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December 23, 2016

Middle Eastern syndicate and real estate asset management platforms are emerging as major and increasing sources of outbound capital from the region with new figures showing an increase in volumes from US$2.4 billion in 2011 to US$6.4 billion in 2015.

“Typically, they exist to pool equity from multiple private and medium-size institutional investors to real estate assets on a deal-by-deal basis,” said Fadi Moussalli Head of JLL’s International Capital Group, MENA.

“In the first three quarters of 2016 the volume has already reached US$5.1 billion and we expect the end-year figure to reach around US$7 billion.”

Institutional players such as sovereign wealth funds remain the major source of wealth flowing from the Middle East with deal sizes often in excess of US$150 million. However, between 2011 and 2015 private investors and syndicating platforms closed three times as many transactions as institutional players, albeit targeting smaller lot sizes of between US$10 and US$60 million.

Moussalli attributes the growth of this new investor type to a few benefits offered by such platforms.

“Firstly, private investors can gain faceless access to the world’s real estate markets with less risk than accessing it directly,” he said. “Secondly, the professional nature of the platforms allows them to benefit from the expertise and credibility of experienced investment manager and, lastly, it enables them to get exposure to the assets and markets they could not otherwise access on their own.”

New investors, new markets

The rise of new this investor type follows the well-documented trend among Middle Eastern investors to diversify into new markets. In the last 18 months the top five cities targeted by Middle Eastern investors were: London ($5.2 billion), New York ($1.8 billion), Paris ($0.6 billion), San Francisco ($0.2 billion) and Washington DC ($0.2 billion).

And, while figures show that London remains the top investment destination, 40 percent of deals in the last 24 months have taken place in the UK regions. Moussalli said: “Investors can achieve high single digit cash-on-cash returns and stable long term income stream by casting their net outside of the UK capital.

A departure from the traditional focus on Europe and increased appetite for the US is clearly visible. “Until further notice, I do not expect any slowing down in Middle Eastern Investor’s appetite when looking at opportunities in the United States.”

In 2016, for example, Sidra Capital, Gulf Islamic Investment and KAMCO announced their first foray in the U.S. real estate market.

In the last year-and-a-half, new names have entered the market, including Darin Capital, GG Capital, The Valesco Group, Falcon Associates or Sarwa Investments. That’s in addition to multiple established syndicate platforms who are already investing outside of the Middle East (KAMCO, Rasmala, Global Investment House, 90North, Sidra).

“Although all of them have the ambition to follow their predecessors and advise equity holders into global property, their strategies and requirements with regards to lot size, sector and location vary,” said Moussalli.

From 90North’s acquisition of Aldwych Chambers Residential Development in Central London to Sidra’s acquisition of 180 Montgomery Street in San Francisco for c. $180 million, these platforms cover the whole spectrum of investment strategies.

But where the strategy may differ the motivation is the same. Moussalli added: “Chronic instability and geopolitical turbulence, which ravages the region, translate into an increasing demand from private money to invest in foreign real estate markets, making the ground very fertile for pooled equity platforms to conduct their business.”

Syndicate platforms give a large number of smaller investors exposure to income generating property assets, which is widening awareness of global property markets in the Middle East. With a relatively short investment horizon – five to seven years – Moussalli expects these investors to become regular players in global real estate markets.

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Fadi Moussalli

Capital Markets, JLL MENA

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