Hines, CalPERS Take Stake in 2.2 MSF Russian Retail Asset

The Hines CalPERS Russia Long Term Hold Fund, a joint venture between real estate company Hines and pension fund CalPERS, has become the co-owner of a prime piece of retail in Moscow with the purchase of an interest in the Metropolis Shopping and Entertainment Mall from Morgan Stanley Real Estate Investing.

Metropolis Mall

The Hines CalPERS Russia Long Term Hold Fund, a joint venture between real estate company Hines and pension fund CalPERS, has become the co-owner of a prime piece of retail in Moscow with the purchase of an interest in the Metropolis Shopping and Entertainment Mall from Morgan Stanley Real Estate Investing. Size matters, but HCRLTH is disclosing neither the price nor the percentage of the stake it just acquired in the premier 2.2 million-square-foot shopping center.

However, Lee Timmins, senior managing director and country head for Hines Russia, did share with Commercial Property Executive that, after MSREI approached the fund, “HCRLTH purchased a very significant minority stake in the asset.”

It was a high-profile move for HCRLTH, as the spotlight is still shining on the Metropolis Mall following MSREI’s $1.2 billion acquisition of the four-year-old property from its developer, foreign investment fund Capital Partners, in February, marking the largest commercial real estate transaction in Russia’s history.

The Metropolis Mall, which first swung open its doors to shoppers in 2009, is not just any shopping center. It is one of the most popular retail destinations in Moscow, having welcomed 55,000 customers to its 882,000-square feet of enclosed space and 2,900-space parking facility daily in 2012. Located within the 3.3 million-square-foot, mixed-use Metropolis complex in a coveted northwest section of Moscow, the property has a popular tenant lineup, ranging from food hypermarket Karusel to high-end intentional stores such as Michael Kors and DKNY. And there’s a waiting list of retailers eager to secure a place on the roster.

It’s a good time for retail in Moscow. The shopping center vacancy rate was an enviable 2.5 percent in the first quarter, according to a report by commercial real estate services firm Newmark Grubb Knight Frank.

“The retail sector continues to show strength with continued year-on-year growth, with the highest quality centers receiving a disproportionate share of this growth,” Timmins told CPE. “The spending power of the Russian consumer is one of the strongest aspects of the Russian economy underpinned by low levels of household debt and rising income levels. As a consequence, rents and percentage rents continue to increase in the strongest centers like the Metropolis Mall.”

For the Hines-managed HCRLTH, which was established with initial equity commitments of $493 million just four months ago, there’s much more to come. “HCRLTH has recently increased its capital investment plans to a fund size of $615 million and will invest in high-quality retail and warehouse properties which are prime beneficiaries of the strong consumer sector,” Timmins concluded.

HCRLTH focuses on the long-term acquisition of Class A logistics and retail assets in Russia.

“We are delighted that CalPERS and Hines are investing alongside Morgan Stanley Real Estate Investing in the Metropolis Mall in Moscow,” said Thierry Vanden Hende, managing director at MSREI.  “MSREI has built a strong retail platform in Russia through the acquisitions of Metropolis in Moscow and Galeria in St. Petersburg, and we look forward to working with Hines and CalPERS to deliver the operational leverage and strategic benefits associated with owning two prime shopping centers in Russia.”