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''We're at Forbes''. The Kovalska Group is investing over $ 100 million in office real estate. What is pushing her against the wind?

Sergei Pilipenko is co-owner and CEO of Ukraine's largest producer of concrete and building materials PSG Kovalska. Since November 2020, Pilipenko has been running the company from a spacious office in the Toronto business center on Bolshaya Vasilkovskaya. In May 2018, Kovalska paid Alfa Bank $ 14 million for the opportunity to be based in the capital's top business center. After the completion of the renovation, which lasted a year and a half, the purchased nine-story building with an area of 7,500 sq. m 200 employees of the main office moved in

“A cool place inspires people a lot,” says Sergei Pilipenko, demonstrating the minimalistic design of the surrounding loft. "Now we will be able to implement plans much more efficiently." Previously, the management company was located in a five-story building on Panasa Mirny, 4. The size of the old office, according to Pilipenko, did not correspond to the scale of the company - they had been looking for a new building for almost five years.

"Kovalska" grew out of the plant of reinforced concrete products No. 3, which supplied its products to the municipal holding "Kievgorstroy". After the death of the last director of ZZHBK No. 3 Svetlana Kovalskaya in 1993, the enterprise was renamed in her honor. And two years later, the chief engineer of the enterprise, Alexander Pilipenko, together with two colleagues, bought a controlling stake from the labor collective. According to SPARK-Interfax, father (Alexander) and son (Sergei) Pilipenko each own 33% of the company. The other two founders, Vladimir Surup and Nikolai Subotenko, hold 17.3% and 16.7% respectively. Surup performs the functions of technical director, Subotenko is a member of the supervisory board.

Having gained control over the plant, Pilipenko and his partners happily escaped the fate of other enterprises in the construction industry that did not survive the hyperinflation and unnecessary consumers of the 90s. “Many suppliers sold their products without payment, under guarantees,” says Alexander Pilipenko, 65. “As a result, there were debts, interruptions and interruptions in supplies, and then bankruptcy.”

In the early 2000s, Kovalska bought a granite quarry and a concrete plant. The first provided production with scarce crushed stone, the second allowed to increase production and expand the range of products. All profits were directed towards development. “Until 2015, there was no question of paying dividends,” says Pilipenko Sr.

As a result, "Kovalska" has become the largest manufacturer of building materials in Ukraine with a full cycle and a staff of 4600 employees. The assets include two granite quarries, factories for the production of reinforced concrete, aerated concrete blocks, dry mixes and paints, paving slabs, a development and logistics business. The group's turnover in 2020 increased by 25% to UAH 7.5 billion. Operating profit - UAH 900 million.

Kovalska is known primarily as a brand of building materials, says Olga Solovey, founder of the URE Club developer community. The company outperforms competitors in product quality, number of factories and delivery speed, says Igor Raikov, SAGA Development Director of Operations. 50% of the concrete used by his company is from the Kovalska group. According to market participants surveyed by Forbes, the group provides at least half of the 400,000 cubic meters of concrete consumed monthly at Kiev construction sites.

'We want to change a little flat perception,” says Sergey Pilipenko. “We are consolidating all directions under one brand and trying to convey that Kovalska is much more than concrete.” The ultra-modern building of the central office on Bolshaya Vasilkovskaya is part of a great transformation initiated by Sergei and Olga Pilipenko.

The main emphasis was placed on the development of real estate directions. Construction generates 30% of the group's income, production of building materials - 70%. The shareholders expect to increase the share of development to 60–70% within five years.

For 18 years in the market, "Kovalska Nerukhomist" has earned a reputation as a reliable and high-quality developer, who hand over their objects on time. But without much innovative ideas in architecture and engineering. Tatiana Shulga, the founder of the communication platform for developers RED Community, characterizes the tactics of the group during the construction boom of the 2000s. The developer's portfolio includes 26 residential complexes with a total area of 726,000 sq. m. “These are mainly standard post-Soviet skyscrapers in the economy-plus segment,” she adds.

“We went to the mass market,” agrees Sergei Pilipenko. Development has always been an addition to the core business. For several years Sergei persuaded his father to reconsider conservative approaches. “I came with an idea, but I took it with hostility,” recalls Alexander Pilipenko. - For example, he offered new solutions for the improvement or another facade for the building. But, having "slept" with this thought for a day or two, you understand: he is right. This should have been implemented yesterday. "

Own development projects help the Kovalska group to load production with additional orders. “They have a margin both on concrete and on construction,” Vasily Khmelnitsky, co-owner of UDP development company, describes this business model. “Win-win along the whole chain,” adds Olga Pilipenko.

In development, profit is higher and opportunities are wider. “No matter how strong the brand of a manufacturer of building materials, if it wants to increase the volume, it is forced to move down in price, reducing the marginality,” explains Olga Solovey. “And in the real estate development business it is easy to increase margins due to a well-developed brand and high-quality projects.”

Investments pay off with interest if you have an interesting project and a good reputation. “The costs of beautiful modern architecture, landscaping and landscaping take several dollars in the cost per square meter,” says Nightingale. "But then they can be sold, conventionally, for $ 100 more." The average profitability of housing construction projects varies in the range of 25-75%, says Sergei Pilipenko.

Three years ago, Pilipenko Sr. retired from management, completely transferring the "operating system" to his son. “There was a conversation when I directly told my father: I will no longer be in the shadows. I won't be number two anymore, ”Sergei Pilipenko said in an interview with Young Business Club. After this conversation, Alexander Pilipenko retained strategic control and overall coordination of the group. “I decided that the company should have one decision-making center,” he says.

A person is most productive in creation for about 25 years of professional activity, believes Pilipenko Sr. After that, the activity decreases. “I am aware that I cannot generate ideas today that will be in demand in 5-10 years. This is the prerogative of the young. We need to build a perspective, not puff out our cheeks, ”he says.

The changes did not go unnoticed in the market. “The company has become more public and more aggressive,” says Nightingale. The market made the change. Apartments from PSG "Kovalska" began to sell worse. “Many projects of a qualitatively different level have appeared, competition has intensified,” explains Sergey Pilipenko. Customers disliked the standard panels of the old format. All that remained was either to get involved in price wars, or to offer a qualitatively new product.

“We decided that we want to do projects with additional value for the consumer,” says Pilipenko Jr. “We put interesting architectural and eco-solutions in them, fill them with internal infrastructure”. Olga characterizes the change as a transition from a product-oriented approach to a customer-oriented one.

The development direction was singled out into an independent structure. The team was expanded from 15 to 80 people and settled in Pechersk - in the old building of the central office. In 2022, the state should grow to 120 people.

Kovalska has restarted marketing and is developing the personal brand of Sergei Pilipenko, who began to act as the frontman of the group in public space. “Successful developers are trying to personalize the brand,” says Nightingale. "Personal responsibility and the owner's reputation are converted into additional customer confidence."

Over the past couple of years, Kovalska Nerukhomist has presented several projects that give an idea of what buildings the company wants to build. Flagship residential project - 31Z. This is a comfort-class house with 134 apartments, which will appear next to Poznyaki Lake on the left bank of the Dnieper. The project was ordered from the architectural and creative agency 2Storm. Features of the format: mid-rise buildings, panoramic windows, atypical layout, underground parking, a lobby with a lounge area, a courtyard closed for cars with a green seating area, etc.

The second direction for expansion is office real estate. The company will construct five buildings in the Unit.City business park of Vasyl Khmelnitsky for $ 70 million. On this project, Kovalska wants to test new solutions for future projects: three-dimensional BIM design, energy efficient technologies, modern engineering approaches. “In new facilities, we focus on communications, ventilation, air conditioning, air humidification,” says Olga Pilipenko. “The goal is to build a smart building according to standards that set a new benchmark for the market,” adds Igor Subotenko, CFO of the Kovalska group. After the completion of construction, the premises will be sold or leased. Olga Pilipenko, Deputy General Director of PSG "Kovalska".

Unit city business center

The second office project is the Nuvo business park. This is a complex of seven buildings on Zhilyanskaya Street in Kiev. Project with an area of 88,000 sq. m and a cost of $ 90 million is being sold together with the development company KDD Ukraine. Like Unit.City, the architect is the Polish bureau APA Wojciechowski. Upon completion of construction, Kovalska plans to keep one building for itself, and sell the rest.

Business park '' Nuvo ''

Will the new strategy of PSG Kovalska survive the transition to new formats of work after the pandemic? The general director of the investment company Concorde Capital Igor Mazepa would not invest in office real estate now. “Over the past year, office rates have fallen and most likely irrevocably,” he says. And the supply in this market continues to grow. According to the consulting company Aurora Development, in 2021 Kiev developers plan to commission 222,000 sq. m of office space - 1.5 times more than in 2020.

The Kovalska group is confident that the capital's class A office real estate is greatly underestimated and in 2022, when the companies return to offices, there will be a shortage of such areas. According to Sergey Pilipenko's calculations, the rates in Unit.City will grow by at least 10%, to $ 24. And within five years the rates will increase by at least 1.5 times. Demand drivers will be IT firms, financial, medical and agricultural companies, which are expanding and are considering moving from offices of the old format to more modern and functional ones.

"Landlords are ready to overpay for offices with panoramic windows, a lounge area, modern ventilation and a good location," - confirms Nadezhda Shevchenko, CEO of Aurora Development. “A quality product will be in demand,” agrees Nightingale. - Therefore, "Kovalska" and chose the site on Zhilyanskaya, which is considered a premium location. With good governance, there will be no shortage of customers. ”

The principle of the Pilipenko family is not to overestimate your strengths. The company builds exactly as much as it can finance from its own funds. “I must be sure that the house will be completed, even if we do not sell a single apartment,” says Pilipenko Sr. In addition to the complexes in Unit.City and Nuvo with a total area of 150,000 sq. m, the company is building 80,000 sq. m of residential real estate. In 2021, Kovalska announces three new projects, bringing the volume of housing construction to 150,000 sq. m.

One of the ideas is to adapt fast development formats in Ukraine. “The model of the Scandinavian countries,” says Sergei Pilipenko. We are talking about projects of mid-rise buildings (up to nine floors) in the suburbs of Kiev, from prefabricated reinforced concrete structures on the principle of a designer. “The idea is that almost all work (including finishing) should be performed at the manufacturing plant, and only installation is carried out at the facility,” says Pilipenko Jr. This will reduce the construction time by 30% and offer the market apartments for no more than $ 500 per 1 sq. m. Is there a prospect for such a format? “It depends on the implementation,” says Andrey Vavrish, founder and CEO of SAGA Development. “Their new projects look very good and are fun. What was the trigger? No matter. The important thing is that they went over to the bright side. "

Article author: Denis Kasilo

Forbes magazine. Link to the source https://forbes.ua/ru/company/gruppa-kovalska-inves...