The main topic of group C, which contains civil engineers and urban designer, was to create a model which gives the opportunity to analyse the profitability of a renovation of a typical building under local market-condition. This model should be a base for an overview of the whole real estate market in Odessa.

The Chosen Object

The chosen object reflecting a typical building of the old town is situated on the Sadovaya street 21 in the old town of Odessa. It was built in the late 19th century and is now under protection.
The total gross area contains 5,500 m² in 4 levels. The ground floor and the first floor are commercially used and the 2nd and 3rd floor are living areas. Because of the poor ground situation and the local missing budget for renovating during the last decades , the technical status of the building is in bad condition.
Due to the ground situation a renovation and support of foundation with foundation piles is absolutely necessary to primarily stabilize the building. The roof and the facade are also expensive works. Other main points of the renovation are reparation in the building (staircase, floors, walls, ceilings, …) and renewal of the technical installations. The carrying structure is mostly in sufficient shape. According to the renovation of the roof level and built-in of galleries in levels with 5-6 m highness the living area in the building is extended by 800m².


Analyse the Profitability of a Renovation

In addition to that a calculation of profitability with the aim to purchase, to renovate, and afterwards to sell the object was done. Based on a western developer, who has the responsibility of the project, a lower cost of financing is assured.

Even the transaction of renovation by a western general constructor , is a question of liability. As far as possible, the general constructor is cooperating with local subcontractors and planning agency. To deal with the local authorities, a local lawyer is absolutely necessary. Finally the alienation is done by a resistant real estate agency. The period of time between purchase and sell the object is estimated 4 years.
To reduce the risks of investments in eastern Europe a mixed financing model, for receiving better financing conditions and extension of the bilateral friendship between Ukraine and Austria has to be elected.
Additionally the project is financed by the developer with 20 % and 80% with outside capital.
The financial costs of outside capital is divided into 60 % credits by a western bank institute with an interest rate of 4,5%, 10 % by an Ukraine bank institute with 12,5 % interest rate and 10 % by the European bank of reconstruction and development with 8% interest rate.
The calculation of profit with its financing condition and calculated prices of purchasing and alienation has shown, that the income return of this project is not even covering the costs.
Because of this unsatisfying result we analysed the real estate market in Odessa and divided Odessa in 5 areas with different price categories in respect of real estate purchase and alienation, to investigate the profitability of such an project in the whole town of Odessa, concretely to assume an equal object with the same volume of working in all other specified areas.
The most important changing parameters in our calculation of profitability are of course the prices of purchase and selling the flats and the amount of time between renovation and alienation. The project Sadovaya 21 is situated in area 4.
Area 1
The area 1 has the lowest level of price, because of the closeness to the industrial zones, the less extended public transportation system and the distance to the centre. Because of the non existing demand the flat-sale prices are very low and the profitability of our renovation model is absolutely not present.
Area 2

The closeness to the industrial zones, the public transportation system and the farness to the centre, especially the northern part, is similar to area1. the demand is low, therefore no profitability in this zone.

Area 3
The closeness to the centre and the infrastructure available in area 3, but the project is still not profitable.
Area 4

As mentioned before, Sadovaya 21 is situated in area 4 and is not covering the costs. Area 4 is including the centre of Odessa. The well developed Infrastructure and the closeness to the sea raise the economic conditions.

Area 5
The area 5 is the most luxurious area of Odessa. Our calculation shows that the project can reach cost-covering. But the profitability is very low and is not an incentive for a western developer.
Actually this analyses reflect the momentary situation of renovation in Odessa. To improve this situation there might be an answer:
First of all the missing engagement of foreign investors shows at the moment the high financing costs and the insecure legal situation. It will be expected the prevailing conditions will ameliorate in foreseeable time.


Please contact Sandra SCHWARZ, if you want more information about this topic.
more about chapter A
more about chapter B
back to WORK
more about chapter D