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. Last Updated: 07/27/2016

Fleming Snags Classy New Property

For MTAnalysts said the Lesnaya 3 deal could make the area a hot one for offices.
In Moscow's third Western institutional real estate investment to date, Britain's Fleming Family & Partners has acquired a prime 7,500-square-meter office and retail center at 3 Lesnaya Ulitsa from the company Coalco.

Parties involved in the deal have refused to discuss its size, noting only that it was "on par" with Fleming's first Moscow acquisition.

In the city's first institutional deal, Fleming Family & Partners Russia Real Estate fund acquired the nine-story, 10,900-square-meter Class A Gogolyevsky 11 office center from Credit Suisse First Boston for roughly $30 million in October 2003.

"From the very beginning, we have targeted longer-term prospects for a real estate business in Russia, and although the market is still complicated and challenging, especially for foreign investors, we believe that this transaction is an excellent indication of the seriousness of our intentions," said Maxim Kunin, head of real estate at FF&P.

Market watchers estimated the deal's capitalization rate at roughly 14 percent. They also estimated the entire deal to be approximately between $25 million and $30 million.

FF&P, a private group owned by Scotland's Fleming banking dynasty, formed a $60 million fund for investing Western pensions in Class A office buildings in Moscow in May 2003.

GE Pension Trust, which manages U.S. conglomerate General Electric's pension money, is its major investor. In late January, Immoeast, a subsidiary of Immofinanz, Austria's largest listed real estate company, acquired approximately 26 percent of FF&P Russia Real Estate.

Coalco is an investment company with significant interests in a variety of industries, focusing on real estate and metals. It is currently active in the office, residential, and warehousing sectors in Moscow and Moscow region.

Built in 2004 by Coalco and managed by Hines International, the Lesnaya 3 complex, located near Belorussky Station, has a gross area of 7,500 square meters, including 5,700 square meters of offices and 800 square meters of retail. As part of the sale transaction with FF&P, Coalco has signed a five-year lease for the office part of the building.

"It is a well-structured deal that makes international institutional investors comfortable," said Oleg Myshkin, director at Colliers International, which is acting as FF&P's property adviser. "The fact that the fund now has Immofinanz, a very conservative investor, among its shareholders is a very positive sign for the market."

Besides the two FF&P deals, Moscow has seen one other institutional acquisition: In May 2004, Switzerland's Eastern Property Holdings purchased the Berlin House office and retail center from Westdeutsche ImmobilienBank for over $40 million.

There is lack of quality, investment-grade properties in Moscow, and an international investor such as FF&P could not afford to miss the opportunity to buy Lesnaya 3, said Olga Arkhangelskaya, head of real estate advisory services at Ernst & Young.

"There are plenty of potential investors, but virtually no offer. People are basically standing in lines to sign deals," she added.

Lesnaya 3 is a top-quality building, whose value will only increase over time, as that part of central Moscow is currently undergoing massive redevelopment, with numerous office and retail facilities due for completion in the next few years, said Michael Lange, managing director at Jones Lang LaSalle.

"The area where it is located is going to be one of the hottest office destinations in two to three years," he said.

FF&P's Kunin also predicted that the area around Belorussky Station is going to become a "second Paveletskaya," as far as its attractiveness as an office location is concerned.

"It is not as prime as Gogolyevsky 11 of course, but it is an important, strategic location near Tverskaya that is not going to go away," he said.