Emirates Reit buys Le Grande community mall in Dubai Marina

Emirates Reit has spent Dh118.2 million on a community mall in Dubai Marina – its first purchase since the company floated last month.

The Nasdaq Dubai-listed Sharia-compliant trust has bought the 86,396 square metre Le Grande community mall on the ground and podium floors of Trident Grand Residence, a luxury 45-storey tower block close to JBR Walk.

The indoor shopping parade comprises 22 shops and cafes, 19 of which are let to stores including the soft play specialist Cheeky Monkeys, Beauty Secret Ladies Salon and Reem Al Bawadi and Hako Sushi restaurants. It also includes 161 basement car park spaces, Emirates Reit said yesterday.

The country’s first real estate investment trust, which raised US$201m, said that it planned to increase the current annual rent of Dh11m by letting the empty stores, reconfiguring shopping areas to increase the amount of leasable space and charging for car parking.

The purchase increases the value of Emirates Reit’s total property portfolio to more than Dh1.3 billion.

“Le Grande is a high-quality property that is located in one of the most popular areas of new Dubai,” said Sylvain Vieujot, Emirates Reit Management’s executive deputy chairman.

“The retail units have good occupancy rates and strong yields, which we believe our asset management team can improve further over time. Importantly the acquisition will enhance the diversity of the Reit’s portfolio both with respect to location and asset type. This is the first transaction since going public and one of a number of potential short-listed property acquisitions which we are looking at closely.”

Reits are common in other parts of the world, where they are often sold to investors as a way of putting money into the property market without the difficulties of direct investment. Reits buy properties such as large office buildings and shopping centres, manage them and distribute the rental yield to investors. Many are publicly traded.

Emirates Reit was created in the 2010 trough of the Dubai property market and became the first Sharia-compliant Reit to be incorporated at the Dubai International Financial Centre. Its first purchase was Building 24 in Dubai Internet City.

Since then it has acquired a portfolio of 10 properties in Dubai, comprising a total 1.2 million square feet and valued at more than $323.1m. It includes Loft Offices (Loft 1, Loft 2 and Loft 3) in Dubai Media City, Office Park in Knowledge Village and the Gems World Academy Dubai building in Al Barsha South.

Despite a strong appetite from investors to put cash into Dubai’s property market, the Reit sector in Dubai, and indeed institutional property investment in the UAE, has struggled to take off. It has been held back by a shortage of investment grade office space and an unwillingness to sell assets from large private landlords.

Nonetheless, prompted by recent booming values in Dubai, over the past year a number of other large institutions have started to invest in major real estate assets. These include the asset manager PineBridge Investments, which struck a sale and leaseback deal with Gems in November to buy a school campus. And this month GFH Capital, a unit of Bahrain-based Gulf Finance House, bought a Dubai school building for $34m.

“It makes sense for Emirates Reit to balance their portfolio by investing in a community mall,” said Stuart Gissing, the regional director for the Middle East at Colliers International. “The retail market in Dubai is currently very buoyant and Emirates Reit will want to be a part of that.”

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”