Promprylad. Investing in Ivano-Frankivsk

May 5, 2020
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Promprylad.Renovation is an unprecedented example of transforming an abandoned Soviet plant into a modern business cluster involving private investment in Ukraine. Following the example of the Urban Space 100 project (a social restaurant in Ivano-Frankivsk — tr.), Yuriy Fylyuk and his team embarked on a much larger transformation of Ivano-Frankivsk and began revitalising an old plant instead of building up the city with cheap new buildings.

Promprylad is one of the oldest instrument engineering plants in Halychyna. Located in the centre of Ivano-Frankivsk, the plant was a platform for innovation during Soviet times. Most of its production was for industrial needs, but consumer goods were made here as well. For example, here they produced umbrellas, known throughout the Soviet Union, and also car parts. The goods were exported to more than 20 countries. In the 1990s, the plant was privatised and sold off.

Now, an innovative center is being created on the vast area of ​​the plant to develop the city in four directions: education, art, new economy, and urbanism. The Promprylad.Renovation project is an example of impact investing. Investors contribute to a social initiative, become co-owners of the plant, and receive dividends. During the reconstruction, the share of each investor grows. The plant is gradually being rebuilt for offices, laboratories, workshops, an exhibition hall and entertainment centre, a hotel and hostel, a farmers’ market, and restaurants.

Impact investing is investment in social or economic development as long as the project produces profit or at least the investment pays off. It is possible to invest in organisations, funds, or companies and get a long-term financial perspective. For your investment to be considered impact investing, however, there must be a positive impact on the social or environmental sphere, a methodology for measuring that impact, and return on investment.

“It’s been three years that the process is in progress. There was a lot of research between the first conversations and the implementation. We managed to get SRI International involved, and this is their first project in the post-Soviet area. By the way, this is the organisation that invented the internet. They agreed to cooperate because for them we are one of the most interesting projects in the sphere of impact investing. This financing scheme is an alternative way to systematically address social and environmental problems. For us, it came just naturally: First, we came up with the idea, then we started implementing it, and only later we found out that it is called ‘impact investing’.”

Today there is a global tendency to create projects that organically combine the desire to achieve economic results and find solutions to social problems. Achieving ROI (Return on Investment) and SROI (Social Return on Investment) is a must for such projects; that is, they must have a measurable positive effect in certain social tasks. Both metrics are to be achieved.

Promprylad.Renovation will use 50% of their income to finance initiatives for development in the city and region, and 30% of the centre’s area will be provided to social and public projects on preferential terms.

“We did realise that if we had not gone in and changed this plot then, it would be built-up with typical housing, which is now everywhere. Now, there is a lack of infrastructure elements that would add value, apart from providing consumer housing. That is why we have taken up this ambition.”

Promprylad.Renovation is an organic extension of the projects that Yuriy and his team have been engaged in for over four years. They did joint projects with Teple Misto (Warm City, a platform for initiatives — tr.) and Urban Space 100. Some of the investors of the latter also invested in Promprylad.Renovation.

It all began when Yuriy and his partners in the previous business moved from Kyiv to Ivano-Frankivsk and opened a few restaurants. Then they realised they needed to find a new interaction platform.

“Promprylad is a much larger, more ambitious and complex project, and the business model is more complex here. If we compare it to Urban Space 100, that was a one-time donation in the amount of $1,000. People realised that their investment was not going to be paid off. But they still joined a unique project that has a positive impact on the city. By contrast, at Promprylad.Renovation, the impact investing model is more complicated economically, but it has a range of major benefits. One of the most attractive benefits is dividends for investors. Such business is built on interaction of many players and is integrated into the market interests as deep as possible. There are good prospects for its long and steady work. It’s also protected against political and economic risks much better. This is investing in a business whose prerequisites are profitability and self-reliance. At the same time, its aim is to solve complex social problems.”

The Promprylad.Renovation project has officially acquired ownership of the plant. On February 1, 2019, the team signed the contract to purchase 82% of the plant’s shares and paid the first tranche.

“Signing the purchase agreement was the most important milestone in the project with regard to eliminating the main risks. We do still have a lot of work ahead of us, but we can already say that the project has been accomplished. We didn’t start raising investment publicly until we had a signed contract. It definitely gave us more freedom and became a confirmation for the investors that everything was going as planned.”

For the pilot phase, they spent their own money to rent and repair a whole floor in one of the buildings. Now at Promprylad, there is a dance school, a barber academy, a contemporary art gallery and creative workshop, a multimedia laboratory, children’s informal education clubs, a workshop, a cafe, a bar, an IT company office, a conference room, an urban laboratory, and even the office of the Investment Policy Department of the City Council.

“The pilot stage of the project is the first example of a physical space in Ukraine where we can witness a real interaction in the triangle of businesses, NGOs, and representatives of the city administration. We do different projects in such collaborations. In our opinion, this is critical, because only when there is a healthy dialogue can we achieve best results and positive dynamics at the social level.”

Serhii Kaminskyi is a manager in science. He’s restoring the potential of R&D in Ukraine. R&D (Research & Development) is the acquisition of new knowledge and application of it in a new field to create a new device or technology.

“Here at Promprylad, we are also talking about creating an R&D base, commercial potential of science, but with the possibility to enter the international market. The project itself has multiple elements. For example, that building over there, half of it is taken by a makerspace and an R&D base. There are large venues in the central part. We will be able to hold events there for two to three thousand people. There will be forums, exhibitions, concerts. The city is lacking infrastructure of this kind.”

According to Yuriy, they are redeveloping the plant’s territory while taking the historical importance of the site into account.

“We do not want to change the historic entrance gate to the plant even after our project is fully implemented.”

The pilot third floor of the B building makes up only 5% of the whole territory of Promprylad. Still, even here, there are many opportunities for development, creativity, interaction, and synergy — the first tenants have already employed about 120 people. Moreover, Promprylad receives inquiries about spaces for rent almost every day. Right now, the potential demand covers about 98% of the area planned for renovation. The project operates in accordance with energy efficiency best practices.

“We have fibre cement panels on the facades. The thickness of insulation is 25 centimetres, the windows are energy efficient, and there is underfloor heating. We don’t use gas, only electricity, and we have a dual-tariff metre. Thus, we are four times more energy efficient than average new buildings.”

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Yuriy says that for Promprylad.Renovation it is possible to invest from a thousand to a million dollars, and in contrast to investing in commercial housing, this money will constantly be put to work.

“When you create a project like this, you do a good thing. After all, it is money for the city, some economic development. If you build commercial housing, the investment will take longer to return. This is primitive thinking and quick money for developers. And here this scheme is based on the demand from people who go to work abroad and bring their money here. For them, it is the only investment option — to buy an apartment for their children, and then buy another one to rent out. It’s a bubble that is going to burst sooner or later. Building is thoughtless, its quality is only basic, because for the people who move from a village to the city any conditions seem to be better than where they came from.”

Ironically, Yuriy’s father is one of those who builds up the city with residential real estate. Yuriy explains his attitude to this:

“I do not comment on my father’s business, that would be a conflict of interest for me. In the end, I do not criticise other businesses in any way. Our approach is to look for ideas of development and integration in frameworks of new value and try to motivate other people to migrate to these new approaches and standards by setting an example.”

Cooperation with the city

The Promprylad.Renovation project is a new type of enterprise built on the principles of joint financing.

“Half of the project will be owned by the noncommercial and nonprofit Promprylad fund, which will reinvest part of its income into social development projects. For example, support for art, science, education, incubation programs. And the other half of the investment will be directed to the free market in the form of securities, and anyone can buy a share in this big business, become a co-owner, and claim a share of profits. That is, half is returned to the investors, and half is constantly reinvested in the development of the city and the region in the industries I mentioned before.”

Thus, they’re planning to create an infrastructure that is missing in Ivano-Frankivsk. This will help the city reboot from the post-Soviet contexts to the modern ones.

“Promprylad can be an example of how neglected post-industrial locations can become a development base in cities with unfavourable starting conditions, like lack of support from the authorities. In any post-Soviet city, you can find a lot of such “grey zones”, abandoned or semi-abandoned plants, factories, which can be given a chance to develop.”

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Yuriy explains that such projects implement the desire to find the city’s DNA. This can be done by looking deeper and moving away from the surrounding plastic.

“We explain that preservation of the industrial features is important, and we think even more how to emphasise the Ukrainian Soviet industrialisation as a unique feature of this particular region. It is important because the identity and DNA must be preserved.”

The renovation process has been going on for over three years — from the first conversations and research to real steps. The first $1.8 million has already been raised for the project. Half of these funds are grants from international and Ukrainian organisations, and the other half came from 23 private investors. Yuriy’s share now makes up $450,000. In 2019, they planned to raise the next $5 million, $500,000 of which was raised in January 2019.

The large-scale online platform for initiatives Teple Misto (Promprylad revitalisation is one of its projects) has succeeded in involving more than 60 businesses to unite in the triangle of local government, business, and community.

“There is a philosophy that explains that engaging socially disadvantaged groups or social problems in direct economic activity is much more efficient. If you find these ways, then these problems are solved systematically. In addition, these vulnerable groups engage in a fulfilling life, which is more enjoyable and effective, and they make their impact.”

Plans and ambitions

The total budget of the project is $25 million. Over the next three to four years, the project team plans to complete reconstruction and revitalisation of the project on a full scale.

“We now need to set precedents and show it to the market, clarify these new potentials and opportunities. The market still knows very little about this sphere. There are many impact investing funds in the western markets. These are specifically foundations seeking commercial projects with great social impact. In Ukraine, the Omidyar Network may be seen as one of such funds. But as of now, they don’t have any projects in Ukraine financed specifically by impact investment. At the moment, they only have the grant branch. Therefore, I expect more players to appear in the Ukrainian market and to form this market. Here are the parts needed for the market to grow: entrepreneurs and projects, but also investors that understand the specifics of this market and are ready to invest in it. That is, we are actually creating a market of that kind. This project can also be a tool for solving social problems, not only in Ukraine. We are also supported by German funds, as it turned out to be interesting for their country. We have been building a model suited more for countries with similar contexts, where the levels of education, economy, and art are low, where there is no government support, but it turned out that this can be interesting for such countries as Germany as it is a community building process.”

Yuriy says that this way of space renovation is a global trend, and it is only coming to us. After the industrial and post-industrial revolution, many unneeded premises emerged. They have exceptional power, spirit of history, and atmosphere, so it would be logical to repurpose them.

“We want to bring back accessibility, as well as inclusivity in respect to generations, different spheres, intersections between them. Because the problems inherent in our generation and the younger generation are that we believe we understand everything, that the world is different, and our parents and grandparents do not understand that. But wisdom is achieved when these experiences are combined. We just want to put those things together.”

Yuriy says that it is cool to realise the scale of the plant’s capacity and its equipment and value.

“It is a monument to mightiness — this is what I feel. We have a joke: Try to make Promprylad great again! A new product, with new meanings, not just destroying the old. We studied the history of the plant. It really was very powerful — it was the leader of R&D in the region. It was a huge infrastructure. They even had a film studio here, can you imagine?”

Promprylad can become a place that fills the city with something positive, strengthening the city with initiatives.

“Promprylad absolutely fulfills the internal ambitions, and this can have a positive effect indeed. We have created the first physical space where there is collaboration in the triangle at the physical level. It is quite real, not just declarative. These are joint projects between different players, and this collaboration creates new added value. I like that in Frankivsk we have the opportunity to make our dreams a reality and come up with new models of social development. The label of business and social business on the map of Ukraine is in Frankivsk.”

The material is prepared by

The author of the project:

Bogdan Logvynenko

Author:

Daryna Kyrychok

Editor:

Yevgeniya Sapozhnykova

Producer:

Olha Schor

Photographer:

Khrystyna Kulakovska

Photographer,

Cameraman:

Pavlo Pashko

Cameraman:

Maksym Zavallia

Director,

Film editor:

Mykola Nosok

Photo editor:

Oleksandr Khomenko

Transcriptionist:

Yuliia Kostenko

Translator:

Halya Kohuch

Translation editor:

Kaitlin Vitt

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