Property Investor Magazine - (07.01.2013)

Azerbaijan's Paris, Moscow buys take European RE over €450m

07 January 2013, 03:56 AM

The State Oil Fund of Azerbaijan, the Caspian Sea nation's €34bn sovereign wealth fund, has announced real estate acquisitions in Paris and Moscow, adding to a purchase in London to bring 2012 European property commitments to around €454m, one-quarter of its permitted allocation.
In France SOFAZ agreed in December to pay €135m to buy 8 Place Vendôme, a prestigious Paris prime office and retail property, from AXA Real Estate Investment Managers. The office, retail and residential space is located in an 18th century mansion and an office building from the 1950s. Constructed in 1712, the classic French Baroque mansion forms a part of the iconic Place Vendôme located in the 1st quarter of Paris and built in honor of the Sun King Louis XIV in the late 17th century.

Pierre Vaquier, CEO of AXA Real Estate, the largest European property manager with €43bn AUM, commented: “This is a landmark transaction for AXA Real Estate of a truly iconic building with real historic significance. Furthermore, it demonstrates the continued global demand for prime and super prime assets in Paris as investors seek both shelter for their capital from global economic headwinds and to secure long term income.” The sale culminates recent AXA Real Estate management initiatives which include upgrading of the retail offering to world class status and significantly improving the office space while preserving the unique historical exterior and interiors of the building.

Just weeks later, shortly before year-end, SOFAZ announced the purchase of Gallery Actor, a mixed-use office and retail complex located at 16 Tverskaya Street in Moscow's CBD for $133m. Seller was Metropolitan Insurance, part of the giant VTB banking Group. Jones Lang LaSalle and local brokers ALRUD were advisors to SOFAZ on the deal. Actor Gallery, located near Red Square and the Kremlin and with 18, 075 sq.m. of space, was built in 1881 and completely reconstructed in 1995 behind a historical façade. Tenants include well-known finance, insurance, consulting and retail companies.

SOFAZ Executive Director Shahmar Movsumov said the asset matches well to the high quality property portfolio the sovereign wealth fund is starting to build in Europe. “The acquisition of this building is another successful step towards the realization of our real estate investment strategy," he said. "This deal opens new phase in Azerbaijan-Russia economic relations, which have always enjoyed long-standing strategic partnership and relied on common historical, cultural roots. The very fact that one of the first real estate investments of the fund is accomplished in Moscow is a true indication of SOFAZ’s intentions of long-term commitment to Russia.” Olga Kashkarova of Jones Lang LaSalle, which advised SOFAZ on the deal, commented: “The Moscow market has a very limited number of investment grade product located in the historical centre. Such assets rarely come to market and are sought after by both Russian and international investors looking for secure investments.”
The two new acquisitions add to the SOFAZ purchase last year of an office complex at 78 St James Street in London’s West End for £177m, the first asset in a £1bn spend targeted at luxury and trophy properties across Europe. Seller of that asset was RREEF Real Estate, part of the alternatives investment division of Deutsche Bank wealth management, out of its grundbesitz Europa fund. “Sovereign Wealth Funds across the globe are looking for ways of diversifying their risks by expanding their investments beyond traditional asset classes," Movsumov said on the London deal. "For the last decade SOFAZ has been growing rapidly both in terms of the size of the assets under management and its investment universe."

Azerbaijan set up SOFAZ in 1999 by presidential decree in an emulation of Norway's huge oil fund, acting as an extra-budgetary entity which accumulates and manages the nation's oil and gas revenues. As of 1 December, it held assets worth nearly $34bn, of which the real estate allocation is capped at 5%, as is gold and equities. The cap, established 12 months earlier by Azerbaijani President Ilham Aliyev, thus allows property investment up to around €1.6bln.

PIE COMMENT: The entry of Azerbaijan to European real estate is genuinely a sign of new times in the industry, and adds to strong competition for trophy assets now by several global SWFs, most notably those from Norway, Qatar, Abu Dhabi, Singapore, Hong Kong and Mainland China. SOFAZ last year also went part of its way to meeting its gold investment target, and by early winter had acquired around 10 of the 30 tons targeted with the same fund allocation as real estate. It seems to be setting budgets annually, based on presidential approval, so that caps on real estate may be raised again.