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. Last Updated: 07/27/2016

Deutsche, Austrian Builder Team Up

Deutsche Bank has teamed up with Austrian construction giant Strabag to set up a Russian construction venture, the bank said in a statement Tuesday.

The venture is considering developing more than 1 million square meters of commercial and residential real estate around the country over the next few years, said Viktor Makshantsev, head of Deutsche Bank's Russia and CIS real estate department.

Makshantsev said Deutsche Bank and Strabag would be equal partners in the joint enterprise, with both companies having two seats on the venture's board.

"Deutsche Bank will be primarily responsible for arranging the finance, and Strabag will be in charge of construction and development," a statement said.

Makshantsev denied reports that the new venture's assets would total from 2 billion to 3 billion euros ($2.7 billion to $4 billion), saying it would be funded on a project-by-project basis and that it was designed to allow maximum flexibility.

"The company will be structured as a classical fee developer," he said. "Effectively, it gives Deutsche Bank a chance to use the joint venture for the whole development cycle from the beginning, identifying an adequate plot of land, through to realizing the project and even managing it using Strabag facilities."

Makshantsev rejected suggestions that the agreement with Strabag would straitjacket Deutsche Bank in future, saying the bank was still free to work with other partners.

Strabag, one of Europe's largest construction companies, with an annual turnover of almost 10.5 billion euros, has been present in Russia for more than 15 years.

"The creation of the joint venture with Deutsche Bank is a landmark sign of our commitment to this market place," said Alexander Ortenberg, Strabag's managing director for Russia.

The deal underscores the importance that major investors attach to Russia's booming real estate industry.

"We consider the real estate sector and development sector as one of the key elements in realizing our strategy in this market," said Yury Solovyov, head of global markets in Russia and CIS at Deutsche Bank.

Makshantsev could not confirm reports that the venture's first project would be a $300 million development on Moscow's Sofia Embankment, saying that talks were ongoing.

Big demand for financing and Western wariness toward Russian construction firms explained the venture, said Larissa Afanasyeva, director of valuation and consulting at Colliers International. "From this perspective, this teaming up of a Western bank and a Western construction company with broad experience in construction markets is a logical step, because by securing construction risks, the lender is decreasing its own risks" she said.

Although this was the first venture of its kind, a similar project could be launched in the future, Afanasyeva said.

"More Western contractors who have good expertise in Russian market may team up with Western banks. Why not?" she said.