LSR Announces $300M for Property Buys in Urals

ST. PETERSBURG - LSR Group, a developer controlled by billionaire Andrei Molchanov, will spend $300 million on acquisitions around the Ural Mountains this year, chief executive Igor Levit said in an interview.

The St. Petersburg-based LSR will focus on Yekaterinburg, the country's fourth-largest city, Levit said, and will consider projects elsewhere in the Urals.

"St. Petersburg will remain our base and we plan to keep our share of the market in northwest Russia, but the company's strategic development is tied with regional expansion, especially in the Urals," Levit said.

In December, LSR paid 50 million euros ($77 million) for Investproyekt, a Yekaterinburg-based company that owns two land plots. The company is in talks to acquire another site in Yekaterinburg and may invest in the cities of Tyumen and Chelyabinsk, Levit said.

LSR is spending more than 70 percent of the proceeds from a $772 million initial public offering in November on projects in Russia and elsewhere in Eastern Europe. LSR will use all of the money by the end of the second quarter, he said. The company will also borrow funds to finance its projects and may sell eurobonds this year.

Molchanov created LSR in 1993 and now owns about 73 percent of the stock. His wealth was estimated at $4 billion last week by Forbes.

Some of Moscow's biggest developers are expanding in St. Petersburg, attracted by the prospect of higher property prices. Billionaire Oleg Deripaska's Glavstroi won a $1.1 billion government contract to redevelop part of the central district and is pursuing other projects in the country's second-largest city as competition in Moscow intensifies.

Fellow billionaire Mikhail Fridman's Alfa Group bought half of St. Petersburg's IVI-93 building company in February and plans to pursue development projects in the city.

"We are not concerned about the arrival of Moscow developers because not one of them has succeeded here before," Levit said.

Residential real estate prices in St. Petersburg will increase by as much as 40 percent this year, according to a report by local consultant Peterburgskaya Nedvizhimost in January.

The value of LSR's real estate climbed 16 percent to $5.7 billion in the second half of 2007, independent consultant DTZ said in February. In addition to developments in Moscow and its home city, the company is spending $880 million to build two brick and cement factories in the Leningrad region, which surrounds St. Petersburg.