The way Middle Eastern Private Wealth investors operate globally is evolving. High net worth individuals making real estate purchases are less frequently doing so directly, and more frequently doing so via pooled or syndicated platforms. Syndicating platforms allow multiple investors to pool resources in a similar way to REITs but with less regulation and red tape.
The use of syndicating platforms is increasing because they allow non-institutional investors to invest smaller amounts in higher-grade properties. We expect this trend to increase the opportunities for small investors to participate in larger offerings. Traditionally, most institutional investments have exceeded $50m, syndicating platforms allow investments of as little as $10m, providing these investors with access to a range of high quality yet previously prohibitively expensive assets..
This evolution is apparent when we look at capital outflow from non-institutional investors from the Middle East. During the past 18 months the top five cities targeted have been: London ($5.2bn), New York ($1.8bn), Paris ($0.6bn), San Francisco ($0.2bn) and Washington DC ($0.2bn). In terms of number of deals, between 2011 and 2015 private investors and syndicating platforms closed three times as many transactions as their institutional counterparts. Due to the lower barrier of entry they offer, syndicating platforms are allowing investors to geographically diversify their portfolios. During the first half of 2016 announcements were made by Sidra Capital, Gulf Islamic Investment, and KAMCO; all of which made purchases in the US market. A trend we expect to continue.
Syndicating platforms have helped Middle East Private Wealth to invest more money into real estate over recents years. In 2011 $2.4bn was invested overseas, by 2015 this figure had reached $6.4bn. We expect the year-end figure for 2016 to be approximately $8bn. Established players such as KAMCO, Rasmala, Global Investment House, 90 North, Sidra, and others, exist in a market hungry for access to overseas real estate. This is evident with the boom of newer entities such as Darin Capital, JJ Capital, 3 Associates, The Valesco Group, and Falcon Associates. Appetite for these new funds has been strong over the past 18 months.
But not all platforms are the same. Whilst we see a general shift away from traditional markets such as the London office market, and into Paris, Munich, Vienna, and US gateway cities such as San Francisco, Washington, and Miami, we also see diversity in the strategy of regional syndicators. Recent examples include the £30m acquisition by Rasmala of an Airbus facility in Newport (Wales), and the ambitious $1.1bn bid by 3 Middle Eastern investors to purchase the Grosvenor House in London and The Plaza in New York. As the Middle East investment market develops, local syndicating platforms increasingly cover a wide spectrum of investment strategies.
Private wealth is constantly trying to find alternatives to bank deposits, which is remunerated at close to zero interest. Yielding real estate is viewed as an acceptable alternative to bank deposits. In the UK, mortgage rates are so low that already compressed NYI can be converted into an attractive cash on cash play. For example, a building in Edinburgh with government as a single tenant can generate up to 10% cash on cash if an appropriate debt package is secured on it.
The increasing interest in syndicating platforms is a direct response from Middle East investors wanting to find safe havens for their funds. The ability to anonymously invest smaller amounts in established markets continues to grow interest, and these factors combined have resulted in greater education as to what global real estate investment entails. At JLL we see this as a positive trend that we expect to continue over the coming years.
Author: Fadi Moussalli
Fadi is a Regional Director based in Dubai and member of the International Capital Group which focuses on harnessing cross-border capital flows between the four regions of the Americas, Asia Pacific, Europe and the Middle East. The group is dedicated to serving global clients who wish to build international portfolios. Working with and extending the reach of the existing Capital Markets teams, the Group’s aim is to develop and manage sell and buy-side mandates, focusing on assets valued in excess of US$ 100 million.
Prior to joining Jones Lang LaSalle in January 2007, Fadi was based in London with BNP Paribas where his remit encompassed of regional bond transaction origination and distribution within the Middle East. Fadi worked on several high profile emerging markets and Middle Eastern structured bond mandates including structuring and raising capital for Islamic Sukuks transactions. During this time, Fadi developed an extensive network of contacts with Middle Eastern investors including banks, government bodies and family offices.
Fadi has an MA in Economics from University of Paris IX Dauphine and an MBA from Paris Graduate School of Management.