Investors Club session at MIPIM
Cannes, 11 April 2009

The event had a format of the panel discussion. The following themes were preannounced:
- Insight into the Russian Investment Market of Tomorrow shaping out Today,
- Investment Market Russia - Experiences and Expectations’

The discussion highlighted most critical issues of investment into the commercial development projects in Russia; provided free exchange of opinions between Western and Russian financial institutions, market professionals and regional authorities seeking investment at the time of economic crisis

Moderator: Andreas Schiller, CompEtencE Circle
Leader of GMD Investors Club project: Serghey Igonin, IB Group

Keynote speakers: Thomas Beyerle, DEGI/Aberdeen Property Investors
Alexey Schukin ‘Expert’ Magazine

Panelists:
Jorg Banzhaf, ECE
Thomas Erdmann, Europolis Real Estate Asset Management
Thomas Hoeller, Pramerica R.E. Investors
Markus Leininger, EuroHypo AG
Dieter Rebitzer, Research Institute of Housing and Environment
Markus Wolf, Garbe World-Cargo-Center GmbH

1. Keynote speeches  
Thomas Bayerle, presentation “Real Estate Investment Market Russia. Experiences and Expectations”.
Thomas gave a rather optimistic overview of the Russian market dynamics. It was mentioned that Russia’s strong relations with Asian economies may pull it from the crisis faster than other countries. Russia’s coverage in the Western media is more negative than real situation. Only Moscow and St. Petersburg are known in the West. Commercial estate projects of both cities have risks inherited from the overheated market of last years. Regional markets/economies of Russia are labeled as “small capacity”, though their future potential is acknowledged. DEGI is not planning to leave Russia, though in August 2008 it had to cancel 3 projects in Moscow and ST. Petersburg, DEGI hopes to return in 2010.

Alexey Schukin The global real estate crisis has two aspects, presence of both is evident in Russia: first – crisis of responsibility (irresponsible developers and investors who raced for super revenues and forgot about risks and commitments ) ; second – collapse of the economy based on the philosophy of consumerism. Way out: reasonable-size projects, in which healthy environment and human values are put over consumerism and profiteering. Russian developers have to learn more about risk management.

2. Opinions of panelists and responses
Thomas Hoeller, Pramerica: 5027773001040f Pramerica’s investors are Americans who will stay reticent about investment in Russia until its political leadership changes. For them it is too risky to invest in the country, where the government may change rules of the game. Other Pramerica’s customers are Arabian investors, whose attitude to Russia is more open. Pramerica will monitor the situation in Russia and wait at least several years.  

Veniamin Golubetsky (Renova Stroy Group). In terms of projects (not policy) the active participation of state is a benefit. Investors forget about political risks, if they learn that the project is co-funded by the government, be it in rubles or dollars. In the current situation the institutional investment increases project feasibility. Renova’s “Academia” project in Yekaterinburg is a good example. The timeframe of the huge project of integrated area development (including new infrastructure and several towns) is 20 years. It has low investment risks due to the fixed (not very high, but guaranteed) yield and institutional guarantees. About anti-risk investment: The governments should not support certain banks or companies, but invest into efficiency of financial mechanisms, like optimized mortgage system and clearly defined tenders on state-supported projects, with transparent revenues (even if not very high). Predictability will reduce risks and attract investors.

Markus Leininger, EuroHypo For two last year EuroHypo has been investing into commercial estate projects in Russia and will probably continue. EuroHypo’s analysis confirms positive conclusions about Russian market, which were made in the presentation of Thomas Bayerle. At present the banks are revising their strategies. Though previously it seemed that banks calculated all risks, some toxic details were not taken into account. These days banks are conservative about investment into real estate, need to digest the impact of phenomena mentioned in the keynote presentation, e.g. superconsumerism. It is likely that too much has been invested into the ‘consumer’ assets . The new vision will influence the investment structure both in Russia and in Germany.

Dieter Rebitzer, Research Institute of Housing and Environment. Russia’s housing, including new projects, continues to be economically inefficient, buildings still have bad energy performance. Most of them are energy-extensive, which is different from Europe. This is a problem, but, on the other hand, this issue means a good development potential and is of interest for all market players – investors, owners, developers.

Thomas Erdman, Europolis. Europolis approach is to have long-term and sustainable projects (Europolis has projects in Moscow, St. Petersburg, since recently – in Volgograd). In spite of crisis-generated problems (dramatically changed ruble-euro exchange rates, (“we have to eat cold soup”). Europolis will stay on the Russian market

Jorg Banzhaf, ECE. Alarming is that in Russia all global economic trends tend to have an enhanced scale. 6 years ago Russia seemed to be a fairy-tale land with a 30% yield, now the situation changed to the opposite. These days Eastern Europe offers attractive and reasonable-cost development projects with understandable yield. The projected rent rates are not so elevated, as e.g. in Moscow. Some time ago a ECE contractor in Yaroslavl increased the project budget by 1 million at each round of talks. Now this project can be done 30-40Nheaper than in the middle of 2008. Calculated rent rates in the investment proposals should come to the normal level to attract sensible investors. Forget about 15% yield, put reasonable 8%.0 Unrealistic figures scare Western investors. With patience this market will revive (as Thomas said, maybe in 2010 or by 2013). ECE promises that in the long-term perspective the company will return and work on the Russian market.

Egor Noskov, Duvernoix Legal Traditionally Russia’s risk problems were generated not by the bad legislation, but by its inefficient use and enforcement. Talking about the real estate market, currently there are almost no standard deals based only on calculations and valuation. Western investors think that the market has not yet dropped to the level for them to buy. A new type “hysterical deals” has become a reality – an owner in debt has to sell a high-liquidity property to save his business. Russian investors are less sophisticated and patient than their Western counterparts, and they have money. So we believe that the property market is likely to start revival using the Russian not foreign money.

Andrey Barinskiy, Forum Properties. Today’s discussion shows that real estate is a very global area related to and influenced by different branches of economy and whole social system. We need to establish professional alliances and consider everything on a strategic level. Actually, there are good investment portfolio proposals made by Western funds. It is our illiteracy and lack of understanding, which prevented sound deals made. We need to keep in mind that we are not an island, but a part of the global market. Under the circumstances we can speak only about deals on completed projects and ready-to-use property.

Markus Wolf, Garbe World-Cargo-Center GmbH. Criticized the too optimistic opinions about the current situation and crisis impacts. Being an investor, primarily, into the cargo handling infrastructure Markus commented that to secure the economic recovery of the country it is the best time for the state to invest into the logistics and infrastructure (ports, airports, cargo handling facilities), because Russia has it all in horrible condition. These investment projects will get the country out of the crisis faster. Second aspect: politicians should revise their attitude to foreign investors and developers. Rules of the game should be equal for everybody.

Vladimir Vishnevsky, VTB: none of the speakers touched upon the subject of global inflation. Western experts do not seriously consider a global inflation scenario or are too scared by it to think?  

Thomas Bayerle: Inflation is a global process affecting economies in a different way. Financial institutions come to Russia, because the yield is better. They are concerned about home-made way of doing business. If this continues Western know-how and experience won’t applicable.

Closing the discussion A. Schiller invited the Investors Club members to continue exchanges on specified themes of interest in Bonn (June 18, 2009) and at the PROEstate Forum in St. Petersburg (September 3-5, 2009).

Themes and agenda of Bonn session and Investors Club events within the PROEstate Forum in St. Petersburg will be announced by the Investors Club – GMD Organization Committee

Investors Club is a platform for meetings of Western and Russian investment funds and banks, CEOs of large development companies, regional authorities and institutional investors from major Russian cities, reputable experts and ambitious professionals  

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