All-round developer Open Investments, fresh from an $881m share offering, has plans to lead the field in the often treacherous Moscow property development market
Development company Open Investments has big aspirations following its $881m (€691.2m) share offering on the Moscow stock exchange in October. The success of the placing prompted the company to place another $325m worth of shares.
Denis Davidko, Open Investments’ deputy director general and finance director, says: “We want to become one of Russia’s leading publicly quoted developers. Around 60% to 70% of the proceeds of the offering will be used to finance land acquisition and its development, primarily in the Moscow region but also in Sochi.”
Company strategy is to devote some 30% of capital raised to income-generating assets. Some 4,875,488 shares were offered, and 67% of them were bought by existing shareholders exercising pre-emptive rights.
The company’s market capitalisation is slightly above $2bn. The free float is 40% and is widely spread between a variety of international and Russian investors. The remaining 60% of the company is owned by the $15bn Russian mining-to-finance conglomerate Interros. It is a private investment company with divisions operating in Russia, Europe, Asia and North America.
Open Investments was formed in September 2002. Then in September 2004, Open Investments listed via the Russian Trading System on the Moscow stock exchange. The listing was the first involving a Russian real estate company and valued the firm at $68.8m.
In March 2006, Open Investment’s shares were included in the country’s RTS-2 index. Davidko says: “This enhances Open Investments’ reputation and the liquidity of the company’s shares. We now have a strong track record in raising international and national capital and have already raised $1bn on the international markets. In addition, during 2006 we launched $150m of credit-linked notes.”
Net profits last year from construction and investment activities were $14.1m. “We are a fully fledged developer, not a fund. We buy the land and obtain the necessary planning consents, which can be an extremely difficult process,” says Davidko.
The company is focusing on the greater Moscow area, building luxury and middle-range gated communities that include shopping malls and schools. The rest of its portfolio, around one-third, is prime office space, along with warehouse, retail and hotel development projects in the regions. “It’s wiser for us to build a high-quality product ourselves than to hold, because the present supply of high-grade offices is low and prices are high,” says Davidko.
Moscow is home to many wealthy people. However, its stock of prime offices is very low at 4.9m m2 as at mid 2006, says property consultancy Knight Frank, and rental levels are second only to London. Davidko estimates that new demand for prime offices in the city is growing at between 30% and 40% a year.
Take up is more than 1m m2 a year. Jones Lang LaSalle says that prime rents rose by 20% in the first half of last year and total take-up during the same period was 500,000m2, representing 40% growth compared to the same period in 2005.
Building a land bank is key to Open Investments’ ambitions. Davidko says: “Now is the time to strike. I think that in greater Moscow there is a one-year to one-and-a-half-year window of opportunity to secure good sites in cities before they are all bought up. In the past, land belonged to collectives. But in 2001 the Russian Federation enacted the Land Code and a lot of general operators became large landowners with land at a relatively low price. The price is now rising at between 40% and 50% a year. But many of these landowners have no expertise or too little capital to do development themselves, so many plots are for sale right now.”
The company is also involved in the regions. In the city of Sochi, on the part of the Black Sea known as the Russian Riviera, it has acquired a 3ha site on which it plans to build luxury homes. Residential prices in this city have risen to $3,000 per m2, Russia’s highest prices after Moscow. And values are set to grow. The city government has a $12m investment programme, and the city has been shortlisted for the 2014 winter Olympic Games.
The firm also owns 140ha near the village of Martemyanovo on the Kiev Highway, off the Moscow beltway, and an 18ha plot in Samara, on the banks of the Volga.
Open Investments retains Jones Lang LaSalle and Knight Frank and architects Fitzroy Robinson International.
www.opin.ru
| Open Investments’ projects |
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Existing investments Meyerhold, prime offices of 7,400m2 Novotel Moscow Center Hotel, three-star, 254 rooms Projects under way AI Raikin arts, culture and recreation centre, including shopping and entertainment complex, 8 Sheremetyevskaya ul, 74,000m2 Business centre next to Krasnopresnensky Prospekt Business Center, 70,000m2 Martemyanovo housing project on Kiev Highway off Moscow beltway, 80ha Novorizhsky housing project on Novorizhskoye Highway, off the Moscow beltway, 160ha Pavlovo, residential development of over 200 houses on Novorizhskoye Highway Pavlovo Podvorie shopping and entertainment complex, 40,000m2, including school Pestovo residential development, Dmitrov Highway, off Moscow beltway, 125ha Residential and recreation centre on 3ha in Sochi Sakharov Business Plaza, Vladenie 30, Prospekt Akademika Sakharova, 45,000m2 |
