Morgan Stanley Fund Said to Buy Russian Mall for $1 Billion

A Morgan Stanley (MS) real estate fund agreed to buy the largest mall in central St. Petersburg, Russia, for about $1.1 billion, according to two people with knowledge of the transaction.

Morgan Stanley Real Estate Fund VII will purchase the Galeria center from Meridian Capital CIS Fund, which is run by a buyout firm backed by a group of Kazakh investors including Askar Alshinbaev, the people said. They declined to be identified because the transaction is private and won’t be completed until later this month.

Galeria, which cost $380 million to build and opened in November 2010, has 250 stores occupying 93,000 square meters (1 million square feet) over five floors, according to Mace, one of the construction companies that built the facility. The mall, located on the intersection of Logovsky Prospekt and Nevsky Prospekt near the city’s Moscow railroad station, features a multi-screen movie theater, a 27-lane bowling alley plus underground parking for 1,200 vehicles.

Morgan Stanley spokesman Tom Walton declined to comment. Meridian Capital didn’t return a call seeking comment and its broker, Jones Lang LaSalle Inc. (JLL), also declined to comment through Moscow-based spokeswoman Natalia Kopeychenko.

The purchase takes the Morgan Stanley fund a step closer to investing money that its backers committed in June 2010. So far, the fund has invested less than half of the $4 billion currently at its disposal.

China Investment

MSREF VII’s backers, which include China Investment Corp., Canada Pension Plan Investment Board and Government of Singapore Investment Corp., extended the deadline for the fund to invest all the money it raised by a year to June 2013. They also negotiated lower management fees and a $700 million reduction in their commitments to the fund.

Russian commercial real-estate sales totaled about 5 billion euros ($6.3 billion) last year, 15 percent less than in 2010, according to data compiled by Real Capital Analytics Inc., a New York-based research firm. That’s 48 percent less than the investment in 2008, the data show.

Rising retail sales and Russia’s lack of modern mall space has fueled a boom in shopping centers in Russia.

Wage Increases

Russians’ wages rose by an annual 7.1 percent after inflation in November, the biggest increase in more than three years, the Federal Statistics Service said last month. This contributed to an 8.6 percent increase in retail sales, separate figures showed.

Russia’s economy may have grown by 4.5 percent last year, exceeding the government’s official forecast, because of the strength of consumer spending, Deputy Economy Minister Andrei Klepach said Dec. 12.

That increase in demand is persuading owners of international brands, seeking sales growth outside western Europe and the U.S., to open stores in Russia. Developers will open almost 3 million square meters of mall space in the country in the 18 months to the end of 2012, according to research by Cushman & Wakefield Inc.

The broker estimates that Russia has about 80.5 square meters of mall space per 1,000 inhabitants, compared with an average 240.3 square meters in the European Union.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.

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