ASIA NEWS: Brookfield calls Dubai recovery

In joining forces with the Dubai government for a $1 billion real estate fund, Brookfield Asset Management is tipping the Emirate’s recovery. PERE Magazine December/January issue 2011/2012.

Dubai was once seen as an architect’s playground, with spires outpacing one another to reach the heavens first. Today, the property market of the heavily-indebted Emirate sits somewhat shunned by international capital, with a number of those skyscrapers sitting mostly vacant.

Brookfield Asset Management, however, evidently believes that the 4,000-square-kilometer state has suffered enough and that discounts to peak pricing of up to 75 percent, according to certain local investment agents, are at the right level to launch the first ever Dubai-focused real estate investment fund.

Brookfield has teamed with Investment Corporation of Dubai (ICD), the investment arm of the Dubai government behind other real estate companies such as Emaar and Dubai Development, for a fund with a hard cap of $1 billion in equity. In a joint announcement, the partners said the fund would target “opportunities currently available in the Dubai real estate sector, with a focus on a wide class of assets in both freehold and non-freehold areas.”

Each partner would inject $100 million of seed equity into the eight- to 10-year fund. For Brookfield’s part, it would relocate senior investment executives to Dubai to manage the fund alongside UAE nationals. Brookfield declined to offer further details on the fund or its strategy when approached by PERE, citing preventative Securities & Exchange Commission regulations.

Today, the property market of the heavily-indebted Emirate sits somewhat shunned by international capital, with a number of those skyscrapers sitting mostly vacant.

In the joint announcement, Bruce Flatt, chief executive officer at Brookfield, stated that the firm saw “excellent opportunity in real estate in Dubai” thanks to various indicators, including “the arrival of long-term capital to the sector, which marks the early signs of recovery in real estate markets.” James Lewis, investment and leasing director in the Middle East team of property services firm Knight Frank, told PERE his firm also was seeing indicators that could suggest now is a good time for an investment fund.

“There are a number of tenants out there frustrated about not being able to get into decent quality accommodation,” Lewis said. “They have trawled through the various acres of available space and have come to the opinion that it isn’t fit for purpose. [A fund] capturing them in the right locations and then building functional, workable stock fit for purpose would be welcome.”

Lewis noted that there currently are various sizeable office requirements from sectors that include carbon, infrastructure and education, for example. He also said there could be various headquarter requirements emanating from the ongoing Arab Spring, as various corporates seek to relocate or consolidate in the temperate political environment offered by Dubai.

However, Lewis warned that, should Brookfield seek to reconfigure existing properties, the effort could be cost prohibitive. “The opportunity comes in going ‘back to basics’ – building in core locations with accessibility to the airport, main roads and car parking,” he said.

In terms of which area of Dubai is performing best today, Lewis said to look to the various free zones, which allow 100 percent foreign ownership and suffer no taxes. Of course, that would be no problem for Brookfield as its 50:50 partnership with ICD would fit Dubai’s stipulation that, outside its free zones, foreign entities are only permitted to own a maximum of 49 percent of an asset.

However it invests, Lewis said: “Brookfield has one hell of a skill set. If they bring that to bear, are strict with their stock selection and have patience, I think they can be successful.”