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'Astute' Russians lease 75,000 sf at World Trade.

|Astute' Russians lease 75,000sf at World Trade

An organization formed by the Russian government is leasing space for a cultural and business center at the World Trade Center in a deal arranged by Gronich & Company.

The International Center for Business Cooperation (ICBC) is expected to develop foreign economic relations for Russian businesses in order to integrate them into the world marketplace as well as assist other governments and businesses in dealing with the Russians.

Three floors at Five World Trade Center, totalling about 73,000 square feet, with options to 80,000 square feet, will be used as exhibition, retail, and office space including areas set aside for small companies beginning cross-cultural deals. The-nine story building is also home to Dean Witter Reynolds and First Boston.

The Russian's 25-year lease with a value of $38 million began on Jan. 1. "It's a market deal," said World Trade Center General Manager George T. Rossi, "and a complicated system of escalations with three types of space. They should be in the space and operating by the end of 1992.

Gronich Managing Director James P. Stuckey said he and Chairman Dan J. Gronich worked on the Russian Trade and Cultural Center deal for more than a year.

Stuckey said, "we made a decision early on to work with the Republic. Our feeling had been that Russians had been there for thousands of years and would continue to exist for thousands of years, while the Soviet Union had only been there for 70 years. When the coup occurred in August, we were more concerned about our friends there than the deal going forward."

As it turns out, the Russians associated with the transaction played pivotal roles in resisting the failed coup in August.

Rossi agreed that the negotiations went ahead "almost oblivious" to the political turmoil.

Stuckey, who had headed the Public Development Corporation for four years under former Mayor Edward Koch, said there are always political questions when you deal with governments. "There was some turmoil," he admits.

Since the new Federation has been formed, laws are being changed to encourage free enterprise. Decrees have been adopted that guarantee foreign investments and permit one hundred percent ownership of Russian businesses by foreigners. The ICBC itself is a self-sustaining membership organization, open to Western companies, that will funnel some profits to aid Russian social and humanitarian causes through the Fund for the Social Revival of Russia. The ICBC was formed by a decree of the Russian Council of Ministers and is supported by President Yeltsin and Vice President Rutskoi as an example of Russia's more aggressive commitment to conduct international business and enter western markets.

The ICBC, which will operate Russian Trade and Cultural Centers in other parts of the world, is expected to help member organizations with trading activities and also provide accurate market research and data. It will also assist local business partners and permit Russian Republic taxes to be dedicated to economic development or social causes that would provide benefits to the companies paying these taxes.

Stuckey noted that the current American marketplace is not in good shape. "What we have done is open up a market of 150 million people," he noted. "Those people are desirous of our product and doing joint ventures." If this Center opens a year from now, and Russian businesses are here and they are looking for American projects, that creates a tremendous amount of real estate, manufacturing, and exporting and importing opportunities. If American companies with an interest in Russia wish to be part of the Center, they can."

The World Trade Center space will be divided up into various uses. About 12,000 square feet on the ground level will become exhibition space for a small retail outlet and for a restaurant. Rossi said the Russian restaurant will probably include everything "from white table to take out" in order to promote Russian foods.

The Russians also intend to create about 25,000 square feet of incubator space, apportioned on two floors, which will be used for small offices. Rossi said these will be subleased to firms that want to do business with various Russian entities which will promote trade between the countries. For the most part, it is expected that Russian companies looking to the American markets will occupy most of the space, but, he said, the lease does not eliminate American companies who have interests in doing business with the new Federation.

Stuckey said the mezzanine level will be comprised of exhibition space for larger Russian-made items such as tractors, cars and machine tools in addition to a 150-seat auditorium for marketing purposes and cultural events. Russian performing artists are expected to be presented on a regular basis to help publicize their American tours.

The balance of the mezzanine will contain offices, some for established Russian companies that are already selling products and some for newly emerging companies.

The eighth floor will be entirely dedicated to office space, Stuckey said. A portion of that space will be used for the ICBC while another section will contain more small companies.

"The people we represented and worked with in Russia were some of the most straight-forward, reliable business people I have ever worked with," Stuckey said. "They never misled us and they came to do business. They are the kind of people I would welcome the opportunity to do many real estate transactions with, and expect to do so, in the future."

In Rossi's eyes, however there was a problem explaining a simple lease, let alone the complicated one which was finally worked out. "The people that we spoke to had a concept of rent that was different than yours and mine," he said. "They couldn't justify it in terms of the Communist Society. They said to me, 'Justify this profit that you are exacting on it.' When we explained that most of the component of rent goes toward the landlord getting back its investment, they finally understood."

Stuckey and Gronich both disputed Rossi's view of the Russians as being naive. "I don't think there was a difficult time in understanding how rent got paid," Stuckey said. "It's misleading or inaccurate to say that there was a lack of understanding.

The lease also had to be approved by the State Department. The Russians were represented by Debevoise & Plimpton, and Stuckey said the firm has both a Russian and Washington division which aided in negotiations. "We negotiated a good and attractive deal for them," he said.

The Russians also put up letters of credits, Rossi said, secured by American banks, to ensure the payment of rent. Inkombank, one of the five largest private commercial banks in Russia, will assist in the financing of the project.

The Phillips Janson Group, Inc., was selected by the ICBC to design its space and supervise construction.
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Title Annotation:International Center for Business Cooperation, World Trade Center
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jan 8, 1992
Previous Article:Getting aggressive in Westchester.
Next Article:Appeals Court breaks strike, tenants must pay $250,000.

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