A league of their own

Gulf sovereign wealth funds are still active on the market and loaded with cash. These conservative and often secretive funds, however, are in no mood for splashing out – at least not in the cee region. and The bad news? This is not likely to change anytime soon

Mladen Petrov

In July 2008, the landmark Chrysler Building in New York, the world-famous art deco masterpiece, changed hands. The previous owner – Tishman Speyer Properties – was paid USD 800 mln for a 90 pct stake in the building. The new majority stake owner – the Abu Dhabi Investment Authority (ADIA), an arm of the Gulf emirate government – later made the much bigger purchase in America of 4.9 pct of Citigroup’s shares, rescuing the bank from bankruptcy. ADIA, which was established in 1976 with its main source of funding being the financial surplus from oil exports, is now one of the biggest sovereign wealth funds (SWFs) in the world, with a reported capital of USD 875 bln, according to the US-based Sovereign Wealth Fund Institute. Like most of the Gulf-based funds, ADIA prefers to keep a low profile, refusing to reveal information on its strategies in specific markets. Among the fund’s major direct foreign public investments is the Eastern European Trust, a closed-end investment trust listed on the London Stock Exchange with a net asset value of app. USD 248 mln on 30th September 2008. The company’s objective is to achieve long-term capital growth from a diversified portfolio of companies in emerging Europe, including Russia, Turkey, Central and Eastern Europe and countries of the former Soviet Union, according to the trust’s website.

Trouble in paradise

SWFs are state-owned investment funds composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets. The real estate arms of these funds are in fact the biggest developers in the Gulf countries, carrying out mainly large-scale, city-sized developments, which have put locations such as Dubai and Abu Dhabi on the global real estate map, leading the industry to believe that here everything is possible. Limitless, the Dubai government’s global property developer (set up in 2005), in the course of the last year has managed to double its planned projects around the world, which now have a total gross development value of USD 110 bln.

According to the Capital Markets Outlook 2009 study by Jones Lang LaSalle, there is more than EUR 50 bln of equity capital targeting Europe for 2009. A big chunk of this comes from SWFs, but not every market in Europe is going to benefit from the much needed cash injection. The advisories in the Middle East are quite busy today answering a growing number of requests for information on property in Europe. However, the majority of these requests refer to key Western European cities, with London being the most desirable destination. Market analysts warn however, that while SWFs from the Middle East are to increase their exposure to real estate this year, a larger portion of this money is actually to be invested in their home markets, which themselves haven’t been immune to the effects of the global downturn.

The decline of regional stock markets in late autumn 2008 wasn’t the only bad news from the region. Added to the burst of the real-estate bubble is the sharp decline in residential prices (particularly in Dubai), increasing unemployment (especially as 50 pct of Dubai’s workforce was employed in the construction and real estate sector – 2007 data), and last – but not least – the continuing dramatic slump in oil prices. With the energy sector accounting for around 45 pct of the region’s economy, the historic oil price decreases are having an enormous impact. Following the weaker global demand, gas prices are also on a downward trajectory, thus threatening another important source of secure revenue for Qatar, Saudi Arabia and the UAE. By the end of 2008, the IMF reduced the projections for 2009 GDP growth by 0.6 pct across the region. All in all, there are many problems that need to be resolved as soon as possible, and which might put on hold for a while plans for European and global expansion in general.

Still in the mood for shopping

Funds such as ADIA are not new to the European market, but up until now they have been traditionally focused on the American and larger Western markets, being involved in both carrying out new projects and acquiring property. Also in 2008, Dubai World, the Dubai government investment firm, acquired the Wal-Mart-owned property developer Gazeley Limited, which has built Wal-Mart’s distribution warehouses in Britain, China, India and Latin America. It has been reported that Dubai World has paid between USD 588-784 mln for the acquisition. Limitless has been linked to a takeover of London office developer Minerva. Limitless, which is developing the Palm Jumeirah flagship project in Dubai, has bold expansion plans abroad, in the Gulf Co-operation Council countries (Saudi Arabia, Bahrain, Kuwait, Qatar and Oman), Pakistan, India, Russia and Poland. The company, which specialises in large scale mixed-use projects, has an office in Warsaw, where the company’s Eastern European regional director is based. When asked by ‘Eurobuild CEE’ to comment on the company’s future plans in Poland and Russia, Rebecca Rees, corporate media relations manager, commented briefly: “We continue to explore opportunities in all of our markets, including Poland, and will make a formal announcement at an appropriate time.”

Big is better

Currently Limitless Polska, the Polish subsidiary of the global developer, is in the process of acquiring land in Chrzanów, and is also planning to buy construction sites in Warsaw, Wrocław and Katowice. In Chrzanów, on a 436-ha plot, Limitless is planning to build a district for a few thousand people, which in addition to residential developments will also feature office buildings, retail units and sports facilities. The construction work is expected to begin in 30 months. In mid 2009 the construction work on Limitless’ first Russian project is also expected to kick off. In a joint venture with the Moscow-based developer and investor RDI Group, Limitless is to carry out a 113-ha project with 4,500 homes, schools, neighborhood center and retail facilities, expected to be built by 2016 in the Khimki area of Moscow, 3 km from the Sheremetyevo airport.

In Montenegro, a joint venture between Joud Real Estate Funds, managed by Osoul Fund Management in Egypt (part of the Osoul Group) and Monte-Mena, a Montenegro-based company focusing on luxury resorts, is to develop the Royal Montenegro Grand Resort, which is intended to be the biggest and most luxurious new project on the Montenegrin Riviera. The resort, located 8 km south of Budva and scheduled for opening in 2010, will feature a 5-star+ 220-room hotel, a mega-yacht marina club, villas, lodges, condominiums and several retail outlets. The cost of the project, which will be 66,000 sqm, has yet to be announced, but as ‘Eurobuild CEE’ found out, the Osoul Group is willing to invest in this and similar projects in Montenegro alone to the value of EUR 1 bln. 

Go East

In August 2008, important news came from Dublin. It was then that Quinlan Private (QP), an international private equity real estate group, confirmed that the Oman Investment Fund, owned by the Sultanate of Oman, had acquired a 50 pct partnership interest in the Jurys Inns Group, which QP itself had bought in July 2007. The chain, currently active across the UK and Ireland, is set for further international expansion. The Group’s first Inns in Central Europe are to be opened in Prague and Budapest in 2010. Over the course of the next few years, QP, in cooperation with the Oman Investment Fund, is looking to