x Abu Dhabi, UAEFriday 19 January 2018

US firm plans $1bn property lifeline

Hines Interests plans to buy heavily discounted properties in the Emirates from desperate owners and developers.

ABU DHABI // An announcement that a US-based developer and investor is planning to buy up heavily discounted properties from desperate owners and developers through a new distressed asset fund could have a major impact on property markets in Abu Dhabi and Dubai, its senior executive said. Hines Interests said the fund would be the largest of its kind to launch in the UAE and could help some stalled developers to proceed with their projects.

Jürgen Herre, the head of the Middle East and North Africa region for Hines, said the company would aim to raise between US$250 million (Dh918m) and $500m from regional funds and investors, which would have "about $1 billion worth of firing power with leverage" - combined debt and equity - for distressed properties in the UAE and possibly the wider region. The money could be used to make between eight and 12 large investments.

"For the last two years we did not invest because we felt there would be a price correction," Mr Herre said. "But in six to nine months, we will start investing equity into projects with our institutional partners. There are major opportunities now." Hines, which has $42bn worth of properties under management, plans to launch the fund in the next six to nine months, but this could be delayed if the price of oil drops significantly or the economic crisis starts to worsen.

Analysts have said the arrival of distressed asset funds marks the bottom of the property downturn and will lead to more transactions in the marketplace. In recent months, several distressed asset funds have started forming to take advantage of the sharp price declines of property. The Kuwait Financial Centre, also known as Markaz, announced it was investing about $50m in Abu Dhabi while Tasweek said last week it hoped to raise $250m to acquire distressed assets in the UAE.

Mr Herre said Hines would focus on buying up the properties of owners who were having trouble making payments or from developers and owners trying quickly to sell their assets to raise money to pay off other obligations. He cited Reem Island as an example of an area where Hines could take advantage of conditions. Some developers who bought land on the island are having trouble moving forward with their projects.

"At Reem, they were pretty successful with pre-sales, but are less successful with buyers to build their projects," Mr Herre said. "This puts the overall masterplans in danger. We can play a role in this process." He said the fund's institutional investors were more likely to come from the region than from western countries because the laws and conditions of the property market here did not produce many buildings that would be ideal for the major US pension funds and other investors the company represents.

Mr Herre said, however, that he had already seen "vulture funds" looking more closely at the distressed assets in the UAE. "My prediction is that we will see private equity, like hedge funds, and not the institutional investors in the market here." Hines has already launched development projects in Saudi Arabia and Jordan. In the UAE, the company has focused on helping sovereign wealth funds invest in property for a fee, but the company plans to expand into property management in the coming months.

Mr Herre said Hines had signed an agreement with a local partner to create a property management company that would operate throughout the UAE. "We clearly see a lack of proper property management in the region," Mr Herre said. "This is especially important now. Owners need property management to stabilise and enhance the value of their investments." The property management company would come alongside an increasingly selective market, where buyers were starting to discern high and low quality homes and offices.

"I think there will be a trend to quality because of the crisis," Mr Herre said. "This is one of the only markets in my more than 30-year career where you would see the same price between good and bad quality product. This is changing." @Email:bhope@thenational.ae