Friday Letter Filling in the cracks

The involvement of Middle Eastern petrodollars in the largest development projects in frontier locations leaves gaps for smaller real estate vehicles to exploit. 

The trouble for Western investors interested in North African countries is that billions of Middle Eastern petrodollars are already there.

Take Morocco for example: simply arriving at Casablanca’s Mohammed V airport tells you the relationships at work. You cannot fail to see the gigantic Emirates airline advertising hoarding next to the terminal as your plane nears the tarmac.

But Middle Eastern interest in North African “frontier” countries such as Morocco extends well beyond airlines. Investing in property is also on the agenda. As every other page of Royal Air Maroc’s in-flight magazine shows, the Gulf states are involved in most of the large-scale luxury villa development across the country.

In downtown Casablanca, there are yet more signs of petrodollar dominance on the development scene. Next to the luxurious Hyatt Regency Hotel is a showroom run by Sotheby’s International Realty, showcasing the first phase of Qatari Diar’s Al Houara resort. Here, the Qatar Investment Authority is investing in a phased 1,100-villa, hotel and golf course complex 20 minutes from Tangier on the Northern coast.

A number of agreements have been struck between the Moroccan government and various investors from the Middle East. In one instance, an alliance comprising Venture Capital Bank (Bahrain), Commercial Real Estate Company (Kuwait) and Morocco state-owned Caisse De Depot et De Gestion will reportedly invest in a number of projects around the country. Projects by other Middle Eastern entities have been trumpeted such as Sama-Dubai’s plan for a $600 million commercial scheme called Dubai Towers in Casablanca, and a $500 million waterfront project called Marina de Casablanca. Overall, Sama-Dubai intends to invest $12 billion in Moroccan real estate, according to an announcement by the firm in March 2006.

The fact that the Gulf states and the North African countries share a common language is of course helping relations considerably. But the billions of dollars going into real estate is not dissuading Western firms from setting up real estate funds, as sister publication PERE discovered on a recent visit.

However, because Middle Eastern firms are mainly interested in the largest development projects, there is a gap for smaller funds to exploit. One business expert in Casablanca told PERE: “Middle Eastern investment is coming with huge projects that exceed the value of other, smaller real estate funds.”

The opportunities for these smaller funds range from hotels to offices and logistics properties where the potential is greatest.

As Western firms seek out frontier destinations across the globe, they are bound to find Middle Eastern equity capital already pumping into most of them. But by dint of their size, the Gulf states are leaving large parts of the market available for smaller pools of capital to exploit. For once it seems that the world is enough.

PERE’s forthcoming December/January issue will contain an in-depth report on some of the world’s most compelling frontier locations for real estate investors.