The Kuwait Financial Centre, also known as Markaz, plans to invest US$50m (Dh183.6m) in distressed property projects in Abu Dhabi, a senior executive said last week. The arrival of Markaz in Abu Dhabi appears to mark the first time a major investment firm has targeted distressed property in the emirate. Several similar funds have already formed in Dubai, where the property downturn has been more severe.
"Prices have corrected to attractive levels now in Abu Dhabi," said Bassam al Othman, senior vice president of property development at Markaz, one of Kuwait's largest investment firms. "We are looking at distressed developers who have spread themselves too thin with their equity." The fund is looking specifically at Reem Island, a 633-hectare plot east of the main Abu Dhabi island where many smaller developers are having difficulty moving forward with projects amid the global economic downturn.
"A lot of these developers need to exit," Mr al Othman said. "They are under pressure to sell and raise some cash. Some of them want to focus on one plot and sell the others." Mr al Othman said his fund was interested in making equity investments in projects or buying land at discounted prices to develop on its own. Investment in distressed assets tends to start taking place as a market nears the bottom of a downturn, analysts say. Such investments may help stalled projects move forward and get capital circulating following an abrupt slowdown that began last October.
Georges Makhoul, the head of Middle East and North Africa for Morgan Stanley, said in June that these investments would mark the recovery of the property sector. "Once you see distressed funds coming to the market and picking up whole portfolios from developers and banks then you know we are on the mend," he said. "That is the way bubbles clear themselves." Mr al Othman said Reem Island was especially ripe for these investments because prices had declined heavily, but the likely rental yield of a building was still high because of the low supply of homes in Abu Dhabi. There was an undersupply of 44,000 homes in the city, according to a report from the property consultancy DTZ in April.
He also said that the price declines on Reem were among the most realistic in Abu Dhabi. At Al Raha Beach, Aldar Properties was preventing prices from dropping too much, Mr al Othman said. "They are trying to put some controls on the correction," he said. "Eventually, the prices there should move closer to levels of Reem." Two of the largest projects on Reem Island are still on track, the developers say. Tamouh Investments, which is the master developer of the majority of the island, is opening its Marina Square project in December and will be ready for tenants to move in by January. Sorouh Real Estate, which is developing the northeastern part of the island, is opening its Sun and Sky towers about the same time.
Still, Sorouh is facing difficulties with some of the smaller developers that were planning buildings for the Shams Abu Dhabi project. The company would not say how many of the 104 plots of land it sold to developers were affected, but it had created a working group to help troubled developers obtain financing and continue with construction. "There are those that may be unable to progress with their development, and we are supporting them by working closely with the sub-developers to find solutions to assist them during these difficult times," a Sorouh spokesman said.
The spokesman added that there were "high levels of interest from regional and international developers" in the Shams project, and that the company was supporting existing developers and seeking new partners for the project. Reem Developers, the third master developer of the island, said it was making "good progress" on its Najmat project, but some of the sub developers have said there have been delays on its portion because of the slowdown.
bhope@thenational.ae