MSREI closes in on $1.1bn Russia deal

Jumbo deal in St Petersburg for Morgan Stanley’s real estate investment management unit as it continues to put G7 equity to work.

Morgan Stanley is reportedly closing in on another deal for its global opportunity fund with a $1.1 billion shopping centre purchase in St Petersburg, Russia.

Several reports over recent days including Bloomberg yesterday and the Financial Times this morning reported the bank is close to agreeing terms to buy the Galeria shopping centre from Meridian Capital, a Moscow and St Petersburg investment boutique founded by Russian and western businessmen in 1997, according to its website.

The mall covers one million square feet of retail space let to about 300 retailers and was officially opened in November 2010.
According to the reports, MSREI is considering putting $400 million of equity into the purchase, representing around 10 percent of the opportunistic fund, Morgan Stanley Real Estate Fund (MSREF) VII Global fund, or G7 for short.

The equity of that fund has been invested into numerous transactions in the run up to the close of 2011. About $320 million was invested in two deals in Australia, and is thought to be putting a further $200 million to work in China, $50 million in Japan, and $90 million in India.

The fund was last week granted a 12 months extension of its investment period by its investors including General Motors, Government of Singapore Investment Corporation, Canada Pension Plan Investment Board and China Investment Corporation [link here]. As a result, the firm has the best part of 18 months more to invest approximately $1.5 billion of equity, PERE understands.

Those familiar with the Russia real estate market suggest Morgan Stanley has been in exclusive talks with Meridian for more than six months.