BRICKS & MORTAR: Otkritie's deal with Horus a bullish signal for Moscow property market

By bne IntelliNews November 29, 2010

Tim Gosling in Moscow -

The first major Russian real estate investment deal of 2010 was inked on November 26 in Moscow when Otkritie Financial Corporation agreed to buy five assets from developer Horus Capital for a reported price of $800-850m, sources tell bne.

The deal is not a complete surprise, with rumours having appeared in the Russian press in September that Horus was ready to dispose of all but one of its portfolio of projects to the Russian investment bank, after it sold around half of its assets in November last year.

One source close to Horus confirmed to bne that the deal went through late last week, and the details "correspond to those in earlier reports." Otkritie has reportedly paid up to $850m for 190,000 square metres (sqm) of class-B office space divided amongst five projects, with up to $250m of that going to Horus, and a further $600m or so remaining in debt to German real estate lender Aareal.

The deal appears bullish for Russia's real estate investment market, with a yield somewhere around 10.5%. As one real estate consultant, who asked for anonymity, put it: "It puts a marker down, and it looks as though the market is slightly ahead of where we thought."

The deal apparently went through at a corporate level, presumably because it includes a large portion of debt to a third party. Horus Capital refused to comment, admitting by email only that: "Horus Capital Company changed Owner. Lenmar Capital Inc., controlled by Boris Mints, acquired 100% of the company. Horus Capital withholds comments on the deal." Cushman & Wakefield, thought to have brokered the deal, also refused to comment.

No distress

The initial suspicion on the market was that Horus simply ran out of wriggle room as it waited for Moscow's real estate market to recover from the deep trough into which it flopped a couple of years ago. However, one source close to the deal says that it's just the opposite. "This was certainly not a distressed sale. It seems that Horus [or more accurately, benefactor and former senator Sergei Gordeev] simply wants to divest. There's no pressing need on the debt, and the assets are performing well."

That tallies with reports from November 2009 when Horus sold off the first half of its portfolio. A source close to Gordeev told local daily Kommersant at the time: "The debts were not the main reason... it would have been enough to sell a pair of projects." Instead, Gordeev was said to be rotating his business interests, with his tenure as a senator coming to an end.

For its part, Otkritie appears to have got itself access to cheap capital. Kommersant reported in September that the interest rate on the debt is below 8%, with payment due in 2014. The real estate consultant also suggested that the buyer "obviously feels confident that it can lease the empty space [reported to be around 30,000 sqm] fairly easily." The investment bank failed to respond to questions sent via email.

One outstanding question remains: what will now happen to Gordeev's development company? In November 2009, Horus sold about half of its portfolio, which consisted of class-B office space in renovated buildings in Moscow, mostly outside the centre.

Friday's sale of the 190,000 sqm of office at Factory Stanislavsky, Gamma, Avion, Outlook and Le Fort leaves Gordeev and his partners with just 69,000 sqm at the uncompleted Olympia Park on Leningradsky Shosse, which reports suggest is also up for sale. That said, a source suggested that the proceeds of the sale could go towards development of this project.

It may be, therefore, that just like many other developers currently, Horus hopes to gather its forces to start new projects ahead of the anticipated dearth of new office projects towards the end of 2011.

Indeed, given that newly installed Moscow Mayor Sergei Sobyanin has said he wants to block new large-scale commercial projects in the centre, the company could have a significant advantage. The company's experience in developing quality office in renovated space is a rarity in the Russian capital, which requires no little experience and the right contacts.

That said, with Gordeev having left Russia's upper house to live practically full time in the US, according to reports, and the guard having changed in Moscow City Hall, perhaps the latter presents more of a challenge today.

BRICKS & MORTAR: Otkritie's deal with Horus a bullish signal for Moscow property market

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