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Long-term cash flow. High rental revenue from a mix of tenants. Stable assets. These concepts are guiding investors' approaches in today's Russian real estate market, as both domestic and foreign investors look for solid investments in a volatile economic climate.

They also have learned lessons from the real estate disasters of the global financial crisis, and, especially among foreign investors, they are looking to minimize the risk of putting millions or billions of dollars in a developing economy.

In many ways, this investment approach shows a maturation of Russia's real estate investment market, as does the scope and range of the transactions made so far this year. In the first half of the year, the amount of investment transactions in the area of Moscow totaled $3.4 billion, Colliers International said in a recent report. More than 2.2 billion euros ($3.1 billion) has been invested in — that is, spent on — 18 massive real estate deals through early September, according to figures provided by the Moscow office of real estate firm CB Richard Ellis. Much of that money has gone to Russian companies, according to information from real estate firms and media reports. The deals were for a mix of properties, including a hotel, shopping centers, offices and an industrial park.

These 2011 deals have included the sale of The Ritz-Carlton Hotel by Capital Group to Kazakh company Verny Capital, according to Colliers, for a price that CBRE estimates at 425 million euros. That could be the highest-priced deal thus far this year. In a smaller deal with foreign players, FM Logistic Industrial Park, a site near Sheremetyevo Airport, was bought by Hines Global REIT from AIG European Real Estate Partners, Hines announced. CBRE estimated the deal to be 55 million euros.

Russian firm O1 Properties has been the most active investor in Russian real estate in the past year and a half, said Darrell Stanaford, managing director of CBRE in Russia. Boris Mints, owner of O1 Properties and a major Russian banker, bought Horus Capital's project portfolio for $850 million, Vedomosti reported, and O1 Properties is planning an initial public offering in fall 2012, according to Russian media.

Jones Lang LaSalle is predicting that the total value of the Russian real estate transaction market for all of this year will be $7 billion, said Tom Devonshire-Griffin, head of capital markets for the real estate firm. That would make it a record year for Russian real estate deals, he said. Global firm Colliers said the $3.4 billion investment figure for the first half of 2011 represents 87 percent of the total transaction volume for all of 2010.

Show Us the Cash Flow

The wave of deals and O1 Properties' planned IPO all point to a robust market that has the potential to attract capital from established, experienced investors. Real estate firms have been seeing this trend in their practices, as their potential customers request income-generating properties with cachet derived from the property itself or its tenants, or both.

"Cash flow is important for every investor we've been talking to for the past year," said Alexei Filimonov, general director of Russian real estate broker and adviser Astera.

Devonshire-Griffin echoed that sentiment, saying "income-producing assets are still the primary focus" for investors here.

For real estate clients, the type of property is critical to whether a deal is made. Filimonov said his clients are interested only in Class A and Class B properties, and they focus on Moscow. They also want a high-liquidity property, one that can attract a large number of well-financed potential buyers when the investor tries to sell it.

But despite the weight of location, architecture and building maintenance in the typical multimillion dollar real estate deal, the property's list of tenants and the nature of their leases can receive equal weight in a deal. Tenants and leases can be much more important than the type of property, said Filimonov of Astera, which operates in cooperation with France's BNP Paris Real Estate.

A high-quality tenants list consists of big domestic corporations and major foreign companies, giving the building established companies as tenants. That factor reduces the risk to the investor that tenants will be vacating the premises because of bankruptcy or operating income deficiencies. In terms of leases, those ideally expire at various dates, reducing the risk that all sources of revenue for the building could vacate the building at the same time.

More Than $300 Million?

In an example of how a property with high-quality tenants and buildings can command a high price, one such Moscow property is poised to be another of this year's mega-deals. Hines, the London- and Houston-based real estate developer and investor, is trying to sell one of the most prestigious office buildings in Russia, Ducat III. It was developed by Hines; an unpublicized private investor; and the Hines Emerging Markets Real Estate Fund II, which is an investment fund sponsored and managed by Hines and Trust Company of the West, according to Hines' web site. Ducat III was finished in January 2007.

The 14-story office building, near the northern arc of Moscow's Garden Ring, has tenants that include many big companies, including U.S. bank Citi, U.S. investment firm Goldman Sachs, Sovkomflot and U.S. energy firm ConocoPhillips. "It has a diverse set of high-quality tenants," Stanaford noted in an interview, saying having a range of industries represented in a building is also a risk-reducer.

Stanaford expects that Hines will succeed in selling Ducat III before the end of the year and that it will be bought by an international investor for more than $300 million.

It has been on the market for a while. Filimonov noted that, after months on the market, a deal for the property hasn't been sealed. "Why? Because it's large," he said, and massive financing or capital reserves are needed to buy such a building. A Hines representative for Ducat III couldn't be reached immediately by telephone or e-mail for comment on the property.

To be sure, foreign investors are players in more than offices and malls. They also have been considering developing housing properties here, Filimonov said. In Moscow, there is high demand for apartments but a low supply of quality buildings. Filimonov said some funds are seeking land for residential developments, but he hasn't heard of a successful acquisition by a foreign fund in the housing sector. Devonshire-Griffin said a significant percentage of his firm's investors are interested in residential real estate, but they all are interested in small-scale residential in central Moscow. That market is limited in supply.

Eye on Moscow

Moscow is the continued focus of Russia's real estate market and the recipient of most real estate investments made in the country. Devonshire-Griffin said Russia's income-producing real estate assets are concentrated in Moscow and St. Petersburg, and Filimonov said Russia's investment  happens in a small area: It is within the boundaries of Moscow's Ring Road, he said.

In terms of domestic vs. foreign players, international firms have been buyers in only a handful of the 20 largest financial transactions so far this year but still are major contenders.

The analysts and executives interviewed for this article pointed out that many foreign investors in Russia are funds that don't have a mandate to invest in Russia and don't focus on Russia, Eastern Europe or the CIS exclusively.

Hines is an active investor in the Russian market, as are Morgan Stanley  and Blackstone, Devonshire-Griffin said. Russia-focused funds include those run by Hines and the Barwa Gazprombank Russia Real Estate Fund, which was formed by Gazprombank and Qatari Barwa Real Estate.

Foreign governments are power players among foreign investors, according to some estimates. "We're dominated by sovereign funds," Devonshire-Griffin said, naming Singapore, Qatar, Omar, China and Abu Dhabi as the most active governmental investors here.

Russia's government is a market player, though both state companies and Moscow governments are selling off real estate holdings to divest of noncore assets and to allow for economic modernization. Though this year has been an exception, most of Russia's investors tend to be the developers of the properties in which they invest. After the crisis, they have rebounded and are back in the game.