Morgan Stanley bags second deal in Russia

The US investment bank has taken a stake in an upper scale residential developer for its third special situations fund.

Morgan Stanley Real Estate has taken a 15 percent stake in RGI International for its recently closed Special Situations Fund III.

RGI employs 35 people and develops upscale residential property as well as commercial projects in central Moscow with a pipeline of 100,000 square meters.

It is the second time MSREF has invested in Russia, having taken a 10 percent stake in RosEuroDevelopment (RED) in July. That company is active in retail, logistics, office and residential projects across the country.

The move continues Morgan Stanley’s strategy of taking equity stakes in local development partners in its chosen European markets or target sectors.

Just like RED, John Carrafiell, global co-head of real estate, described RGI as “fast-growing and entrepreneurial”.

He added in a statement: “RGI offers Morgan Stanley Real Estate an attractive entry into the Russian real estate market with an emphasis on central Moscow, a market characterized by fundamental undersupply of quality real estate.”

Both Russian investments have been made for the Morgan Stanley Real Estate’s Special Situations Fund III, which is an open-ended fund that makes non-controlling investments in securities of real estate companies globally.

Investors include institutional and Morgan Stanley Global Wealth Management investors from North America, Europe, the Middle East and Asia, as well as Morgan Stanley, which invested 25 percent of the total initial equity. The fund had raised $2.24 billion of equity by September.

When the fundraising finished, Tim Morris, managing director and chief investment officer of the fund, said: “Significant investment opportunities still exist in the global real estate markets whether it is in growth areas where real estate is vastly undersupplied; in distressed markets where real estate is undervalued; or developed markets where considerable pricing inefficiencies exist between public and private valuations.”

The US bank is able to call on more than 600 people across 21 offices worldwide to help find opportunities.

Apart from Russia, growth and emerging markets with a requirement for growth capital are China, India, and Central and Eastern Europe. Morgan Stanley is also targeting corporate restructurings and arbitrage opportunities between public and private real estate valuations in developed markets such as Japan, the United Kingdom, Western Europe, the United States, Hong Kong and Korea.

In March the firm made its first move into India by investing around US$68 million in Mantri Developers Private Limited, a private Bangalore-based real estate developer founded in 1999.