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U.S. firms joining with Russian navy for housing.

What do you do when you want to create a domestic housing industry in Russia to manufacture upwards of 30,000 units when Russia has no cash? You can help them scrap nuclear powered submarines and other items to pay for the housing.

That's the deal made by developers Charles Hack and Nicholas G. Reisini, directors of Tecnogrid, which is a corporation formed to do business with the newly capitalist-driven Russian nay. A joint venture was formed with A/O Navicon, a Russian stock holding company that intends to develop and deploy the navy's assets.

The Russian navy has a pressing need to create housing as they are downsizing and they are releasing 30,000 personnel into the civilian community. The workers and their families would be virtually homeless, Hack noted.

"They didn't have cash, but what the navy has is a whole litany of assets," he said.

Those assets include obsolete vessels that could be sold for scrap metal and would finance the cost of building housing. The Russian set up A/O Navicon to be the exclusive commercial arm of the navy, and its officers and directors are navy officials.

After discussing a pure deal of selling the vessels for cash and buying 30,000 units, Hack said, he saw the possibility of creating a housing industry within Russia. The Russians were interested and together they structured a joint venture agreement that has an initial term ending in the year 2042. "You have a crying, immediate need for housing," Hack said, and with an ultimate need for 300,000 units, it justifies creating a Western-style housing industry domestically in Russia.

"As their partner, we're helping them facilitate these relationships in the U.S.," explained Hack, who is also president of Park View Associates. Park View is active in real estate investments and developments and owns 111 Livingston Street in Brooklyn as well as 2 million square feet of commercial and residential property throughout the United States.

Hack was introduced into activities in Russia about a year ago because of his real estate company. "I was looking at a number of opportunities and teamed up with Nick Reisini," he said. Reisini's father was instrumental in formulating ventures with the Russian navy, Hack explained, and was involved in bareboat chartering with the Russian Merchant marine. The younger Reisini has extensive maritime and international finance experience and also built the Russian mission in Riverdale, Hack added.

While port facilities must also be converted to non-military uses as part of the deal, these uses will include commercial shipping facilities for oil and other products. Instead of just scrapping the ships, Hack said the port facilities can be turned into bunkering operations for oil terminuses. "These could be heavy cash-producing assets in the future that ultimately could finance and fuel the cost of producing the housing on a cheaper and cheaper basis," he explained.

The navy also has a pool of personnel that could be trained in the building construction and building products industry, Hack said. "They could be trained through the discipline afforded by the navy - just as people here join 'to be all you can be in the army'."

The Russian admiralty saw this larger scale idea as giving them a role in the future of post-Cold War Russia, Hack said, and saw they could become an educational and economic force.

In order to begin the housing process, the Americans will bring over the partially pre-fabricated housing pieces by container ship and train the Russians to put together the pieces. Eventually, Tecnogrid expects to help the Russians build a factory to make the parts in that country as well as to build factories to supply the various parts and appliances necessary for a home.

The 30,000 initial units are based on the housing provided for U.S. Navy families at Stapleton Navy Base in Staten Island. Admiral I.G. Mahonin, Russia's second-ranking naval official, toured the Staten Island facilities and other places throughout Long Island a few months ago.

Hack said the Russians saw every type of building product company - such as brick manufacturers and plumbing suppliers - throughout the metropolitan area. They looked at apartments in high-rise buildings in New York to see what could be done, as well as garden and condo-style units on Long Island. The Russians saw not only the kind of product, Hack said, but the kind of environment. "In Russia, the houses are so bleak they make Co-op City or Starett City look warm and inviting," Hack noted. "They need something more human."

Staten Island's navy housing contained many elements that Tecnogrid will use for the final products, however, they will make some changes for the Russians. The units will be essentially two-to three-story garden apartments, Hack said. "We want to use more aluminum and concrete but we have to find the formula which works in the domestic location at the best price," he said.

"Tecnogrid is discussing deals and working with potential partners that include Westinghouse, for technical assistance and overseeing the dismantling of the nuclear submarines; Reynold's Metals International, which will provide the aluminum for the homes; and Southwest Marine, which will broker ships and subs for scrap and reuse. The Kulgreen Organization-EKG International Ltd. of Hauppauge, New York is a joint venture partner in the housing portion of the product and are the construction managers. According to Jack Kulka of Kulka Construction Management, they have retained Angelo Corva as architect and General Building Products to be the vendor to supply the prefabricated housing materials. Corva had initially designed the Staten Island units for the U.S. Navy.

Kulka believes the project will start within the next few months and expects to have the first units completed before the end of the year. Five locations around Moscow, St. Petersburg Murmansk, Sevestopol and Vladvistock will each have 6,000 units.

Reynold's already operates aluminum plants in Russia since the natural material is plentiful. It is in fact so plentiful that there is a glut in the world which has driven down the prices. This makes aluminum more economical than steel to use as building material in Russia and Hack expects Reynolds to take if[pounds] raw aluminum products and further fabricate them into structural building products. "It changes the economics of the situation," he explained, "from what we would consider to be economically feasible in the United States." The use of the aluminum would also help stabilize the world market. "We are taking what was formally a strategic military item and beating that sword into plowshares by making it into housing", he said.

Hack also sees an opportunity for the U.S. government to help shape the face of the new Russia by helping with immediate cash. "We convinced U.S. Governmental sources that this is a practical program and it ought to be jump started by financing secured by these assets," Hack continued. The issue is not giving the Russians aid, Hack explained, but finding the means to finance a commercial venture that will produce housing and produce the kind of commercial industry that the United States wants to develop within Russia.

Tecnogrid is also looking for other large building product companies to help build factories for long-term expansion and growth of the Russian market. Hack said the number of housing units needed in Russia would justify the investment to set up these Western product factories.

"We want to promote American business," Hack added. "It jump starts everybody."

Hack believes the U.S. government should lend the money in order to ensure the work goes to these American companies as well as to obtain some say in the direction of the breakup of the navy operations and equipment, including the nuclear submarines.

"They are having a problem with their nuclear submarine which is made out of titanium," Hack said. The titanium is valuable for scrap and could produce a lot of cash. But while the Russians have 79 submarines, half of them have not yet been defueled. Hack said the Russians have no means to economically or technically ensure the environmentally safe decommissioning of these submarines. "We are trying to integrate the building of two ship scrapping bases which could handle the scrapping of these submarines but it needs financing and technical assistance," Hack added, "I'll sleep easier if the U.S. has a reason to help the Russians decommission these submarines."
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Title Annotation:joint venture to develop public housing projects in Russia
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:May 13, 1992
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