Opportunities For Private Real Estate Debt In The UAE And KSA

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Financing Bricks and Mortar: Summary

There has been a major growth in the size of the global private debt market (that is, debt not issued by commercial banks) over the past decade. It has increased by 400% since 2006 to around $638 billion as at the end of 2017

North America dominates the private debt space with close to 60% of capital deployed, followed by Europe with 25%

Keysources of private debt include Public & Private Pension Funds, Foundations, Endowments and Insurance Companies

Despite the trends mentioned above, private debt is rather limited in the Middle East, with the vast majority of debt being provided by commercial banks. Challenges with respect to foreclosure and bankruptcy laws, lack of market data and understanding of risk and reward metrics have been some of the key reasons for its limited use in the region.

This situation is expected to change over the next decade, with alternative funding sources including fund managers, pension funds and insurance companies actively reviewing this investment style. Improvements in market transparency and regulation are creating a more attractive environment for this to occur. We expect that the majority of this capital will find its way into real estate.

These new sources of debt are expected to respond to the constraints of the present arrangements, with limited competition to the commercial banks in respect of real estate lending.

We expect that over time, these new sources will offer alternatives to:-

– Tier 2 & 3 developers who currently find it difficult to obtain debt facilities from commercial banks.
– Institutional investors who are seeking a cash on cash yield through interest only finance, a phenomenon very common in developed markets.

– Institutional investors who are seeking a cash on cash yield through interest only finance, a phenomenon very common in developed markets.

While this competition may not significantly reduce the cost of borrowing, it should encourage conventional banks to become more flexible and accommodating to the requirements of borrowers.

The emergence of diverse sources of debt will be a positive for a maturing real estate market, providing greater competition and more options for real estate developers and investors.

Coupled with alternative financing structures such as sale & leaseback, build to suit and sale & buyback, the growth of private debt will attract more capital to real estate, primarily in the more advanced regional markets such as Saudi Arabia and the United Arab Emirates.

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Gaurav Shivpuri

Author: Gaurav Shivpuri

Gaurav has over 20 years of experience in the real estate and hospitality sector with extensive involvement in investments, fund raising, advisory and operations of mid and large scale real estate projects.

Thirteen of these years have been spent in the Middle East where he has worked across 15 countries on single asset, mixed used and master plan projects totalling over US$ 20 billion in investment.

Over the past three years, he has been involved in over US$ 2 billion of real estate transactions across the GCC across different real estate assets classes and has advised leading regional and international investors on investments and divestments in the region. Prior to that, he had been involved in three pan-regional real estate funds where he was involved in conceptualising, structuring and raising for over US$ 500 million of fund corpus .

Gaurav holds an MBA from Cornell – Essec, Paris with a speciality in Real Estate Finance.

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