State leaves buyers waiting for auction

Photo: Mihkel Maripuu

Even though the Kalaranna or Patarei fortress is a millstone around the state’s neck, State Real Estate Ltd. (RKAS) has rejected an offer from a foreign developer and suggested investors wait until an auction is held toward the end of the year.

“We are here, we made an offer, and it was rejected,” said executive manager of international real estate developer Aura Communities Nigel Hurst. Hurst and his business partner Max Gustaf Segerström have done their homework and are prepared to invest in the fort.

“The complex is rotting; the situation of the roof is deteriorating with every storm. Renovation should begin immediately: first the roof, then windows and the heating system. We should start right here,” Hurst points, standing on the landward end of the fort complex.

Focus on renovation

Hurst said that new buildings between the fort and Tallinn’s Seaplane Harbor, made possible by a detailed plan the city government is set to approve today, should be constructed at the same time.

“However, old buildings are definitely much more important. We want to restore the Kalaranna fort to its former glory,” Hurst said. “And it will surely be open to everyone. Bars, restaurants, small shops, all manner of small business,” Segerström added. Hurst said the developer wants to use the area for more than just condos.

“We want to create something that would be good both for tourists and locals. We are talking about apartments, restaurants, startup incubator units for new companies. As well as augmented reality – we have contacts among augmented reality enthusiasts and we want to bring that business here. Next, we would have a hotel and conference center as Tallinn desperately needs one. As I understand it, you currently have to wait a year to book a conference space,” Hurst said.

The developer plans to use Patarei to create an entirely new center. It is a brilliant location by the sea that is close to the city and has a major residential area next to it.

“We want to have something for everyone here. Hotel, apartments, enterprise incubator, bars, restaurants, pubs, a lot of small shops. Something to please both tourists and locals. Like the Seaplane Harbor. Put together, it will create a fantastic center that holds something for everyone,” Hurst said.

The developers have found a lot of potential partners who would like to set up shop in the fort. From food producers to breweries to various smalls businesses and incubators.

Example from Sweden

Hurst and Segerström draw inspiration from a former power plant in Västerås, Sweden. The plant closed in 1982 and the gigantic complex in the middle of the city was left idle.

Local authorities decided to sell it for a pittance on the condition the complex would be renovated.

“The city gave 40 million to fix up the old power plant building. Today, it is home to a great hotel, water park, and other attractions. It is the largest water park in that part of Sweden. The project boosted the number of overnight stays in the region by 22 percent. So, even though the local government spent a lot of money, it got it back another way,” Hurst explained.

Aura Communities’ business plan is similar. Hurst and Segerström are prepared to invest €200 million to fix up the complex, while they do not want to pay for it.

CSO at RKAS Märt Mäe has met with the prospective buyers. “Their pitch unfortunately includes an element that cannot be taken seriously. They offered to pay a single euro for the complex. I do not know of a single member of government in Estonia who would dare sign off on something like that. But you never know,” Mäe said.

He added that Patarei has been visited by all manner of interested parties but that there is precious little more to say in a situation where an auction is yet to be held and there are no official offers.

Mäe said that Patarei first required a government decision that came in late April. RKAS also been waiting for the detailed plan to be finished. The latter will determine the rules and volumes of what and how much can be built in the vicinity of the fort, as well as the future development’s obligations to the complex. A valid detailed plan gives a developer certainty and serves as an important sales argument.

The decision to sell Patarei was one of former state administration minister Jaak Aab’s last acts in the government. Current Minister Janek Mäggi said he has not had time to meet with people from RKAS and acquaint himself with the field which is why he has no comment at this time.

Investor’s interest waning

The developer has another concern. “Our investor is very interested right now, despite the fact it is a risky project. However, if they have to wait out the year, they will rather find another lower-risk project,” Hurst explained.

Two auctions to sell the Patarei fort have been held so far, with starting bids of 40 million kroons and 100 million kroons. Both failed due to lack of serious offers. Aura Communities is prepared to invest €200 million into Patarei, while Estonian experts have been talking about the need to invest €70-80 million.

Communication specialist at RKAS Mariliis Sepper said that the state company has invested around one million euros into the fort since 2006.

“That includes cooperation with the city in funding the construction of Kalaranna street and plans. Patarei’s annual upkeep is around 250,000,” Sepper said. She added that the earliest time for a new auction is this fall.