Market Opportunity ATTRACTIVE MARKET OPPORTUNITY CRITICAL MASS One of the largest, quickly growing and most sustainable industries in Russia CAPITAL GAP Large capital gap between supply and demand in real estate market LEVERAGE Sophisticated financing solutions became available over recent years VALUE & EXIT Coming institutional capital will boost asset values within several years Industry poised for institutionalization
Strong Market Fundamentals Large, quickly growing and sustainable industry Moscow Office Market: Stock & New Construction Source: Colliers International Shopping Center Stock vs. Other European Cities Source: Noble Gibbons Moscow Office Market: Rental Rates Moscow Office Market: Vacancy Rates Source: Colliers International Source: Colliers International
Positive Macro Outlook Strong economic fundamentals and political stability form basis for further growth Nominal GDP Inflation Rate Source: State Statistics Committee
Dividends: Substantial and sustainable cash flow proceeds generated by real estate assets start recouping investors’ capital immediately after an investment and/or necessary operating improvements are made.
Recapitalization: The newly available debt financing options enable a sophisticated real estate investor to return most of investors’ capital via refinancing. More appropriate capital structures also improve current yields and facilitate the return of capital.
Domestic Institutional Buyers: The emerging class of domestic institutional investors, such as pension funds, insurance companies and private groups, lacks investment options and will move into the asset class.
International Buyers: Real estate is one of the primary options for leading international investors seeking exposure in Russia. Decreasing country risk will facilitate this trend.
Sophisticated Structures: High quality portfolios managed by professional, Western-style sponsors can be packaged and listed in REIT-type vehicles domestically or internationally.
Liquidity grows as a result of more sophisticated exit options
Acquisitions – Incoming yields of 10-14% for investment grade properties:
Class A, premier location.
High quality tenant list.
Professional management systems.
Enhanced Strategies – Incoming yields of 15-20% that can be enhanced through:
Refurbishment and incremental development.
Repositioning and operating improvement.
Sophisticated use of leverage.
Development – Still provides speculative returns:
Commercial developments deliver returns up to and beyond 30%.
Residential market is booming and provides essentially unlimited upside.
Attractive risk/reward parameters across various investment strategies Institutional Investors’ Dilemma: Shortage of existing investment grade assets forces institutional capital into more speculative investment areas.
Property developers and construction companies lack access to sufficient financing to absorb their substantial project flow. Newly developed commercial and residential space is pre-sold prior to completion.
Most owners of significant property portfolios has historically focused on sourcing assets and also lack capital to improve them.
Commercial banks have substantial financial resources, but do not have expertise to develop real estate finance business.
Financing is required in the form of both equity and debt.
Though profitable and growing, industry suffers from shortage of “smart” money Solutions Opportunity Funds REIT-like Structures
Provide foreign investors with exposure to high quality real estate assets.
Normally, structured as closed-end vehicles.
Do not rely upon sponsors’ existing property portfolios (“blind pool” funds).
Upon allocation of investment capital, have ability to access public markets.
Attractive market fundamentals brought new types of foreign investors Focus on Moscow and St Petersburg NA $90mm target/ not closed Torus Investment Managers Torus real estate fund Targeting existing and development office and residential projects Swiss listed company $35mm/ closed MCTrustco Eastern Property Holdings Acquisition of existing Class A commercial buildings in Moscow with emphasis on trophy status Private closed end partnership $60mm/ closed Fleming Family & Partners Fleming Family & Partners Russia Real Estate Ltd. STRATEGY LEGAL FORMAT SIZE/ STATUS SPONSOR FUND
Legal Format: “Closed Real Estate Mutual Fund” in accordance with 2002 Investment Fund Act # 156.
Portfolio Requirements: 40% to 90% of the fund’s assets need to be comprised of real estate assets or equity in construction companies.
Regulation: Focus on protecting investors’ rights.
Mandatory licensing of the fund’s management company by the newly created Federal Financial Markets Agency (FFMA).
All transactions involving the fund’s assets need to be approved by a Specialized Depository (licensed by FFMA). Ownership rights for the investment units are registered by a Specialized Register (licensed by FFMA).
The funds portfolio need to be appraised by a licensed appraiser on annual basis.
Liquidity: Legal format provides an option to list the fund on a domestic stock exchange. Investment units can also be used as a quality collateral in the construction industry financing schemes.
Concordia Asset Management: $10mm fund listed on MSE.
Management Consulting: $32mm fund.
Provide financing and securitization alternatives for real estate industry
Created in 1994, RCF established itself as one of the foremost financial advisors to Russian companies entering international capital markets.
Facilitated over $1 billion of debt financing in the form of syndicated loans, bonds, and commercial paper.
Professional staff includes 28 employees located in offices in New York, Moscow, and Geneva.
Moscow office provides a range of integrated investment banking solutions, including organization of debt, equity, and project financing.
New York office carries out private and public placement of securities:
Registered Broker-Dealer with the NASD,
Registered with the SEC,
Member of the Securities Investor Protection Corporation (SIPC).
In-depth industry expertise in Telecommunications, Financial Services and Real Estate and Construction
Over the last 2 years, executed over 10 investment banking transactions with total transaction value in excess of $120 million.
RCF’s Construction Financing Vehicle Financing and securitization mechanism for real estate and construction industry Unit Purchase Banks Insurance Companies Institutional Investors “ Closed Real Estate Mutual Fund” Construction company Real Estate Assets Investments Construction Process Individuals Private Investors Pension Funds