Lev Leviev didn't miss a beat. It was evident that his answer, ostensibly off the top of his hat during the interview, had been prepared in advance: "Seven billion dollars by year-end," he said confidently, and smiled.

The question we had asked him, at the Davos economic conference in late January 2007, had been what his goal for Africa Israel (TASE: AFIL) , his main business arm, is.

At the time, the difference between Africa Israel's market cap on the Tel Aviv Stock Exchange and his goal was $3.5 billion. His posturing seemed preposterous, not to mention demented - how could he double the company's market valuation, adding NIS 15 billion in value, inside 11 months.

Mere minutes after TheMarker published the interview online, Africa Israel's share price started to soar. On Sunday it leaped 9% and by the start of May, as it prepared to float its subsidiary AFI Development in London, the company's market cap had reached - hold onto your hats - $7 billion.

Crazy as a fox, maybe. Leviev's confidence had not been misplaced after all. Africa Israel commenced discussions with underwriters regarding the flotation of AFI Development, which handles the Africa Israel group's real estate investments in Russia. Leviev estimated that the price the underwriters, and later investors would be prepared to pay for AFI Development would be dramatically higher than that reflected in parent company Africa Israel's share price in Tel Aviv.

Three months later, the deed was done. AFI Development raised $1.4 billion in London at a market cap of $7.3 billion. It was one of the biggest real estate offerings the British exchange had ever seen.

Who's Who is full of oligarchs who made billions within a few years in Russia. Therefore, Leviev's ability to turn a string of property transactions, most of which were done in the last five years, into a company worth $7 billion, seems quite natural to some.

But Russia of the last three years is not the same savage jungle that it had been in the 1990s, which is when the state sold off most of the Russian people's assets to a handful of cronies of government for peanuts.

Tundra? It's a Jungle

Russia of the 2000s is still a jungle for business and politics, but it's a very different type of jungle. Hundreds of huge investors have flown over. Asset prices soared. Major would-be buyers jostle and joust over each transaction. Exactly how can a person whip up $7 billion in value, within a few years, in that environment?

The question becomes all the more urgent given the tremendous wealth and influence that Leviev built up in Israel, and the stampede of Israeli entrepreneurs to Russia.

Neither the slogans that Africa Israel chants, nor the reports by equity analysts, shed any light on how that tremendous value was created. Africa Israel's prospectus is technical and dull as dishwater, but reading it does show some thought-provoking items.

Food for thought

 JLL. These initials are at the center of the company's prospectus. They stand for Jones Lang Lasalle, which evaluated AFI Development's assets, at $3.7 billion.

How did it reach that figure? Never mind that, what matters is the assumptions underlying the evaluation. These appear on Page 7 of the prospectus. Here are some of them, truncated for clarity:

* JLL assumed that Africa Israel would obtain all the permits it needs from the Russian authorities to complete its projects.

* JLL ignored the effect that the construction of competing projects might have on the value of Africa Israel's properties.

* JLL assumed that Africa Israel complete all its projects, and on time.

Did JLL have reasonable grounds to assume all that? On that topic, on Page 7, regarding AFI's main project, the Kuntsevo shopping center, the company admits that it has no official permit from the Russian government to built the project. As of the date of the prospectus, the Moscow municipality had not decided whether to allow AFI to proceed with development. Therefore, AFI said, it had no lease rights to the project nor any assurance from the Russian authorities that any permits would be forthcoming.

Right after that, AFI writes that as of the end of March 2007, Kuntsevo comprises 17.6% of the total value of the portfolio that JLL appraised. If the requisite permits are not forthcoming, AFI wrote, it would significantly impair the company's estimated value, its business, and its financial status.

JLL evaluated Kuntsevo at $670 million.

Still on Page 7, after Kuntsevo, AFI describes a project called Dinamo, which JLL had also appraised. "In February 2007, we entered into a framework agreement with a Russian company, Milinar" that has rights to certain buildings and areas in the Dinamo project, AFI wrote, adding that it expects to sign an acquisition agreement in the future. It still has no official confirmation that Milinar actually does have rights to the buildings and areas, AFI wrote. It has not completed due diligence and the checks that it has carried out so far, show that there could be flaws in the certificates of ownership, that could impact Milinar's ownership rights. If it cannot confirm ownership rights, AFI wrote, it won't be able to develop Dinamo as it plans, or at all.

To Dinamo, JLL ascribed an impressive value of $118 million.

Let us proceed to Page 8, where AFI describes the Berezhovskaya project, which has yet to begin. In March 2007, it describes - a month before the appraisal and three months before the IPO - AFI entered an acquisition agreement with a company named Bizar, which is expected to own certain assets in the Berezhovskaya project. A company registered in the Seychelles is supposed to transfer its rights to two buildings to Bizar, but if Bizar can't promise ownership of the assets, AFI may not be able to pursue development, it says.

That bizarre project wins a $117 million appraisal by JLL.

The list goes on. AFI's prospectus lists ten projects in its portfolio for which it hasn't completed the investment agreement, and/or lease agreement, or assured the land rights.

Now it's time to move onto the less impressive parts of the prospectus, which describes the dramatic increase in value of the assets.

On page 38 of its prospectus, the company describes the Rapo project. In February 2005, Africa Israel bought 100% of the project for $30 million.  In July that year it sold half the project to a "third party" for $30 million, to help fund the project. Meaning, in the space of five months, Rapo's value had doubled.

Why would a flush company like Africa Israel need help in funding? The question becomes all the more acute when you consider that the project's value doubled in five months.

Anyway, to continue: a year later, in July 2006, Africa Israel bought back the property from the third party for $33 million, after learning, it said, that its partner didn't have the wherewithal to finance the project.

Note that in the five months from February 2005 to July 2005, the project's value increased by 100%. In the year from July 2005 to July 2006, its value increased by just 10%.

And what happened to Rapo's value after the nameless partner exited? In the ten months from July 2006 to March 2007 - did it rise 10%? 100%?

Don't embarrass yourself by guessing. Read the prospectus, fascinating stuff, and learn. Ahead of AFI's offering, JLL appraised Rapo at $370 million, meaning its value Had climbed by 500% since the partner left. We would love to track down that partner that sold back its rights to the asset and ask what it thinks about the new valuation. If anybody knows who that partner is, please email us.

A little project called Aristia

AFI's prospectus is long, 260 pages, and complicated. We won't go into all the astonishing stories it tells, but one little deal did catch out eye, a project called Aristia.

Two things characterize most of the projects in the prospectus.

1) Based on JLL's appraisals, their value increased dramatically, by hundreds of percent, in the last few years. 2) The projects are arrangement very early stages, they generate no real cash flow, and therefore, the incredible evaluations are based on the forecasts of management and the assessors.

Aristia on the other hand is a company that owns the H20 project, which is a finished building that's generating capital. Africa Israel bought the project in 2006 for $26.6 million.

How much do you think JLL thinks it's worth? Surprise! It barely budged in value, rising to a mere $27 million.

Interesting. When the asset in question is generating known cash flow, the assessors see no increase in value, even though this is booming Russia. But when it's a project in its infancy, with no certainty about future cash flow, the value explodes.

 Page 86 brings us back to that flagship project that JLL evaluated at $650 million. It is an impressive endeavor: when completed in 2012, the project will sport 933,000 square meters of office space, 125,000 square meters of retail space and 217,000 square meters of parking. The company figures its investment at $3.2 billion.

How many hundreds of millions of dollars do you think AFI invested in buying the rights to that project so far?

Surprise surprise: $400,000. JLL sees that investment being worth $670 million.

No question about it, Lev Leviev is one of the most impressive businessmen to arise in Israel in the last decade. He bought Africa Israel ten years ago at a company value of $400 million and has increased its value twenty-fold, including dividends.

But do the investors in Britain and Israel who buy AFI shares understand exactly how Leviev created that value in Russia? When and how did the value of these assets jump? How are real estate projects in Russia approved? Why are so many investors convinced that Leviev will always get the permits he needs to build his projects? They must be, or they wouldn't buy shares in his companies at premiums far ahead of the assessors' evaluations.

Russia is one of the fastest-growing economies in the world, thanks to its tremendous oil and gas reserves. It has vast business potential. But the real story of what's been happening there in recent years, will probably only become clear in the years to come.