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Morgan Stanley Real Estate Investing (MSREI) has made a major comeback to Europe's property market with the launch of a new hotel joint venture in Paris and the purchase of the Metropolis mall in Moscow.

The US investor said this week it has formed a joint venture with hotel investor and manager Paris Inn Group to invest in the Paris hotel sector.

The two partners have made their first joint acquisition with the purchase of a portfolio of four hotels in central Paris offering over 600 rooms, within the mid and upscale market.

'We believe that the fundamentals of the Paris hotel sector are attractive, and this portfolio offers an
opportunity to invest in well located hotels that have upside potential through active asset management and repositioning,' said Brian Niles, EMEA head of Real Estate Investing at Morgan Stanley.

The deal follows MSREI's €1 bn acquisition last month of the Metropolis shopping centre in the northwest of Moscow and the $1.1 bn purchase in 2012 of the Galeria mall in St. Petersburg.

Galeria was the New York-based group's first acquisition in Europe after having been virtually absent from the investment market for two years. The New York-based bank had been investing exclusively in the US market in 2010, but was again attracted to the old continent a year later, as developers started to feel the pressure from the widespread lack of credit. The investor closed the acquisition in St. Petersburg for a yield over 9%.

According to those who track the market, MSREI is currently targeting long-term cash-flow generating assets in secondary locations as part of a strategy to focus on liquidity-starved markets in the old continent. ‘Investors are flocking to London and Paris and yields are at record lows,’ a source who preferred to remain anonymous said. ‘Secondary markets, especially liquidity-starved ones, on the other hand provide attractive opportunities, little competition and much higher returns. Morgan Stanley is picking best-in-class properties in these markets at attractive yields.’

Focus on prime
MSREI started looking at the best-in-class malls in the Russian capital city in late 2011 and decided to approach developer Capital Partners with an unsolicited expression of interest for Metropolis.

Indeed, the Kazakh developer was open for sales negotiations, after a first attempt at a sale had fallen through in the wake of the financial crisis.

Back in 2006, Capital Partners had sold a 50% share of the Metropolis project on a let turnkey basis to Unibail Rodamco, but the Franco Dutch giant decided to exit the investment three years later as part of plans to refocus on its core European countries. At the time Rodamco agreed to pay €200 mln for a 50% ownership in the project, with the deal expected to close on delivery of the scheme in 2010.

Capital Partners and MSREI were in off-market negotiations for nearly a year. Terms of the transaction were not disclosed, but the deal is believed to have been closed for a price of around $1.2 bn (€1 bn), representing the largest-ever transaction in the Russian commercial real estate market.

Metropolis Shopping and Entertainment Mall, one of the most visited shopping centres in Moscow with 55,000 customers per day in 2012, provides 82,000 m2 of fully enclosed retail accommodation and 2,900 parking spaces.

The shopping centre is part of the institutional quality mixed-use complex Metropolis with 311,000 m2 of gross built area which, apart from the shopping centre, includes three office buildings with a total GLA of 80,000 m2. The centre also has a multi-screen cinema operated by Cinema Park Deluxe and a bowling alley. It is said to generate annual rents of around $100 mln.

The purchase was made for Morgan Stanley Real Estate Fund VII, a global fund with equity commitments of over €8 bn. The vehicle is believed to own a real estate portfolio of around €3.5 bn at present.

VIRNA ASARA
Deals Editor PropertyEU

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