the Metro in English and Russian, I was amazed. Although the most interesting experience for me was staying at the Best Western in Izmaylovsky, and I asked for a map of the area, and the map was in Russian and Chinese. So I would say 30 to 35% of the people in that hotel were Chinese.

Bill Lane: Yes. Especially that hotel. There’s a lot of Chinese. I mean, No. 1 there’s a lot, pre-COVID, tons of Chinese, which you didn’t see in the ‘90s. Now you definitely…so definitely, I don’t know the numbers, but definitely, and it’s not just that hotel, but that’s one of the ones that especially where they are out there, yeah.

Daniel Satinsky: Yeah. So, in the current market, with all the embargoes and the political problems, I assume that Western businesses are kind of standing pat, not necessarily expanding, that probably those that are there are making money, so they’re probably staying. That’s my guess. But the driver of the market has to be, then, Russian companies. Is that correct?

Bill Lane: Yeah, I don’t have the numbers. Someone in investment banking or whatever would have numbers to back things up, so a lot of what I’m saying is anecdotal. There’s still lots of foreign companies in Russia, in Moscow, that have big offices. Big offices. Now they may not be as large as they once were, but they’re quite significant I can tell you, yeah. So, on the real estate side I deal with Cushman, CBRE, JLL, Colliers, all the big ones. They’ve got 200 people in each of those offices. And then, you know, all four—you know, not names, there’s like… So, I don’t know exactly, but some have definitely left. Some retailers have left. But a lot of businesses are still there.

Daniel Satinsky: The ones that have left, left for political reasons rather than demand, or is it just changing tastes in the market?

Bill Lane: I’d have to think about it. I think it’s a combination. I think some have left, their businesses may not be doing well in lots of places, and so they’re like kill that city, kill that city. And then others are, you know, maybe it’s Russia related. I don’t have any…I don’t know exactly on that. I do know, because I focus on the office buildings, and there’s still a lot of foreign companies in Russia. Law firms, the consultancies, the Oracles of the world, the businesses that support the oil and gas industry. They’re all there. And it’s also a little bit hard because I haven’t been there in a year.

Daniel Satinsky: Yeah. That’s because you’re used to being on top of the market, and a year away probably seems like an eternity, right?

Bill Lane: Yeah. I mean, I keep up with it. Thank God we have the internet. But you can’t keep up with it as well as being there.