Middle East investor backs Russian fund in Moscow logistics

Property Investor Europe News, 23.10.2014

A Middle East fund is teaming up with Russia’s sovereign investment fund and Russian real estate firm Development Group 19 to build logistics sites around Moscow, marking a rare inward investment as many international capital remains wary of deals in the country.

The Russian Direct Investment Fund, a $10bn sovereign vehicle established by Moscow in 2011 primarily to invest alongside international firms, announced the agreement Thursday but did not name the Mid-East investor or how much the parties plan to allocate. The JV intends to develop Class A logistics space to satisfy growing needs to improve supply chain efficiency in the country. It intends to focus initially on Moscow where logistics coverage is about half other major European cities at 0.8 sq.m. per capita, and will expand later into the regions.

“The demand for logistics facilities is driven by the needs of evolving traditional retail businesses, fast-growing e-commerce and the need for efficiency in the global supply chain,” said CEO Kirill Dmitriev in a release. “The trend of significant demand for premium logistics facilities over medium and long term as seen in Russia and global markets makes this investment an attractive long-term opportunity.”

RDIF’s partners on previous deals have included Kuwait Investment Authority, Abu Dhabi’s Mubadala, China’s CIC and leading private corporations and institutions including General Electric, BlackRock and Deutsche Bank. However, international appetite for Russian investments has waned in the face of political tensions in Ukraine and economic sanctions. Leading logistics group Prologis had considered investing in Russia earlier this year, European CEO Philip Dunne told PIE’s Logistics Breakfast last week, but was put off by geo-political events. “It is an interesting market but there is no international money that is going to make its way further east at this point in time,” he said.

RDIF is a subsidiary of Russia’s state-controlled VEB Bank but is not subject to sanctions, and Dmitriev told the Financial Times recently that co-investing with the fund is not prohibited. To date RDIF has invested $1.3bn and its co-investors have contributed over $6bn to projects, including Moscow Stock Exchange, telecoms group Rostelecom and diamond producer Alrosa.