If you ever fancied renting a 10 square meter attic inside a military barracks or dreamed of sitting at a ticket desk in a closed airport, then the website of the State Property Fund may be the place for you.
In Ukraine’s effort to get rid of unprofitable assets, the State Property Fund offers small pieces of large state-owned properties to the public.
A former office, for example, can be converted into dozens of smaller lets with individual tenders for of utilities and repairs.
As a result, the website of the State Property Fund is full of odd listings. Individual squares of asphalt, rooftop dormitories and underground generator rooms are all up for grabs.
Despite their oddness, the State Property Fund’s leasing initiatives are likely to help small entrepreneurs across Ukraine give new life to neglected assets, according to Lara Vysokovskaya, in charge of press relations for the State Property Fund.
“The lease of state property should not be viewed as a tool to make money, but rather to prevent real estate, which is currently at the disposal of the state, to sit empty and decline,” she said.
Odd objects
The State Property Fund believes it can raise more income by dividing assets into smaller pieces than by selling them whole.
In 2020, the State Property Fund began organizing online rental auctions, a first for the auction site ProZorro. The fund raised nearly $84 million in 2020 by selling and leasing properties across Ukraine.
In 2021, the state budget received $39 million from leasing government-owned properties, even though many of these properties look unappealing at first glance.
As a result, remote, decrepit, abandoned, tiny, inaccessible, and sometimes derelict properties appear on the official website of the State Property Fund.
Notable examples include a 2 square meter laundry room in a university dorm, an underground police shooting range, a spooky-looking bathroom and a driver training area.
Boryspil’s original Soviet-built terminal, known as terminal B, is currently also being dissected, with the arrivals and departures area of the airport being turned into many small units.
According to the fund’s website, it is possible to rent space in former ticket booths, information desks and waiting rooms within the closed terminal.
Part of a driver’s training concrete area in Velykyi Dalnyk village, Odesa Oblast. The property was successfully leased at auction, subleased from state-owned Odesa Polytechnic State University to a small private driving school. The property is leased at Hr 1,114 ($41.59) per month. (State Property Fund)
Small business
While they look strange, these pint-sized assets are popular among small-scale investors and entrepreneurs because of their low starting rents.
Leases concluded through state auctions are often much more affordable than private rents. In 2021, the average rental price per square meter for “Class B” office spaces, usually based in older buildings with modern features, was $16-20.
A 200 square meter class B property in central Kyiv was recently rented to Physical Culture and Sports Association “Dynamo” at a price of less than $12 per square meter.
Small state properties are in demand. The State Property Fund boasts that it successfully closed 1,880 auctions for lease, which is roughly 80% of the objects listed on the website.
This is a much better success rate than other state enterprises that conduct auctions, such as postal service Ukrposhta — 96% of whose lease auctions failed to find lessors since the beginning of 2020, according to online transparency database Prozorro.
And tiny leases for vending machines, coin-operated washing machines, and coffee stands are likely to provide new business opportunities for the private sector.
According to Vysokovskaya, parts of the roofs and attics of government-owned buildings are used to house telecommunications equipment from mobile operators, and Internet service providers.
Tenants of leased government property now run cafés in the Chornobyl exclusion zone, parking infrastructure in Korosten, seafront restaurants in Odesa, and even a student-run café in a former dormitory of the Lviv State College of Food Processing Industry.
Divide and conquer
The fund tries to lease assets before selling them because this ensures that state-owned enterprises get the rental income.
Instead, if assets are sold, the proceeds go directly to the state budget and state-owned companies miss out on revenue.
“Privatization is considered as the last option, as proceeds from privatization go straight to the state budget,” Vysokovskaya said.
Some auctions make more sense than others. A set of industrial machinery is more likely to attract buyers than an information booth in an abandoned airport.
The listings look chaotic because the assets’ managing bodies, such as ministries, decide how to bring them to auction, according to Vysokovskaya. Some assets are listed together while others are split into hundreds of smaller parts.
“The fund does not deliberately create small individual listings, and has no say in the matter,” Vysokovskaya said.
However, the fund does try to take advantage of this policy to attract tenants. In the case of a rental property failing to find a tenant, the State Property Fund slashes prices by 50%, then slashes again until it reaches 1% of the original starting price.
The legislation also creates incentives for tenants to buy and rehabilitate abandoned buildings, she said. The privatization law states that a tenant can buy a leased object if they are ready to invest a quarter of its value to renovate it.
Sometimes, the money spent on preparing properties for auction is greater than the money received in rent. The rent for a still smoking, burnt-out building is extremely low.
The fund, however, believes that it is still worth the effort to pay special attention to abandoned buildings that have been granted cultural heritage status, she said.
Often, on the condition that the new owners promise to restore the building, the fund will offer leases for as little as a third of a cent per square meter, with rental contracts lasting for up to 49 years.
If all else fails, the fund will sit on the building, waiting for market conditions to improve.
“These properties are waiting for better times,” she said, “either when laws are changed, or business activity revives and demand increases.”
