Set against a backdrop of billions of dollars of investment in global real estate markets emanating from the GCC and Muslim jurisdictions, the UK Government initiatives on Islamic Finance, announced at the World Islamic Economic Forum (WIEF) in London at the end of October 2013, provided added momentum to Islamic Finance transactions, especially in the UK real estate sector. The Islamic Bank of Britain (IBB) who became Al Rayan Bank Plc in 2014, for instance, completed its first commercial property finance deal in Scotland in December valued at UK £0.4 million for Al-Meezan, a non-profit, non-political organisation based in Glasgow.
Following this in January of 2014 several transactions in the UK real estate sector have also been closed, involving Abu Dhabi Islamic bank (ADIB), 90 North Real Estate Partners LLP, Gatehouse Bank and Islamic Bank of Britain (IBB). In the case of ADIB, the bank arranged a £20 million structured Islamic financing facility, its debut deal in the UK real estate sector, to fund the development of Westbourne House, an office-cum-retail property in Central London. The financing was arranged for a consortium of GCC investors who purchased the property in 2012 with the aim of converting it into luxury residential apartments.
90 North Real Estate Partners LLP, advised a Middle Eastern investor represented by Dubai-based Arzan Wealth, on the purchase of Crossley Retail Park, Worcestershire in a £41.5 million deal. The transaction was financed through a Shariah-compliant debt facility provided by Ing Bank and financing for the acquisition was provided by Aareal Bank.
Kuwait-owned Gatehouse Bank have set up a £700 million joint venture with Sigma Capital, the Edinburgh-based residential and urban regeneration specialist, which will support the roll-out of an initial 2,000 new privately rented residential properties in the UK, with the potential to grow the portfolio to around 6,600 new rental homes once fully developed.
Gatehouse Bank, which is a dedicated Shariah-compliant investment bank regulated by the UK’s Prudential Regulatory Authority, currently have a real estate portfolio worth in excess of £1 billion across the UK and US.
The joint venture with Sibma had the support of the UK Coalition Government. Prime Minister David Cameron in a statement reiterated that “as part of our plan to help Britain succeed, we are determined to build a rebalanced economy across the country. As we compete in a tough global race, Sigma’s joint venture with Gatehouse is brilliant news for the North West and for Britain, showing that we are open for business. The rental market is a vital asset to this country and this new investment will help to boost local economies, create jobs and deliver more homes for hardworking people. And it’s on top of the wide range of measures we’ve already introduced to get Britain building, including our new Build to Rent fund, and the billions we’re investing towards delivering the fastest rate of affordable house building for two decades.”
Gatehouse Bank also issued two Sukuks in December 2013 which are secured by existing real estate assets-under-management. “Investors,” said Gatehouse in a statement, “will earn a return by virtue of the profit earned through the rent agreement of the building. Both Sukuks were arranged following a refinancing of a major headquarters building let to British Telecommunications Plc until September 2020.”
Al Rayan Bank PLC, in the meantime has widened its range of Shariah-compliant Buy to Let Purchase Plans (BTLPP) by launching two new fixed rental rate deals. The deals have been launched in response to growing demand for Shariah-compliant finance as the Buy to Let market continues to enjoy a resurgence.
In support of these interesting developments which has seen Islamic financial services grow from strength to strength in the UK, the British Conservative Government, under the stewardship of David Cameron have backed the rhetoric with action resulting in British debut sovereign £200 billion Sukuk issuance in June 2014 which was underpinned by government real estate assets was oversubscribed ten times.
Such initiatives are only set to increase under conservative rule following their election victory in June of 2015. At the same time, Boris Johnson as Mayor of London, very successfully continues to enhance the City’s role as one of the world’s foremost financial jurisdictions as well as being one of the world’s most desirable cities to live, work and own property in.
These factors have also played a significant role in reinforcing London’s position as one of the leading global Islamic Finance centres. A position also founded on the abundance of expertise in structuring Shariah complaint transactions, particularly real estate, which over the years have flourished in London. These attributes, almost in unison with the UK debut sovereign Sukuk issuance, came together to both attracted and facilitated the £1.35 billion financing of the Battersea Power Station - one of the largest real estate financings in the UK in recent years.
Given the above there is little doubt that real estate as an asset class has become more important since the financial crisis. According to LaSalle Investment Management's new 2015 Investment Strategy Annual (ISA) report, “money will continue to flow into real estate from across the capital markets worldwide, but investors should be increasingly concerned about getting caught late in the cycle and should anticipate the next cyclical downturn in a few years.”
The ISA report states that different regions of the world will be growing at different speeds in 2015, investors need to prepare their portfolios for world where interest rates begin to rise more quickly in some parts than others. With the lowering oil price having a knock-on effect on the local property scene, GCC investors and other investors from Muslim jurisdictions, investors are looking towards more mature markets that can withstand the fluctuating price of oil, while also offering institutional grade products.
These and other key factors affecting global real estate markets such as the impact of green issues, where the best opportunities reside and more specifically the role and opportunities in these markets for Islamic and Shariah compliant investment will be explored at the IREF Summit. Why not find out about the Islamic financial services ability to direct the vast liquidity emanating from Islamic jurisdictions into opportunities not just in the UK but real estate markets the world over.
The Summit will provide an ideal platform for financial market experts and those interested in accessing the rapidly growing Islamic financial services industry to discuss the key issues, highlight and identify new opportunities and forge new business relationships. If you have any interest in Real Estate and innovative financing solutions, this is an event you cannot afford to miss!