Igor Nikonov, Founder of KAN Development, describes his company’s trailblazing work as one of the first major property developers in Ukraine. By designing iconic user-centered developments and putting quality above all else, KAN has earned a strong reputation in the country. Mr. Nikonov describes the challenge of the gap between the company’s ambitions and the funding available for development projects. He suggests that foreign investment will unlock the Ukrainian development market’s potential and is confident that investors will see a high return on investment if they choose Ukraine
As the founder of KAN Development, a leading real estate company in Kyiv, you have overseen the development of over a dozen major projects. Can you tell us about establishing KAN in 2001 and what reputation the company has built in the market since being incorporated?
I lived in the US for a short time and was fascinated with how major cities like New York and Las Vegas developed. My specialty back then was construction; I like creating something I can touch. When I thought about starting KAN the target wasn’t to make as much money as possible as quickly as possible, but to create something memorable and tangible. We started as a small company and grew very quickly. Our reputation is built on quality and that allowed us to attract more and more business.
KAN has developed over 25 residential, social and commercial projects with key partners for a wide range of purposes, including projects that are currently under construction. How do these current projects best reflect KAN Development’s expertise in real estate management, design creation, and sustainability?
In Ukraine, professional developers didn’t really exist until recently; we’re a fairly new concept. You could be in construction, an architect, an economist, but as a developer, you need to be all those things. I tell our team you have to be in the mind of the customer when you are working on our projects. You have to view it from the perspective of a demanding user. You have to jump into the future of the project and see and feel the project come to life. In Ukraine, we’re the first company that viewed development in terms of building an environment, and put that above the bottom line. We think this makes a difference and ultimately contributes to our success. For example, we can build very high skyscrapers, but we don’t do that because we find that being boxed in by tall skyscrapers is stifling for the people who use the space. Our developments include kindergartens, sports, food halls, gardens, libraries, etc., and we incorporate it all into our first draft designs. You can see it by your own in our delivered and successful projects like Comfort Town, Fayna Town, Tetris Hall, etc. (Moreover, Comfort Town recently became the first Ukrainian real estate project to be included in the official Apple presentation event in 2019.) It’s a little more expensive to create developments the way we do, but we collect feedback from our clients and users and find that they’re happy. If they’re not, we discuss making changes. Many of our competitors finish a project and forget about it. I think it’s a mistake because your clients form your reputation, and your reputation always gets back to you. For us, quality and terms are the first priority, the second priority, and the third priority. We have a triple control process and we are the only company in this sector in Ukraine who does that. We know our reputation influences our future business.
You have previously said that Kyiv is witnessing an increase in demand for commercial property. What is driving both the commercial and residential property market demand?
The development market is not saturated here so there is a lot of space and opportunity for new developments. If the quality you deliver is good, you will have a business. We are not afraid of a competitive market because we know we are doing our best work. There is no money to be made within the banking system in Ukraine. There are currently no instruments set in place to save and grow wealth through the banking system – the only way to do so is by putting your investments directly into real estate and infrastructure projects.
The new Ukrainian government is planning to open up large land banks to foreign investment starting October 2020. What is the significance of the land market opening and reforms for the real estate industry?
I think the biggest mistake in Ukrainian history is that we didn’t do the land market reform sooner. Now that we’re here, we have to do it as quickly as possible. It doesn’t even matter how much it costs. It’s absolutely critical to our national development. We need to create capitalist systems here, including free economic zones and industrial parks, and to reduce taxes for investors. The land market reform will create jobs and make Ukraine an appealing country for western investors to consider. The populist policies of the past really slowed us down by increasing taxes and strangling entrepreneurship and initiative. They weren’t good for businesses. As a developer, I need people to be working and making money – capitalism is our most successful model for that. Ukraine has skilled people with a solid education system. The low level of competition in the real estate market allows for high profits, around 20% to 25%. So, I hope we are on the right way of development of our country now.
KAN Development has participated with key partners to construct many of the projects in its portfolio. What is the importance of having a joint-cooperation strategy in Ukraine and what can KAN offer to foreign developers from the US?
KAN Development has a 20-year history of professionalism and expertise in the country, and is able to accompany foreign developers to help them navigate the intricacies of the country. From understanding the rules and regulations, to operating in instances where we face monopolies, we are able to assist our clients and partners, every step of the way. We truly believe it is a win-win situation when foreign investors complete joint projects with developers in Ukraine, who have the ideas, the local knowledge, and the network, but not the capital.
KAN’s presence in Ukraine is generally evident in films or videos set in Ukraine because our buildings, such as Ocean Plaza, IQ Business Center, Gymnasium A+, etc., appear throughout the city of Kyiv. Our diversified portfolio of assets is a testament to the umbrella vision and capacity that we have as a developer. Our track record has been possible due to the high quality of skilled labour present in the country. I have tried outsourcing for workers in the past, but I can honestly say that the Ukrainian workforce is truly the best in the world. We are trying to create ecosystems with the infrastructure we are developing, to continue attracting foreign investors and showing them the results they can attain when we work together. It is my hope one day to build a hospital here, which I believe is a great need in the country.
You have said that, “when you know the rules to play by, business performance in Ukraine can be much higher than that in many other countries.” What business environment factors that can enable foreign investors to achieve such high performance in Ukraine?
We do not currently have high levels of competition in Ukraine. There are many opportunities and possible projects here, but we are hamstrung by lack of funding. We have no long-term capital available. As a developer, I have to pay a down payment in advance, and then to cover those costs, try to sell units to consumers who haven’t even seen what the apartment or retail space looks like, and don’t even necessarily believe we will complete the development. As a result, we often have to sell the units for a lower price because we need the sales to cover our costs. We don’t do cross financing at our projects – taking money from one project to fund another. It’s a terrible business practice. So, we are stuck in this cycle. With long-term financing available, we could wait until the projects are completed, and then sell the units for the appropriate price. We need foreign investors to invest in our projects to get to this point.
What are your final thoughts on why US property developers should now take notice of the investment potential offered by Ukraine, and consider KAN Development as a partner?
Our track record proves that we would be a strong partner for foreign investors. We have a twenty-year reputation. We finish all our projects early or on time, and deliver on our promises. If someone made a film about Kyiv, at least six or seven of our projects would feature. We do landmark developments and we have literally made our mark on the Ukrainian landscape. My team here is excellent. We have an open book of our numbers, our partners, and our projects. Nothing is under the table and we are excited to share our accomplishments. We want to show investors what we do. We are a company that is forward thinking. Our target is improving life for those who live and work in our projects. We are uniquely positioned within the Ukrainian development landscape in that we have a very diverse portfolio. We build shopping centers, business centers, sport arenas, education institutions, and residential properties. We need loan money, and we promise that investors will make a very good profit if they partner with us.