Tuesday, 30 October 2007

RedQuartz prepares IPO of €1bn Russian real estate fund

Business New Europe

Jason Corcoran in Moscow


Irish property developer RedQuartz has hired UK stockbroker Cenkos to advise it on carrying out a possible IPO next February for a €1bn Russian real estate fund.

The fund, which has the working name of Celtic Bear, will invest in the construction of a number of urban multifunctional complexes in Russian cities in conjunction with local partners. Celtic Bear is backed by Redquartz, the investment vehicle of Paddy Kelly, one of Ireland's foremost property developers and hoteliers.

"We are closing in on the final stages of a decision," says Julian Morse, an institutional sales director at Cenkos. "An IPO is one of the options we are looking at for the fund."

Cenkos was involved in two listings by Raven, a British property developer in Russia, worth a combined €800m in 2006 and 2005. Morse admits Raven had "some operation difficulties" trying to invest the full amount of money raised for a portfolio of warehouse and distribution property assets across Russia. But the funds raised from Celtic Bear's placement are earmarked for the construction of five multifunctional complexes in Russia.

The company intends to implement a total 15 real estate projects in Russia in cooperation with local companies. Redquartz specialises in mixed-use developments, schemes that incorporate residential, retail, office, leisure and cultural facilities. Most projects are developed under different company names, with Redquartz being the family's holding company and Redquartz Boundary (RQB), formed in 2005, facilitating its investment opportunities. RQB itself is a joint venture between Redquartz and Boundary Capital, run by leading Irish financier Niall McFadden.

"Seven projects have been chosen for seven regional cities. We want these places to be villages within cities where people can work, rest and play," says a source close to Redquartz.

In the regions

The company intends to implement a total of 15 real estate projects mainly in Russia's regional cities. Redquartz declined to name the precise cities for the seven headline projects, but they are the believed to be cities of over 500,000 people and within a 2-3 hour radius from Moscow. Construction in Moscow and St Petersburg is not apparently a priority for the company, which is focusing on cities where it still possible to secure sites of 150,000 square metres for their large projects.

Nizhny Novgorod, just 250 miles from Moscow, is understood to be one of the locations for the urban multifunctional complexes. "It's a prime location because it's being set up as the back office to Moscow with lots of upwardly mobile people looking for better living and working conditions," says a source.

Representatives from Kelly's investment vehicle Redquartz International and his associates are believed to be close to signing a number or contracts with domestic partners in Moscow. Redquartz is willing to be flexible in its investments and will take anything from 20-70% stakes in joint ventures.

Inspiration for the projects is being drawn from Kelly's experiences in redeveloping Smithfield and Docklands, two flagship projects in Dublin's inner city. Jerry Ryan, renowned architect at Irish firm Horan Keoghan Ryan (HKR) Architects, has been brought on board after working with Redquartz on projects in Florida.

Sources close to Redquartz said its target return on investments would be 17%. Kelly is to be an investor in the fund and an ambassador, but his exact role is yet to be determined. Celtic Bear hopes to raises funds equally from investors in Ireland, UK and Russia.

Kelly, who is currently trying to acquire the five-star Ritz-Carlton hotel in Sarasota, Florida, spent time in Moscow recently meeting potential partners. His first partner in Russia is Sesegar investment group, a vehicle founded in October 2006 by the Swiss company Nordblom Group to project finance, develop and manage property in Russia.

Redquartz's expansion on the international market began several years ago. Today, the company has a portfolio of multifunctional complexes in Malta, Italy, the US, UK and Belgium. It has more than 300 partnerships, and its investments in real estate with partners are estimated at €2bn a year. The group also makes more than €300m a year managing projects. Kelly and his associates are part of an Irish property armada that is sailing steadily over the border from Poland and Eastern Europe.

Ireland's wealthiest man, Sean Quinn, in September forked out an estimated $150m to buy his group's first shopping centre in Russia in Ufa. Quinn Property Management is the most prominent Irish investor in Russia, having spent some €100m on a chain of DIY hypermarkets, as well as €75m on a logistics park.

John Ronan and Richard Barrett's property development company Treasury Holdings has two major developments underway in Russia's second city St Petersburg, a plush golf complex costing €200m and a €500m residential scheme for over a 1,000 homes in the grounds of St Catherine's Palace. Quinlan Private, the private equity group headed by former Irish tax inspector Derek Quinlan, is developing a 100,000-square-foot Atrium on St Petersburg main street Nevsky Prospekt with its US partner Golub & Company.



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