Sberbank Purchases $300M Office

Despite the ongoing financial malaise, Sberbank has come up with $300 million to buy the Yuzhny Port center, which it had previously been renting, from Midland Development.

Sberbank purchased the 57,000-square-meter business center on 2nd Yuzhnoportny Proyezd, Midland chief executive Valentin Vinogradov said. Sberbank will buy the buildings comprising the center as reconstruction work at the site is finished, the bank's senior vice president, Stanislav Kuznetsov, said through his press office.

In October, Sberbank began renting the Yuzhny Port complex to house its service center, its data processing unit and the rest of its back-office operations, which are currently scattered around Moscow. Irina Kibina, head of Sberbank's press department, said the bank had the right to buy out the office.

Neither Vinogradov nor Kuznetsov would disclose the value of the deal.

Consultants participating in the Yuzhny Port project say the bank paid "slightly less than $300 million" for the office. A source close to one of the sides of the deal confirmed that price.

Vinogradov said Sberbank also provided Midland with two lines of credit. One of them, for $165 million, has already been received and will go toward the development of the 61,500-square-meter Diamond Hall business center on Olimpiisky Prospekt. The second, for $35 million, has been approved by the lending committee; it will be used to build the 35,500-square-meter Parus shopping mall in Kurkino. Both loans are for five years with an interest rate of 12.5 percent, he said.

A Sberbank official confirmed that Midland would receive the loans but said he could not recall the terms of the agreement.

Given that banks aren't lending to developers at all, the conditions look quite reasonable, said Ivan Manayenko, head of the debt analysis department at Veles Capital.

But Mikhail Gets, managing partner of the company Novoye Kachestvo, said he thought that Sberbank had overpaid.

Sberbank rented Yuzhny Port for around $600 per square meter, a consultant on the project said, meaning that it would have paid the equivalent of nine years of rent.

Last summer, offices cost about five times the annual rent, Gets said. Currently, he said, such a building could be purchased for three to four times the annual rent.

The source close to one of the sides said the price of the purchase had been fixed in the rental agreement.