The market of institutional investors, which is made up by banks, pension funds, investment and insurance companies, differs greatly in Russia from foreign ones. For example, pension funds abroad are one of key investors in commercial real property. Let us look at the association PensionsEurope. It consists of over 100 pension funds operating in 21 European country, which represents about 29 million beneficiaries and the assets worth over 4 trillion euros. About 10% of these funds is invested into real property, while pension funds make about one third of institutional investors investing into realty around the world.
Pension money is very long money invested into projects which can generate stable and guarantee income for many decades to come. There are not many businesses like this one. For example, IT companies raising a lot of investments today is not exactly what pension funds want, as they aim at stable income in 20, 30 and even 40 years instead of a fast and tremendous growth now. This is why foreign investment funds prefer deposits, energy companies and realty. Having selected a proper facility (with a good location, appropriate concept and effective management), one can hope for a stable income for years to come.
Institutional investments will not appear at your doorstep. Emitents must work hard to go public, explain the investors that we can do just as well as the companies in the west and that our commercial real property is based on international standards. We must be more transparent if we want to see all those investments into realty.
unit. The most obvious advantage for a private investor with no previous experience in this industry is the reputation and expertise of the management company,” comments Elena Podlesnykh, Director of Capital Markets and Investment, CBRE. On the other hand, she adds, it has long been used as an alternative to owning an asset for tax optimization rather than as a way to earn. Though there are as many funds in Russia as in the USA, their shared capital is still rather small, as this tool has not become popular, nor have there been many large real estate units sold. The most recent ones include a purchase of the shopping center Rechnoy by Sberbank Asset Management Ltd in Moscow and a signed DOA to buy the shopping and entertainment center called Zhemchuzhnaya Plaza in St. Petersburg.
To go public
These days, there are two ways for realty funds to work in Russia. First, a management company or a bank sets up a fund to buy a particular real estate and then pays off the rent minus their costs to the clients. This way, shareholders co-own a rent real estate. Secondly, they can invest into new construction, when the flats are bought at an early construction stage and sold off when the construction is nearly delivered. The income is divided between the shareholders too. Most funds are closed and only serve a particular group of investors, whose information is confidential, together with the amount of their investments.
In order to bring the realty fund market to match the one in the USA and other countries, where the REIT model is common, the transparency of realty funds must be developed. Such funds must reveal all their information, including the amount of investments, income, management costs, etc. Yet even not every major management company is willing to develop “real” stock market realty funds with the shares sold at the shock exchange, so transparency is something to work on further.
“At the moment, Russian commercial realty is underrepresented at Moscow stock exchange. Only Garant-Invest represents retail property per se. Neither shopping centers, nor offices, nor hospitality have reached the open capital market. On the other hand, we can see the amount of housing developers at Moscow stock exchange has increased and they have outperformed representatives of commercial property in terms of transparency and openness,” says Alexey Panfilov, President of Garant-Invest Group. With that, the world is moving towards openness: any investor, whether a major fund or a person with limited funds, wants to understand how the company in question works, how it does business, how its money is earned, how its investors earnings are made, which instruments can be used to keep the income high today and increase it with time.
Alexey Panfilov,
Presidentof Garant-Invest Group
expert opinion