Actuality March 4, 2008

Goldman Sachs (GS) Investment Bank starts to invest facilities into the Russian development projects. GS’ investments into the real estate all over the world exceed $23 bln. As it was found out, GS forms the real estate fund with $4 bln volume for investments into the BRIC countries’ real estate (Brazil, Russia, India and China). The half of these facilities will be invested into Russia; in spite of the activity drop at the market of other core funds.

Several investment bankers declared that Goldman Sachs Bank establishes the fund for investments into the BRIC countries’ real estate. “The fund volume totals $4 bln. And already $2,5 bln is attracted now and is continued the projects’ selection for investments”, reported the source. The press-service of Goldman Sachs London office declined to comment. But about creation of the real estate GS fund are well-informed the S. A. Ricci/King Sturge consulting company partner Vladimir Avdeev and AFI Development investment department director Ivan Vashurin. According to the one of the Moscow developers, the investment bank has already unofficially informed the market participants that almost half of the fund facilities will be directed to Russia. About two thirds of them will be invested in Moscow, the other – in St. Petersburg and other megapolises.

The fund chooses the mixed investment strategy and will invest facilities into the already completed objects and developers’ projects with the Russian partners’ attraction, experts forecast. “Lately 70% in the structure of western funds’ portfolio in Russia falls to the already constructed objects, 30% – to the developers’ projects”, Ivan Vashurin from AFI Development comments Goldman Sachs prospects. “Investments into the completed objects bring 9-10% per annum”, says Renova Capital managing director Oleg Tsarkov. According to him, investments’ profits into the developers’ projects total 20-30%, but the risks of such investments are higher. They are related to the long projects’ approval by the local authorities and breaking of construction terms.

International Goldman Sachs Investment Bank started to invest money into the real estate in 1991. Since then it has established 18 real estate funds with the total investments’ volume $3,7 bln. In Russia it operates since 1998 and renders services in the financial consulting and stock exchange trade area. According to Dealogic data, by the results of 2007 Goldman Sachs occupies the tenth place by the volume of M&A transactions in Russia. It concluded eight transactions to the total sum $7,8 bln.

Goldman Sachs’ established fund for BRIC countries will become for the bank the first large project at the Russian real estate market, marks the director of Uralsib Bank investment-bank maintenance Oleg Lukhton. Meantime, the direct GS rivals already invest into the Russian developers’ business, he states. So, in August, 2006 Morgan Stanley purchased 10% of RosEuroDevelopment stakes for $30 bln (the total projects’ portfolio is 2 millions sq.m). And it also established the Special Situation Fund III for $3,6 bln for investments into the Russian real estate. Raiffeisen Bank and the Austrian construction company Strabag AG established the Raiffeisen Evolution Emerges fund, which plans to invest €500 mln into the real estate in Moscow, St. Petersburg and other megapolises by 2010. Also, Strabag coupled with Deutsche Bank established DB Development joint venture for developers’ projects realization in Russia.

Foreign investors started to master actively the Russian real estate market in 2005. Together with the large investment banks to Russia came foreign funds, which manage the facilities of private investors (see the table). “Now, in terms of the world liquidity crisis, around 90% of such funds, which operate in Russia, stopped their aggressive expansion”, marks Vladimir Avdeev from S. A. Ricci/King Sturge. “But the crisis did not substantially influence GS. And it is the most suitable time for it to enter Russia, where the real estate prices grow quicker, than in Europe or the USA”.

Largest foreign investment funds at the Russian real estate market

Source: private funds’ data

Actuality March 17, 2008

PricewaterhouseCoopers (PwC) Analytical Company declared Moscow the most perspective city in Europe for the real estate investments. However, the risks are close to maximal at the highest returns, the analysts think.

These statements are outlined in the report "New tendencies in the European real estate 2008". And the whole report will be proclaimed only in April. But its key points are already well-known.

So, Moscow and Istanbul are on the first and second places respectively. These cities’ real estate markets can be named "emerging". The former leaders – London and Paris – had to squeeze up. The changes’ reason is both in the Russian economy growth and in the slump at the developed markets.

For example. According to the Bloomberg agency data, in London the prices collapse for the commercial real estate in 2007 was the most considerable for the last 17 years. London has "fallen" to the 15th place in PwC rating.

In their turn, the prices for the Moscow real estate went to the $5000 mark up per a square meter for the last two years. One should not wait the price drop in the nearest future. And, probably, it would never come, except for the growth. For example, Mr. Kazinets, the Moscow Constructors’ Association vice-president, in the last year’s interview to "Ogonek" directly recommended buggering off the native city those, who do not have the highest earnings. He was also for historical buildings’ liquidation in the center. It is obvious that the present "powers that be" want to reduce maximally the relationships with "mobs". And there are all chances that they will succeed to put the "inconvenient" social layers out of the city in the nearest future. Moscow investment attraction contributes to this.

The only "brake", paradoxical as it may seem, can be the same factor in terms of which the endless compaction constructions and the vigorous growth of "elite" accommodation (authority and political ones) to the detriment of standard one became possible.

The investments’ attraction into the Moscow real estate is counterbalanced by abundant investment risks. And namely "unclear administrative barriers" and corruption eliminating the just competition that makes business hardly predictable.

The just competition absence exactly resulted in the present situation: high accommodation prices, inadequate earnings, pensions and utility tariffs. And not the market pricing at all, like try to assure the real estate developers. From the other hand, the corruption exactly can now prevent the investments flow and accelerated Moscow transformation to the city for only rich people, as Kazinets-men dream of.

The successful billionaire Donald Tramp, who has made his fortune on the real estate market, took an interest in Russian projects. According to Rospatent (Department of patents of Russia), in August he became the legal owner of Trump mark in Russia in the classes connected with projection, building and property management.
Besides this brand Tramp also registers brand Trump International Hotel and Tower and also Trump Tower, reported Alexander Isaev, the paten agent of limited company “Sojuspatent” (“Patient union”). The term of validity of the latter one is already prolonged till 2016.
It is not the first time the billionaire has turned his eyes on fertile Russian property market: ten years ago there were negotiations on reconstruction of metropolitan hostels “Russia” and “Moscow”. Elena Aleksandrova, the director of marketing of company Midland Development, supposes, what aspects could interest Tramp in the capital, «An increasing role in Moscow development plays original architecture and recognizable brands.» Elena Aleksandrova has first-hand knowledge of what kinds of architecture Tramp invests in. At the moment Midland Development builds Trump International Hotel and Tower in Toronto. Experts estimate the cost of this project at $500 millions.
Donald Tramp became the millionaire in student’s years. In Cincinnati he bought the small housing complex at the cost of $6 million. After thorough reconstruction the price was doubled. Having sold this complex, Tramp got a great profit.
The businessman says that his fortune is $6 billion at the moment. Analytics of Forbes journal estimate Tramp’s fortune at $2,9 billion.
One of the most famous projects of the billionaire is Trump Tower on Manhattan. In the high-rise building there are not only apartments, but also trading and office spaces. The tower of 68 floors was built in 1983.

Trump Organization, which belongs to the billionaire, builds the elite real estate not only in the USA. Mexico, Panama, South Korea, Dominican Republic, the United Arab Emirates were not disregarded. It includes multifunction centers, hostels, golf clubs, casinos, restaurants.
In the USA two more Trump Towers were built in Tampa and New York. Seven five-star hotels belong to Trump International Hotel and Tower work brand. The next similar hotels will appear in Dubai and Atlanta.

According to experts, the gain of Trump Organization for 2006 made $10,4 billion.
Donald Tramp is one of the most known businessmen in the world. To attract attention of simple inhabitants, he is engaged in show business.

Despite the interest which appeared in Russia in the person of the billionaire and his projects, the representative of Tramp Bernard Diamond denies the information about the fast coming in metropolitan real estate market of Trump Organization. According to his words, the registration of marks is made in case if such decision is accepted.