Kuwait Finance House eyes bargain-basement US property

Islamic lender Kuwait Finance House is tying up with US apartment building owner UDR Inc to buy high income property in the US

DUBAI / KUWAIT // Islamic lender Kuwait Finance House (KFH) is tying up with United States apartment building owner UDR Inc to buy high income property in the United States to tap lower asset prices. "The joint venture will seek to acquire high income residential real estate in major cities in the United States with total investments of up to $450 million," Kuwait Finance said in a statement on Saturday.

Gulf Arab investors have been holding on to funds for months after the region was caught up in the global liquidity freeze late last year, but are now buying into Western real estate again to benefit from lower valuations. KFH said it was cautiously "optimistic" in the United States real estate market after making initial investments in the late 1990s, but pulling out prior to the financial crisis.

"Such a huge partnership ... shows the objectives KFH is trying to achieve by returning as a major player in the American real estate market, after it had liquidated a large portion of its investments before the economic crisis began," KFH international real estate department manager Ali Al-Ghannam said. The joint venture will target "A" class assets with a minimum of $20 million that are less than seven years old.

Abdulnasser Abdulmuhsen Al-Subeih, assistant general manager at KFH said the deal was targeting an internal return rate of 12 percent to 14 percent annually. KFH said it would contribute up to 70 percent of the venture with UDR the remainder. Denver-based apartment building owner UDR, which reported a 13 percent increase in quarterly funds from operations on Aug. 5, owns about 50,000 apartment homes in the United States, President Tom Toomey said in the statement.

The move is the latest in a string of recent investments from Gulf countries into Western real estate. Student accommodation provider Unite Group on Aug. 12 set up a five-year joint venture with Bahrain's Oasis Capital Bank to develop student housing in London worth an estimated 194 million pounds ($320.2 million). An Omani wealth fund in June month bought a 75 percent stake in London office landmark Bishops Square from Hammerson .

Bahrain- and London-listed investment house Investcorp also recently acquired mortgage loans in the United States worth $170.9 million to take advantage of low real estate prices. *Reuters