Reaching Across Borders 
Illinois REALTOR® shares his expertise with former socialist countries

It began in 1991 at a conference of the American Society of Real Estate Counselors in Scotland. A window of volunteer opportunities opened for John Rutledge—CRE, president of Rutledge Co. LLC in Wheaton—when he met conference speaker Alexander Krivov, senior officer in the Russian Housing Ministry. Aware of the economic and real-estate market reform obstacles in Russia and other former Soviet countries, Rutledge offered to assist Krivov.

By hosting a member of Krivov’s staff at his home in Chicago, Rutledge could administer informal, first-hand training addressing the U.S. legal and business real estate infrastructure. “Many former Soviet countries are establishing a more capitalistic base of economy,” Rutledge said. “And their approach is modeled after our own economy.”

Rutledge explained that the Soviet Union, or the Union of Soviet Socialist Republics (U.S.S.R.) was an organization of about 15 countries run by a single public government. That government included representatives from each country, but was dominated by Russia. “Under a socialist government, the state owns the means of production, meaning all the real estate.”

Since the break-up of the Soviet Union about 10 years ago, many of these countries have instituted economic reform, as well as efforts to privatize real estate holdings. This is an enormous task, because, as Rutledge says, “If the state owns everything, they don’t need recorders of deeds, brokers, appraisers, mortgage lenders, surveyors or insurance companies. These disciplines, which we take for granted, are not established in Russia.”

Rutledge’s Expertise

Identifying a crucial need for real estate consultation and direction in Russia, Rutledge made a first step toward foreign volunteer reform efforts. A background in commercial real estate consulting made Rutledge, 56, and a Mason City native, an ideal volunteer candidate. Through Rutledge Co. LLC in Wheaton, he works with individuals and institutions having asset management or ownership issues.

“Over the years I’ve had to deal with every imaginable real estate transaction, from office buildings, regional malls, industrial property and apartments, to farmland, timber and even a couple of mausoleums,” he said. “Over time you discover the types of problems that tend to be recurring, such as management and valuation issues, and problems regarding joint ownership and the transfer of property from one generation to the next.”

Having earned a master’s degree in agriculture, Rutledge managed farms for several years before entering the real estate industry. He was vice president with Continental Bank (now the Bank of America) in Chicago, where he handled construction lending and property management. Later he was the vice president for Harris Bank in Chicago for 18 years. “I have managed a wide variety of properties that are held in fiduciary accounts for families and institutions,” he said. “I’ve also managed real estate investment funds—buying, managing, developing and selling properties for those funds.”

At an association level, Rutledge has contributed much time and expertise to The Council of Real Estate, an NAR affiliate that offers membership by invitation only. Rutledge has chaired the CRE Bylaws Committee since 1999 and currently serves on the Ethics Committee. He chaired the Strategic Planning Committee in 1993 and the Chapter Activities Committee in 1995. He was also vice president of CRE in 1994. Rutledge also served on the Chicago Association of REALTORS® Political Action Committee from 1987-1990.

The Training

Krivov chose Olga Kaganova, Ph.D., a consultant who works closely with the Russian Housing Ministry, for the training administered by Rutledge. Kaganova resided as a guest to Rutledge and his wife Nancy throughout September 1992. “The training included a full schedule of meetings,” Rutledge said. “I took her to Havana, the Mason County seat, where the county clerk spent the day explaining how they maintain title records. She could see the process at a grassroots level.”

Kaganova also met with the Cook County Commissioner of the Department of Planning and Economic Development and various real estate counselors, brokers, attorneys, appraisers, mortgage lenders, and even an urban planning consultant. Based on the knowledge acquired, Kaganova influenced new property and title laws in Russia. “It is a bit of a head trip to know that you’ve had some small part in the evolution of a country’s real estate law,” Rutledge said.

Overall, the experience was so rewarding that Rutledge decided to contribute more volunteer work through the International Real Property Foundation (IRPF). IRPF, formerly the Eastern European Real Property Foundation, was established through a partnership between the U.S. Agency for International Development (USAID) and the National Association of REALTORS®. IRPF volunteer programs are made possible by USAID-financed travel expenses and NAR volunteers who offer consultation to developing nations.

Building Trade Associations

Since his initial project for the Russian Housing Ministry, Rutledge has focused his volunteer efforts on developing trade associations. “In the spring of 1993 I was asked to go to St. Petersburg, Russia and conduct an assessment,” he said. More specifically, his task was to find out where they were in the process of privatizing the real estate market, and identify ways that IRPF could help. Rutledge also had to identify potential future leaders of a real estate organization and trade association.

“Organizations such as IAR and NAR offer a variety of benefits, such as training to members and potential members and lobbying Congress over legislation that would benefit the industry,” he said. “We require members to abide by a Code of Ethics and to treat clients honorably so that members’ professional work doesn’t reflect negatively on the rest of us. IRPF believes it’s a good system and we work diligently to help these other countries create real estate trade associations.”

Since the Russian Guild of REALTORS® has been developed, Rutledge and other volunteers have helped them establish education and other organizational benefits to members. “We can’t teach appraisers one at a time, but we can help organize an association of appraisers and teach them what they need to know to organize the education and services we take for granted.”

Rutledge has also volunteered in Krakow, Poland; Prague, Czech Republic; and Moscow. Over the years, Rutledge has hosted eight or 10 foreign guests, staying anywhere from a few days to five weeks. “One individual came here for an exchange program through a non-profit group.”

The Reform Obstacles

Although the law provides for private ownership of land, Rutledge said, Russian municipalities haven’t instituted that law. “If you want to build an office building, the best you can get is a 49-year lease on the land. That lease won’t be finalized until you negotiate with the municipal entity that owns the land and agree on what you’re going to build.”

Upon completion of the construction, Rutledge said, the municipality might require additional payment, asserting that the structure didn’t comply with the agreement. If a building is demolished, the owner’s rights to the land terminate. “Corruption is rampant,” Rutledge added. “I have a friend who bought the same property over there three different times, because each time he was told he didn’t pay the right people in the bureaucracy.”

According to 1993 figures, about 25 percent of the St. Petersburg population was living communally, “and that condition was declining slowly,” Rutledge said. An example would be several families sharing a 6-10-room apartment with only one kitchen and bathroom. “There was a conscientious effort to demolish single-family homes by the communists during Stalin’s time,” Rutledge said. “They considered the homes too elitist and they wanted to put people in identical apartments. They often put several families in one apartment, and that condition is slowly being eliminated.”

The larger apartments—formerly owned by wealthy families—became sites for multiple-family or communal living. At the same time, the communists built high-rise apartment buildings, offering about 400-450 square feet per unit. “They are identical, block after block,” Rutledge said. The apartments were built for minimum construction costs, therefore requiring heavy maintenance. “They have no energy efficiency and operating costs are very high.”

Municipal-owned apartment housing is very inexpensive—about $25 per month, which covers utilities and maintenance. To own your own apartment, the municipality also charges $25 per month to cover maintenance and utilities. “There’s no real incentive to privatize,” Rutledge said. He also estimates the average Russian income to be between $75 and $150 per month.

Single-family homes are traded primarily in rural areas. “It’s not uncommon for city residents to own a country home,” Rutledge said. “Members of the ruling class have very luxurious country homes, but most people have nothing more than shacks they escape to on the weekends. They have no running water or electricity.”

Rutledge noted several problems with the banking system, such as the inexistence of deposit insurance. “There’s no bank examination process to ensure credit quality and organizational stability.” Russia also has no established means of collection. “They haven’t developed foreclosure law and property rights. Homebuyers have trouble getting title insurance.”

The government defaulted on its bonds about three years ago, interest rates are high and since 1993, the ruble has lost about 97 percent of its value relative to the dollar. “Because mortgages are effectively unenforceable and inflation is so high, home loans are generally limited to one year and are granted only to the most creditworthy borrowers.”

Along with the efforts of Rutledge and other volunteers, many Russian professionals are working tirelessly to improve their living conditions. “I can’t emphasize strongly enough how much I respect the hard work, creativity and dedication of so many people I’ve met over there. There are so many well-intentioned, diligent, committed people.”

Rutledge’s interest in foreign volunteer probably stems from his youth, he said, when he developed an interest in world news. “I’ve always closely followed international news.” Due to his interest and background, Rutledge plans to volunteer overseas again. “We get so caught up in our daily routine that sometimes we forget how big the world is and how big the challenges are,” he said. “I think the effort between USAID and NAR is an extremely important one. The government money is leveraged for people willing to contribute to the progress over there, and the government is getting good value for its money.”

The Russian Guild of REALTORS

In March, Rutledge spoke at the annual conference of the Russian Guild of REALTORS® in Moscow. He addressed the requirements of American real estate investors, the condition of Russia’s real estate market, and the policy changes needed to attract foreign investments.

More specifically, Rutledge discussed the need for land ownership, a centralized registry of title information, contract enforceability, clearly defined zoning and property regulations, a stable currency and tax system and a sound banking system. There were about 85-90 people in the audience, which included a variety of real estate practitioners, as well as several members of the Duma (Parliament) and cabinet members.

“[Afterwards] several people approached me to discuss specific aspects of their work and to seek my advice,” he said. “One such person spoke with me for two hours.” Rutledge described the experience as overwhelming. “This was an opportunity to utilize my research background, not to say, ‘This is the way you should do it,’ but rather to communicate, ‘Here are some things you might find helpful, based on my understanding of where you are.’”

By Betsy Reeves, assistant editor

November 2001 Illinois REALTOR