Domino Crisis

There was, however, soon to be a flip side to the coin of potential riches in Russia. A dramatic slump in confidence in the banking sector in 1994 and then in 1998 severely curtailed development finance as banks, previously tripping over themselves in their anxiety to explore the lucrative real estate sector, reigned in the money, causing many projects to stall (slow down).

Not surprisingly, one of the hardest hit by this was the construction industry as silence descended on construction sites throughout Moscow. The fallout was considerable. One victim that was still awaiting completion is the massive Zenith development at Yugozapadnaya, another the Meyerhold project at Novoslobodskaya. Even Smotensky Passage, which promised to be one of Moscow's most exciting developments in 1998, stood still for a number of years asfinance dried up.

"A lot of banks were very badly burned during this period and payments, particularly to Russian firms, were often 6-12 months late if they arrived at all," said Gusakov.

"Other firms employed by the Moscow City Government sometimes had to settle for (agree) payment in non-monetary terms such as apartment blocks as the authorities simply didn't have the necessary funds to pay in dollars."

A lot of contractors were forced out of business and, in a market that is as interdependent as real estate, the knock-oneffects threatened to be dramatic.

" Pulling out of the market did become an option for us although we had made such an investment already in Moscow that we never seriously entertained it," said O'Carrol. "We actually never stopped working during this period although it was touch and go at some points but we were sure Moscow would come right eventually," added his colleague, Pascal Mahoney.

Recent Boom

Come right, it seems to have done with a vengeance in the last 12 months. The malaise that had affected the industry since 1998 and which was exacerbated by the political uncertainties surrounding the destination of the Presidency began to lift almost as soon as Putin's victory was assured. "The change in market has been dramatic in the last six months or so," said Mahoney while Gusakov commented, "Moscow is now in the midst of a serious construction boom."

That the market has recovered is perhaps most evidenced by the renewal of foreign interest in Moscow and re-entry of banks as investors, most notably witnessed by Moscow Sberbank's USD 50m loan to Smolensky Passage.

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