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.