Russian real estate silver linings
Judging by reports in the western media on Russia’s current economic situation, the whole country is in a state of collapse and does not represent a suitable home for foreign capital.
Clearly, this is not the case and some of the world’s top investors recognise that amidst the temporary problems being experienced by some Russian sectors, quality opportunities continue to present themselves.
As I illustrate here with a couple of examples from the world of Russian real estate, the wisest investments can sometimes be staring you in the face.
First, let’s address the situation in Moscow.
The capital’s commercial property remains an attractive proposition for overseas investors. A recent example shows that one does not always have to delve into obscure corners of the Russian market to find such opportunities. On 1 September Vedomosti reported that Goldman Sachs has doubled its stake in Boris Mints’ O1 Properties, purchasing a further 6% share in the company for the sum of $100 million. O1 is certainly not a niche interest. As the article highlights, being the owner of thirteen Moscow business centres whose floor area totals an impressive 497,000 square metres, and with an overall portfolio valued at $4.5 billion, O1 is actually one of the largest holders of office real estate in the capital. CBRE’s Valentin Gavrilov points out that at the present time this move represents an excellent opportunity for Goldman Sachs.
Another story from this summer concerning investment in property – this time residential – also shows overseas capital making a wise move into Moscow’s top-end real estate.
Vedomosti reported back in July that Qatar Investment Authority (QIA) was preparing to acquire Pokrovsky Hills, a luxury development of 200 townhouses situated near the Khimki Reservoir just outside Moscow, for a reported $400 million. Vladimir Pinaev, also of CBRE, explained that the high quality of tenants and stable cash flow from the development makes it unique among investment opportunities.
My own appreciation for smart investment in buildings and property – be they for commercial, residential or hospitality use – is no secret. The Four Seasons Lion Palace is another example of the successful involvement of international business in prime Russian real estate, and it has been one of VIYM’s boldest projects.
For anyone who is willing to look beyond Moscow, there are numerous other locations from the Baltic to the Sea of Japan which present exciting investment potential.
Already underway in Blagoveshchensk is the ambitious ‘Little Venice’ development, which will include hotels, shopping centres, offices, exhibition centres and theatres. The project is being undertaken by Huafu, a company from just over River Amur in China. It is a well-known brand in Blagoveshchensk with a significant stake in the city’s retail market. An article in the local Moskovsky Komsomolets points out that this will not be just an attempt to put up a cheap Disneyland version of Venice, only to watch it crumble in a few years. With developers favouring solid granite buildings designed to last up to half a millennium, this is the kind of durable development needed to strengthen the Far East’s already robust property market.
The views of many are clouded by bleak media reports and the latest RICS Global Commercial Property Monitor report which notes that Russian real estate can present a mixed bag in certain areas. However, those prepared to look for quality in the right places – from the gleam of Moscow’s skyscrapers to the glimmer of the mighty Amur – can still find plenty of silver linings.
If you know of any other smart deals which are bucking the gloomy picture portrayed by the media, please comment below!