27 April 2008

A Baltic boom

By Eric Jansson
Published by Financial Times, 26 April 2008

For real estate developers who think big, central Tallinn has become a claustrophobic place. The property boom that energised Estonia after it joined the European Union in 2004 also made the centre of this city of 400,000 a more cramped place for developers to work.

Space was already scarce
before the boom. Now it is scarcer. In a market where most developers prefer to start from scratch rather than renovating old buildings, strong demand for plots has sent the Baltic country's capital sprawling into the surrounding carrot and potato fields, where fledging suburbs now rise from the soil.

And still there is Kopli, an expansive district situated on a peninsula that points away from the Old Town into the chilly, choppy waters of the Gulf of Finland.

The area arguably represents the last great chance for real estate development near the city centre. Though it is blessed with open space like almost no other part of the capital, the district has seen little in the way of development, yet it lies minutes away from the heart of Tallinn by car, bus or tram.

“In 10 years, this will probably be one of the most valuable areas of Tallinn,” says Endel Siff, a businessman living in the city who has made much of his wealth in Russian oil transit.

To understand why a growing number of Estonian real estate experts think he is right after steering clear of Kopli for years, consider the district’s peculiar history of isolation. It spent a half century as a restricted zone during Estonia’s occupation by the Soviet Union, when the military deemed the peninsula’s port a top-secret asset.

When the country regained independence in 1991, Russian sailors quartered there stayed on for many more years. When they finally left, they stripped many of the war boats in the harbour of copper pipes to sell as scrap, causing them to capsize. They left behind an almighty mess in the water and on the land.

Yet much of what was built here under Soviet rule, residential and commercial property, remains usable and inhabited. Many of the buildings that predate 1940 have been preserved, perversely, because underinvestment has been so severe that, until recently, people somehow kept them in working shape even as they sagged and sank.

Driving around Kopli, Siff offers an impromptu tour of a district that, by accident, has become a living museum of Estonian history and architecture.

On one street, century-old clapboard tenement houses still lacking indoor plumbing stand opposite a block of 1960s-builtKhrushchevki, apartment blocks nicknamed after the Soviet leader Nikita Khrushchev, during whose rule they were erected. Turn down an alley toward the shore, lined with interwar mansion houses, and one sees weather-warped wooden villas – built during Tsarist times – begging for restoration. Turn back inland and one enters a crumbling neighbourhood of grandiose, pillared Stalin-era apartment blocks.

In one such courtyard, where some front doors are falling out of their frames, vodka bottles lie strewn in the yards and old men slump on broken benches. The scene reeks of post-totalitarian deprivation. If the future is bright, it might be distant.

“We are probably talking about five to 10 years. You cannot build an oasis of prosperity if it is surrounded by poor areas but you can see that prosperity is finally reaching this area, too,” Siff says.

Siff, who does not like to think of himself as a developer, has nonetheless been dreaming up some of the biggest ideas about property development anywhere in Tallinn. His most ambitious dreams focus on Kopli, where one of his business interests, Bekkeri Sadam, a commercial port, is located.

His plans have, so far, encountered resistance from city officials. They are understandably cautious, knowing that the choices they make in Kopli are likely to define the peninsula’s role in new ways, affecting the city for many years to come.

So strong is public officials’ sense of need for a brainstorm that they presented a section of Kopli for the consideration of participants in last year’s Europan, a competition for young architects and urban planners across the continent. Contestants from Germany, Spain and Italy posted back competing visions of hypermodern residential tower blocks in a mixed-use harbour.

If such visions feel a long way off, that is only because real estate investment has not yet swept into Kopli on the massive scale seen in other Tallinn districts.

Marek Antoniak, one of the city’s leading developers with his company Artig Kinnisvara, agrees with Siff that such investment undoubtedly will arrive. “Kopli is a good area, near the city, near the sea, with good transport links. Sure, it lacks a good image, but it is the most undervalued place in Tallinn,” he says.

Small-scale investments are already evident, many of them vastly more impressive than a fresh lick of paint on an old Khrushchevka, though such basic renovations are extremely common where owners and tenants have found ways to co-operate, often after years of haggling. As this happens, the area’s peculiar history – including its sad legacy of isolation – is being converted into an asset and wealthy owners who like the heady atmosphere are moving in.

“Kopli has a very fresh vibe. It seems that everyone is looking forward to inevitable change, and change can only be good,” says Toomas Prangli, a young lawyer who last July moved there from the Old Town.

Prangli’s old neighbourhood of Toompea, an ancient hilltop area, is home to some of the country’s most coveted residential properties but he was happy to move out. Toompea, for those who live there, has been badly damaged by the real estate boom that recently petered out.

“So many foreigners bought Old Town properties as investments and rarely stayed there themselves that eventually I felt I was living in a ghost town,” Prangli says. His new loft apartment at Marati 4 in Kopli, in a Tsarist-era administrative building, boasts five-metre high-ceilings. Prangli says his purchase, lavishly renovated and managed by Uus Maa, a Tallinn estate agency, cost 30 per cent less than property in the Old Town.

Prices in similarly renovated Kopli properties range from €1,600 to €2,100 per sq metre, with Marati 4 near the top of the scale. Because apartments such as Prangli’s are commonly sold off-plan, mid-renovation, he managed to persuade four friends to buy in the same building, establishing a social base in the previously unfamiliar district.

Like many new residents in the area, Prangli says he was worried about crime but he now feels “more safe in Kopli than in Toompea”, contradicting the district’s stereotype as a stamping ground for homeless drunks and petty criminals. In Tallinn slang, when a man hits the bottle he is said to be elavad Kopli liinide – “living on Kopli rails”.

Another pleasant surprise awaiting newcomers is that, although many Estonians still regard Kopli as a place “for Russians” – a legacy of its time as a Soviet restricted zone – in fact the non-Slavic Estonian language is frequently heard in streets and shops, alongside Russian.

As more developers start working in the district, it seems almost certain to follow the trajectories of Kalamaja and Pelgulinn districts on the same peninsula, but closer to the Old Town.

Many Tallinners once looked askance at Kalamaja and Pelgulinn much as they look at Kopli now, but their popularity began to soar five years ago with a wave of renovation and construction. Bohemians came first, then young, upwardly mobile types. By this standard, Prangli has already jumped the queue into Kopli.

But then, he says he likes “to be first”.

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