Middle East outbound capital matures on hunt for value
Middle East outbound capital matures on hunt for value
02 MAY 2018 7:36 AM

Middle East investors have long abandoned single assets, but while portfolios are favored, distressed assets and other buys in new markets are attracting capital from the region.

RAS AL KHAIMAH, United Arab Emirates—Middle Eastern capital is continuing its search for homes in the international arena, but apart from trophy assets bought some years ago, the majority of investment is likely to stay in familiar markets, according to sources.

Those markets will be in the Indian Ocean, the Indian subcontinent and in the Middle East and North Africa themselves.

However, possible acquisitions in Europe and the Americas also were mentioned during a session titled “International investment opportunities” at the recent Arabian Hotel Investment Conference.

“We interested in portfolios in Europe with the view to repositioning, and in the U.S. where we do not have anything,” said Fardan Ali Al Fardan, senior investment advisor at United Arab Emirates-based real estate investment trust Equitativa.

Another trend, perhaps not unique to the region, is that single asset buys are being eschewed in favor of scale.

“The focus is on investing in larger acquisitions, such as distress in India, but also in Europe, which still offers value,” said Rahul Chaudhary, executive director of Nepali firm CG Corp Global, which owns 94 hotels in 15 countries under its CG Hospitality division.

Capital from the region is on an active search for value, repositioning opportunities and gaps in markets, panelists said.

“Our third fund is Africa, where there is still space in the 4- and 5-star space,” Chaudhary said.

Traditionally a lot of Middle Eastern money is in Africa, panelists said, but local knowledge is needed.

“It remains time-consuming,” Al Fardan said.

“Our Kigali (Rwanda) hotel will be repositioned as a Zinc (branded hotel) next month, and we have more plans for that brand in Uganda, Kenya, Burundi and Tanzania,” Chaudhary said.

“We open one asset and make sure it is operational, and then go into our markets in that same region, but again always with local partners,” he added.

Distress still favored
Salim Mikram, business development head of the Moroccan Agency for Tourism Development, said Morocco actively is developing the government and business cities of Rabat and Casablanca as up-and-coming seaside destinations.

“Investment is aimed at putting them on the map,” Mikram said.

Mikram said Morocco’s strategy was to continue concentrating on the higher-end segments.

Al Fardan conveniently has set up a privately held REIT in Morocco expressly for Moroccan investment.

“We already have all the other asset classes there (and) so (we) are now looking at hospitality,” he said.

Chaudhary said his investment is concentrating on distress, in East Africa and in the firm’s home market of Nepal.

“We have been (in Nepal with hotels) now for 15 years and are developing five or six hotels as we speak,” he said.

“There also are gaps in the mid-market space in India, opportunistic investments, and we like regions that either we know or have first-mover advantage in—places where we are not competing against the big boys.”

Chaudhary said he used the same strategy a decade or so ago when the Maldives was in trouble.

“It opens up opportunities. When we first went to the Maldives, even the Maldivians were not willing to invest,” he said.

Opportunities depend on the volatility of interest rates, or lack thereof, panelists said.

“Interest rates are very low, so it is not a game changer,” Al Fardan said.

Chaudhary disagreed.

“Interest rates in Nepal are 12%; in India, around 10%. Investment makes more sense in distressed and brownfield assets,” he said, adding his hospitality wing has six brands, including Alila.

Mikram said his firm’s focus is definitely on shifting away from the oceanside city of Agadir.

“That’s because all there has been sold,” he said.

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