Land deal opens the way for Abu Dhabi real estate

Islamic transaction overcomes buy-sell restriction on UAE Capital's property sevtor

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By  Eudore Chand Published  April 10, 2004

The UAE witnessed its first Islamic real estate securitisation deal with Emirates Real Estate Fund acquiring future cash flows of 36 properties developed by Al Ahmadain General Contracting Company LLC in Abu Dhabi. “The Abu Dhabi real estate market is unique, in that one cannot sell properties except in the case of an inheritance. We had to be innovative in finding a way to get exposure to the growing and promising Abu Dhabi real estate market; securitisation of future rental income was the optimal and most secure way of achieving that goal,” said Jamil Brair, senior associate, National Investor, which manages the Emirates Real Estate Fund. The deal is valued at Dhs23 million and was completed in a Sharia compliant manner. Al Ahmadain is a leading residential developer in Abu Dhabi specialising in the innovative Istithmar concept whereby a developer leases land from its owner, develops the properties and rents it out during the lease (Istithmar) period prior to returning the properties to the owner at the end of the lease period. Emirates Real Estate Fund decided to purchase the future cash flows generated by the properties in the portfolio of Al Ahmadain because of the excellent quality of the design and construction as well as the high quality of the tenants, which would ensure a predictable rental income for the fund. “Al Ahmadain has the best Istithmar track record and the largest and highest quality portfolio of properties in Abu Dhabi. The company was the ideal partner for the Emirates Real Estate Fund,” said Dr. Karim El Solh, CEO of the National Investor. “Rather than waiting several years to recover its investment from the rental income of the properties during the lease/Istithmar period, Al Ahmadain obtains an upfront payment through an Ijara lease equivalent to the property's future projected cash flows. In essence, the fund is monetizing the developer's future cash flows,” said Dr. El Solh. “The upfront payment gives us an immediate profit and allows us to recycle our capital into other developments, allowing us to keep on growing as developers,” said Abdulla Jadalla, general manager of Al Ahmadain. Sultan Al Otaiba, chairman of Al Ahmadain said his group looked forward to further cooperation in the near future with the National Investor.

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