Crowdfunding real estate investment in Russia

Crowdfunding real estate investment in Russia
By Ben Aris November 11, 2015

Russia’s real estate sector is on its back, but internet entrepreneur Oskar Hartmann believes that means there are bargains to be had. Following Europe’s lead, the founder of Russia's leading online fashion discount store has launched the country's first crowdfunded real estate investment scheme – and already he’s raised over $14mn in a month to buy the first property.

Hartmann is best known for setting up fashion discounter about eight years ago. Since then, he has launched a string of other sites focusing on e-commerce, including to sell cars and, a discount online store for household staples, as well as founding the internet investment fund Fastlane Ventures over five years ago. But his latest venture breaks new ground by moving into finance.

The idea is simple: real estate has always been seen as a long-term secure investment, but ordinary people usually cannot afford to make more than one investment – buying the apartment they live in. What does is togather hundreds or thousands of people together who all buy a small share in a building and then collect a share of the rent each month.

“I am doing an investment at the moment on and would like to invite you to co-invest with me. I built as a commercial property crowdfunding platform, which allows successful people to buy shares in large commercial property to build a passive monthly income and achieve financial freedom,” Hartmann writes in a recent marketing email blast to solicit investment.

Although at first sight this looks like some sort of “phishing” scam, the fund is a PIF (mutual fund) regulated by the Central Bank of Russia (CBR), and the investment is secured by real property rights over the buildings. The risk the investor takes on is more or less the same as any investor in real estate takes on the development of the market. “This is like a normal PIF,” explains Ekaterina Nikolaeva, managing director of “We have set up a management company that has a license from the CBR that guarantees the safety of the investment.”

Time to buy

Moscow’s real estate sector is in a bad way at the moment. Demand for residential housing is expected to fall by 30-40% in 2015, according to VTB Capital, with discounts on the prices on the secondary housing market currently at record highs. Meanwhile, vacancy rates on retail space have been creeping up from 7.5% at the end of last quarter, while rents have plunged. And vacancy for office space is also at an all-time high: there are one and half times more empty offices in Moscow at the moment than in the depths of the 2008 crash. The bet for any potential investor into Moscow property is that the market has hit bottom and it will be uphill from here.

For those willing to take a punt, Aktivo has some quality properties to invest into. The company is currently in the process of raising money for Tverskaya 9, a residential and retail asset. If the golden rule of real estate deals is “location, location, location”, then it doesn’t come much better than this. The building is at the bottom of Moscow’s main thoroughfare and a stone’s throw from Red Square.

The property costs $18.8mn and fund raising began at the end of October. The reaction was positive: Aktivo has already 3,000 registered clients and had collected 70% of the money by November 6, or $14.1mn. “We hope to close the fund raising by the end November and then close the deal in December. The first rental payments will made in January,” says Nikolaeva.

The property is supposed to yield 11-16% per year with full payback on the initial investment in seven years, according to Aktivo’s prospectus, and there is a long-term lease agreement in place until 2022 fixed in US dollars – crucial in these times of exchange rate volatility. The price of the space is $8,730 per square metre, less than half the historic highs that property commanded in the boom years. “We will buy the retail part of the building – the first four floors – and have a lease contract for seven years with the current tenant denominated in US dollars,” says Nikolaeva. “The price of the property is cheap. Three years ago the cost of a square metre was as high as $28,000 per square metre on Tverskaya, so if the value of the space recovers, then the rental value will rise too.”

Although the crowdfunding is about to close, investors can get into and out of the deal at anytime: plans to set up a secondary market for shares in the scheme, which investors can buy and sell at any time, says Nikolaeva.

Of course, a crowdfunding online investment is easy to do. A punter just has to go to the website, register and choose an amount to commit, starting with a minimum of $5,000. “Filling in a form will take couple of minutes, you will need only the basic passport information, tax number, bank account details and a copy of your passport (the first page and page with registration),” the website explains. “The set of documents will be generated automatically then a personal manager will contact you to agree on a convenient time and place to sign the contract.”