Building solutions for Gulf real-estate funds

When Saudi Arabia’s regulator, the Capital Markets Authority, approved rules for exchange-listed real estate funds (REITs) in early 2016, it highlighted the appetite for income-producing real estate funds in the Gulf region. After the success of Emirates REIT in the UAE, a Shariah-compliant fund that joined Nasdaq Dubai in 2014, several real estate funds are planning to list.

Typically, real estate funds start as private funds, with small investor bases and lower regulations. However, as these funds evolve and aim at increasing their capital base, they transform into REITs to access a broader range of investors. This comes with an additional burden of reporting, more regulation, and increased requirements for transparency. 

At this point, the need for an independent fund administrator arises. Often, having an administrator with a strong international reputation helps improve efficiency, reduces operational risk and gives investors the comfort of third-party verification. 

Real estate is a respected asset class

Real estate is the oldest and most respected asset class in the Gulf. Wealthy individuals and family offices were investing in real estate decades before they invested in the region’s equity and bond markets. The latter markets are relatively young and have been volatile, which has led, gradually, to a redirection of investors to the real estate sector. 

The emergence of listed real estate funds, which have improved liquidity, has further increased the appetite for real estate. Gulf real estate funds have also given investors access to transactions typically off the radar. In addition to the typical investments in commercial and residential properties, investing in schools, sale and leaseback transactions, and mezzanine finance is becoming increasingly popular. 

While direct investments in residential real estate typically provided income yields of 4-5%, funds, through leverage, target returns of up to 12%. 

Looking forward, it is likely that several REITs will list on Gulf exchanges in the next three years. Many local asset managers have started funds within the past few years, encouraged by the success of Emirates REIT.

It’s as these funds list that access to best-in-class administration systems may offer competitive advantage. Real estate is a particularly complex asset class because of the multiple layers of transactions and cash flows, so technology, such as Yardi and Citco’s waterfall calculator, can make a big difference for investors and fund managers alike.

8th March 2017

Our contacts

Ziad Chaaban

Ziad Chaaban

Managing Director, 
Citco Middle East Limited

T+971 (0) 5065 38 452