Collaboration between Colliers International and Concorde Capital will have targeted portfolio of $200 million
A leading real estate firm and investment bank have teamed up to launch one of the first Western-style real estate investment funds dedicated to investment on the Ukrainian market.
Colliers International, a local affiliate of the internationally renowned Colliers real estate group, and Concorde Capital, a Kyiv-based securities firm founded by Ukrainian and Canadian partners, have announced their intention to launch a real estate fund with a targeted portfolio size of $200 million.
The fund will be called the Colliers-Concorde (Ukraine) Real Estate Fund. Colliers-Concorde officials said the fund will invest in the office, retail, logistics and residential sectors of Ukraine’s promising real estate market.
Through its affiliate asset management company, Concorde Investors Limited, Concorde Capital will serve as the management company for the fund. Colliers International will act as the fund’s co-manager and property advisor.
It is no secret that investors are eyeing Ukraine’s fast-growing yet under-developed real estate market more than ever. Concorde and Colliers are hoping to help investors tap into potentially lucrative opportunities on the market by investing in their fund.
Steven Cheshire, a partner of Concord Investors, Ltd. said fundraising work to build the fund, which will seek cap rates of 18 percent by developing property investments from the ground up, will start later this year. He added that the timing of the fund could not be better.
“The combination of a pro-business government, heightened foreign investor interest and a severe shortage of quality property in most sectors of the Ukrainian real estate market make this the perfect time for the Ukrainian market,” Cheshire said.
“Drawn by the prospect of high yields and considerable asset appreciation, we see large Western investors almost daily coming here to invest. But developers are not offering a well-structured approach to building new premises – the market is so immature it eagerly accepts low-quality malls and office centers,” he added. “To do a first-rate job, you need experienced professionals in the local market.”
Cheshire, an American, has been a fund manager for some 13 years in Boston at Wellington Management Company, Putnam Investments and State Streets Global Advisors.
Concorde Capital was co-founded by Ukrainian Ihor Mazepa and Canadian John David Suggitt in late 2004. Both had been active in Ukraine’s securities market in previous years working for other investment banks and brokerage houses.
Colliers International has in recent years acted as an advisor and leasing agent on some of the largest retail real estate projects in the capital, including the Mandarin Plaza and Globus shopping centers.
First wave
Ukrainian business groups have in recent years pooled resources through various arrangements to invest in real estate projects.
Dorian Foyil, the president and chief investment officer at Foyil Securities, said that a handful of Western-backed real investment funds tip-toed onto the Ukrainian market years ago, adding that more are on the way, including one backed by his company.
“The Concord/Colliers fund is one of a handful of such funds which will hit the market in the coming months, the question is who will raise money and deliver results,” Foyil said.
“We are excited about the growing interest of investors in Ukraine. Demand for both our current Private Equity Fund and our Foyil Ukrainian Real Estate Partners Fund has been amazing and we expect there to be a growing market for numerous real estate as well as equity funds going forward,” Foyil said adding that his company will close its Foyil Ukrainian Real Estate Partners Fund this fall with a planned ceiling of $75 million.
Challenges ahead
Tomas Fiala, managing director of Kyiv-based investment bank Dragon Capital, said a lot of investors from Russia and the West are chasing real estate investment opportunities in Ukraine. He cautions, though, that hard work faces those involved in such real estate funds if they are to achieve a 15-18 percent cap rate, the generally accepted threshold linked to interest rates on loans in the region.
He adds that there is already a lot of competition on the market, making it difficult to find attractive real estate investment opportunities with such yields.
“In order to get 15 percent to 20 percent you need to invest in projects which you can develop from scratch and take the development risk upon yourself,” Fiala said. Ground-up investments are risky, he added, but present the prospect of a much higher return.
Cheshire said the Colliers-Concorde fund will be seeking to develop real estate projects largely from scratch.
“If you look around and see the buildings being built, you see that often they design buildings without putting much thought into what the function of the building is to be. There is not good lobby space, for example,” he said.“We are pretty confident that if we invest in projects with smart architectural design, these projects will be successful in the long term.”
