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Dedicated Returns

11.10.2010

Dedicated Returns

With a strong understanding of Real Estate fundamentals in UK and Europe and an extensive network of contacts, Gatehouse’s real estate team is developing Shariah-compliant deals to meet growing market demand.

Philip Churchill, Head of Real Estate, carries with him a wealth of experience in the European and UK real estate market, structuring property transactions since 2002. Led by Philip, the Real Estate team provides an end-to-end service – originating the transaction via extensive vendor contacts, performing top-down market analysis, and arranging due diligence and risk assessment.

 

Interestingly, Gatehouse has witnessed a shift in investor attitudes. More investors are choosing to be proactive and directly engaged, closely looking at opportunities available, making decisions based on balancing the risk entailed with the rewards they receive in their investments.

 

Investors want contacts gained by a long industry track record, but that track record has to be a positive one. Conversely, they’re wary of legacy issues associated with fund managers who, in some cases, have pulled out of in-progress deals while simultaneously fundraising for new vehicles.

 

The Real Estate team have understood the demands faced by investors and to meet their requirements, have sourced high quality assets in the UK, with reputable tenants in long lease arrangements to ensure that investments bring sustainable returns. Investors seem more than agreeable to the product offering, snapping up secure, investment opportunities offered by the team in prime office space and student accommodation.

 

Testament to this point, the Gatehouse Real Estate team have to date delivered five “star” transactions in ten months, with the majority of investors returning for repeat investment within the property portfolio.

 

Prime demand

There is a natural alignment between the Islamic emphasis on the asset-backed generation of profit, on the one hand, and the potentially high returns associated with real estate on the other.

 

“We have a Western market starved of capital and access to liquid investors,” says Philip,

Growth markets for Shariah-compliant real estate include liquid, wealthy GCC states such as Kuwait, Qatar and Saudi Arabia, and Far East states, including Malaysia and Singapore. “Within the GCC, the liquidity is there but the products aren’t,” he says.

 

In terms of assets, these investors are after central London office.

 

According to recent figures from IPD, UK office rents increased for the fourth consecutive month in August, by 0.1%, and by 0.6% since May. Both rents and yields have had a modestly positive influence on capital growth in the office market, in contrast to retail and industrial.

 

“Most investors have an ideal scenario involving a 15-year lease on an asset with the government as tenant on Berkeley Square,” says Philip. “Those assets don’t exist – or they exist only rarely. We look at which parameters can move. We’re able to work with investors on the advantages of assets in Liverpool and Leeds, for example.”

 

All-round network

 

In addition to working on one-off deals, Philip will boost his team to offer senior debt equivalents. As the market improves, he will also offer indirect investment via Shariah-compliant real estate funds.

 

Although advisory won’t account for the bulk of its real estate business, Gatehouse is seeing more demand for these services – for instance, consultancy work on involving residential developments and projects to build schools, hospitals and universities.

 

‘A healthy way to do business’

 

Longer term, Shariah-compliant real estate services have significant traction compared to their conventional counterparts.

 

Back when he worked with Citigroup, says Philip, he wouldn’t necessarily mention that a transaction was Shariah-compliant – not because he wanted to play it down but “because there was no understanding of what that meant. You had to teach people the basics of the structures.”

 

Now, he says, Shariah compliance is up-front and centre – not least because transparency, one of the fundamentals of Shariah-compliant real estate, is at a premium.

Shariah-compliant transactions, far from being complicated, are in fact highly transparent.

 

“If investors want to see the purchase agreement, I’ll happily send them the purchase agreement,” says Philip. “There are no hidden fees. There are no hidden mark-ups. It’s all there. It’s a healthy way to do business.”