European investors seeking exposure to direct Russian real estate have been investing in non-Russian fund managers to gain the access they desire.
Now, it seems another route is opening up – the locals are setting up private equity real estate funds.
Last month, the clearest example of this to date was revealed. Moscow-based PIK Group said it would establish PIK Capital Partners, a “real estate private equity arm,” during its 2007 financial results – together with the PIK Real Estate Fund “to invest mainly in a broad range of commercial real estate transactions.”
The group, which owns $12.3 billion of real estate, told PERE that it aims to raise RUB 23 billion ($1 billion; €640 million). “We have launched the PIK Real Estate Fund to invest mainly in commercial real estate like offices, hotels and others,” said a spokesperson. “This way, we create a financial vehicle for our and other commercial projects.”
The good news for investors is that there are few Russian companies offering the same level of transparency.
PIK listed on the London Stock Exchange last year – the largest ever IPO by a private Russian company and the biggest non-REIT IPO globally in 2007. The firm raised $1.9 billion from investors in Asia, Europe and the US by selling approximately 16 percent in a free float. The remainder is owned equally by founders, chairman Yury Zhukov and president and chief executive officer Kirill Pisarev.
Since the IPO, the company has been busy adding strings to its bow. When it listed, PIK was essentially a Moscow residential developer, but in order to branch out the group acquired a majority stake in Storm Properties, a commercial office developer. This was its entrée to commercial real estate.
The underlying macro reasons why investors want a piece of Russia are well versed. In the last three years, GDP has grown between six and eight percent. The forecast for 2008 is up to eight percent.
Adding to PIK's credibility, in December last year rating agency Fitch gave the group its first credit rating – BB, the highest rating of any company in the Russian real estate sector.
The same month, the group entered into a $233 million joint venture with GIC Real Estate in which GIC bought a 25 percent stake in a mass market residential project in Mytischi, Moscow.