Russian, US investors flex financial muscles in CEE real estate

Russian real estate investors are beginning to expand beyond their borders into the rest of Central and Eastern Europe, PropertyEU's latest investment briefing has heard.

'On top of that, the Russians may start financing more property in central Europe,' Jos Tromp, head of research and consulting said in his presentation to the CEE investment briefing hosted by CBRE in London.

Russians and North American players are becoming increasingly prominent as the investor composition in the region had undergone a marked change since the outbreak of the financial crisis. Small, one-off investors have left, leaving cross-border investors to dominate the market. (See attached graph)

Russian investment has come from very low levels in 2004 and 2005 to about 30% of the market in 2012. Traditionally, Russian investors tended to be focused on Russia and the Ukraine. 'Slowly but surely the money is coming out of Russia,' Tromp said. 'Recently a large equity fund from Russia bought one of the most core properties in Munich in a really substantial investment and we believe this may come through in the rest of CEE.'

US INVESTMENT
US investors have already ramped up significantly in the region. The 2012 investment figures for CEE (including Russia) are somewhat skewed by Morgan Stanley's €900 mln acquisition of Galleria shopping centre in St Petersburg and this year by the purchase of Metropolis shopping centre in Moscow for a similar amount.

Tromp: 'Yet the overall trend is nevertheless quite clear. 'US investors are being much more bullish on Europe and CEE we have seen a similar trend back in 2003-4 when they did quite a lot of acquisitions. It seems that US investors are feeling this is time to move back into the market.'

Another driver for US investors has been quantitative easing in the US and fears of inflation.

US investment into the region includes Blackstone acquiring shopping centres in Poland; Heitman buying in Poland, Hungary and Slovakia, and Hines active in Poland.

AUSTRIAN SLOWDOWN
The Austrians used to be one of the main investor groups in CEE but they have taken a step back. 'It is quite interesting to see that the Austrians in terms of activity have almost left the market,' Tromp said. 'They are really focused on re-organising their portfolios as share prices have been quite low for some time and this is clearly affecting the deal flow there.'

That said, Tromp noted that Immofinanz, the largest listed real estate company on Vienna's stock exchange, carried out one of the largest shopping centre property deals in Russia last year. The company acquired the 50% it did not own in Golden Babylon Rostokino in Moscow for €540 mln.

The Germans, who have traditionally been another group of big spenders in CEE, have also become less active due to the liquidity crisis that has left to the suspension and winding up of several open-ended funds.

It is not the case, though, that all the Germans have left the market. The largest fund managers such as Deka Immobilien, Union Investment and Deutsche Asset and Wealth Management, formerly RREEF, are still active, along with some closed-end funds.

Hamburg-based Union Investment acquired the Manufaktura shopping centre in the Polish city of Lodz during July last year for €390 mln.

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