Morgan Stanley said to near $1 billion Moscow mall deal

, Bloomberg

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Morgan Stanley is close to buying and expanding a Moscow shopping mall in a deal valued at more than $1 billion, according to three people with knowledge of the talks. The deal would be the second retail property purchase in Russia this year by funds it manages.

Metropolis mall in northwest Moscow, near the main highway to the city’s airport, may be bought by a Morgan Stanley-managed fund in coming weeks, according to the people, who asked not to be identified because the talks are private and an agreement hasn’t been reached.

Capital Partners, the Kazakh developer that opened the 80,000 square-meter (860,000 square-foot) mall in 2009, would be responsible for the expansion as part of the transaction, the people said, without specifying how much space would be added. The acquisition would follow Morgan Stanley Real Estate Fund VII’s $1.1 billion purchase of the Galeria mall in St. Petersburg in the first quarter.

Morgan Stanley (MS), based in New York, declined to comment in an e-mailed statement. No one at Capital Partners was immediately available to comment.

Deals like Morgan Stanley’s Galeria purchase increased Russian commercial real estate sales by an annual 4 percent to $5.9 billion in the first nine months, according to data compiled by Real Capital Analytics Inc.

That compares with a 20 percent decline in transactions across the Europe, Africa and Middle East region in the same period as banks scaled back lending and investors shunned riskier markets. Moscow was the region’s third busiest investment location after London and Paris, according to the New York-based researcher.

‘Macro Story’

“There’s a very strong macro story in Russia,” said Charles Boudet, Jones Lang LaSalle Inc. (JLL)’s managing director for Russia & Commonwealth of Independent States, which is handling the Metropolis center sale. He declined to comment on any possible transaction.

Morgan Stanley joins companies including Hines Interests LP, Gazit-Globe Ltd. (GLOB) and Ikea Shopping Centres Russia that are seeking to benefit from a consumer-spending surge as the economy of the world’s largest energy supplier expands. Retail sales of non-food items in Russia grew by more than 5 percent a year since 2009 as low indebtedness and rising wages boosted Russian shoppers’ disposable income, Boudet said. Shopping accounts for about 60 percent of personal expenditure, Chicago-based Jones Lang estimates.

‘Growing Incomes’


“The whole Russian story is about growing incomes,” said Maxim Karbasnikoff, a Cushman & Wakefield Inc. partner in charge of retail services in Russia. “There’s been very little supply in a consumer market that’s booming.”

Retailers in malls owned by Ikea Shopping Centres Russia, which has 14 shopping centers including Europe’s two largest, had a 13 percent increase in sales in the year ended Sept. 30.

“Retailers are coming to Russia because they need to be there,” Magnus D’Oldenburg, who oversees management of Ikea Shopping’s malls, said in an interview at a trade show in Cannes, France, last week.
“There’s been a shift in attitude - it’s not out of charity that they’re coming.”

Media-Saturn Holding GmbH, owner of the Media Markt electronics chain, last week agreed to lease four units of about 5,000 square meters each to be built in new extensions to Ikea centers, according to a statement.

Space Competition

Retailers are prepared to sign leases of as long as 20 years, whereas previously they might only accept rental agreements lasting about three to seven years as they compete for limited space, Ikea’s D’Oldenburg said.

Rising rents mean that shopping centers in the greater Moscow region generate average rental income returns of about 10 percent, rising to as much as 15 percent in Russia’s regional markets, D’Oldenburg said.

Other chains looking to add to their business in Russia include Debenhams Plc, which opened its first department store in Moscow in September as part of an expansion in the country.

Russia has the largest shopping-center construction pipeline in Europe with 2 million square meters of space scheduled to open through 2013, according to data compiled by Cushman & Wakefield. Russia has 107.6 square meters of space per 1,000 inhabitants, less than half the 250.1 square-meter average in the 27-nation European Union, Cushman data show.
 

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