The sale of Artyom Business Center, complete with the building's tenants, at the end of September by Colliers International Property Consultants is an indication that the city's real estate market is slowly becoming more attractive to foreign investors.
Several years ago the market trend was to sell empty office centers; now, as the Colliers International transaction indicates, that tendency could be changing. The sale of Artyom Business Center is unprecedented, as it’s the first registered sale of a high-quality office property that is currently 100 percent leased by tenants.
“We consider the sale of Artyom Business Center to be the first transaction of this kind,” Colliers International investment sales professional Yury Nartov said, adding that few if any other prime office centers with tenants are available on the market.
The transaction included the sale of the actual lease agreements, in addition to the building.
“The tenants were the most lucrative part of the deal,” Nartov said. Typical lease agreements between tenants and Artyom were valid for more than five years.
The building’s stable tenants include the American Embassy’s commercial department, the consular department of the British Embassy, and multinational companies such as Mary Kay, Robert Bosch and Adidas, Nartov said.
The American and British Embassies occupy more than 50 percent of the center’s office space, and have rental contracts that exceed five years, he added.
The Post reported in May 1999 that Artyom Business Center was owned by Boston’s Pegasus Prior Corporation, an investment fund. At that time, only 20 percent of the building was occupied. When asked to confirm this report, Nartov declined to comment.
In 1999 the building changed ownership, Nartov said, though he would not say who the buyer was.
And in late September, it changed ownership again.
He would not identify the companies involved in September’s transaction, either, but said that the center was purchased by a foreign group of private equity investors.
He added that Colliers fulfilled its goal by finding a solid Western client interested in investing in the Eastern European market.
Roman Kostenko, associate at Shevchenko, Didkovsky & Partners law firm, which assisted Colliers International in Artyom Business Center’s sale, said it was estimated at between $15 million and $17 million. Nartov would not disclose the value of the sale.
Construction of the 10,000-square-meter Artyom was completed in 1971, and renovated in 1998.
“Before the United States Embassy moved to the center, the security system was upgraded,” Nartov said.
The center currently features an on-site 24-hour electronic security system, as well as security guards and three modern OTIS elevators. The Business Center is a B+ class office property.
At the beginning of the year, the price for vacant space in the building was fixed at $24 per square meter.
Real estate developers say the transaction is ultimately good for the market, and could give it a much-needed boost.
“This transaction is encouraging because it reflects the maturing nature of the real estate market in Ukraine. As foreign institutional investors become more interested in the market, developers will be encouraged to deliver more buildings of larger size and Western levels of specification,” said Nick Cotton, director of DTZ international property advisors in Ukraine.
Though it may be positive for the market, the deal has raised questions about transparency.
“It’s very good news that people are trading, but questions still remain. Who is the center’s actual new owner, and what is the basis of this new transaction?” Cotton said.
“It was possibly a transaction made outside the open market.”
Nartov agrees that the market would benefit from more transparency, but said that because Colliers International is the exclusive agent for the transaction, the company is not in a position to disclose financial information.
It can take between three to five years to turn a profit on business centers, Nartov said, assuming 17 percent to 25 percent annual return on investment.
Dmytro Trabakin, director of Dragon Capital, said that it could take as long as six to seven years for the new owners of Artyom Business Center to recoup their investments.
