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Mideast Wealth Funds Rescue Developers
Flush with cash and looking for better-than-modest returns, several Middle Eastern sovereign wealth funds are putting money into carefully selected U.S. real estate ventures.
The funds, controlled by their governments of origin, have already pumped billions of investment dollars into U.S. companies and enterprises, but cash allocations to real estate ventures is a relatively new phenomenon.
MGM Mirage Inc., of Las Vegas received $2.96 billion from Dubai World, parent company of Istithmar. Istithmar, one of the bigger Middle Eastern investors, also holds a $100 million equity position in a complex Los Angeles project which will include a luxury hotel, the Grand.
The venture is being developed by Related, a private real estate development firm which developed New York's Time Warner Center. Related also received about $1 billion in recent months from both Mubadala Development Co., the Abu Dhabi investment fund; and from Kuwaiti and Saudi Arabian funds.
Also expecting to receive Middle Eastern SWF cash is Antares Investment Partners of Greenwich, Conn., now in the process of accumulating $500 million to buy commercial property in the New York Metro area.
Antares co-founder Joseph Beninati recently visited Abu Dhabi of the United Arab Emirates to talk with investors and explain his investment fund strategy.
Beninati's focus will be viable properties generating cash but perhaps with excessive leverage and in need of a reworking of their capital structures.
Middle Eastern SWFs, says Beninati, are in real estate for the long term and seldom need to liquidate holdings.
Unlike other holders of real estate properties, "They [SWFs] are never in a position where they have to liquidate in 36 months because a pension fund has to be paid," Beninati was quoted as saying in The Wall Street Journal.
Although many SWFs may invest in real estate for the long term, already SWF investments in U.S. real estate have paid off.
Last year Istithmar sold a pair of office buildings on Manhattan's prime Park Avenue. Each of the properties reportedly went for more than $1 billion.
So far total cash investment of sovereign wealth funds in real estate development is still comparatively modest, experts expect SWF money to increase as traditional credit markets continue to remain tight and other sources of development money remains scarce.
"There is no question this trend will continue," said Frank Liantonio, executive vice president for global capital markets at Cushman & Wakefield, a full service real estate brokerage firm with operations in 56 countries worldwide.
In today's disastrous credit crunch cash is cash, no matter what the source – with certain exceptions, of course – and so Liantonio told the Wall Street Journal that "…Sovereign wealth funds are perfect candidates for solutions to the problems we're encountering."
But Middle Eastern SWF portfolio managers do not invest as a monolith. Some prefer the safe, reliable returns of U.S. Treasury vehicles.
Others, like The Abu Dhabi Investment Authority, with asset holdings estimated as high as $900 billion, are said to be more venturesome and not excessively risk averse.
So the ADIA may blaze a trail of investments in U.S. real estate that other SWFs will follow as the trend gains momentum.