Real estate: Islamic investment in Europe and US on the rise

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By:
Kate Luxford
Published on:

Noriba exits some investments early after strong performance.

The increasing desire of Gulf investors to put their money into Shariah-compliant investments and record levels of wealth in the region, mean that business is booming for Islamic financial institutions looking to channel regional funds into European and US asset acquisitions.

Better-than-expected performance has led Bahrain-based Noriba, a wholly owned subsidiary of the UBS Group, to exit some of its real estate investments ahead of schedule. In October 2005, the firm exited its Noriba UK Commercial Property I deal, providing investors with an internal rate of return of 17.72% against a projected IRR of 10%.

Six months earlier, the firm exited its first real estate investment in the US after a holding period of only 26 months, and provided investors with an IRR of 18.2% against an expected 12.5%.

Noriba’s latest acquisition came in June, with the completion of the €256 million Rive Défense real estate deal in France. According to Toufic Kanafani, CEO of Noriba, the projected IRR on investors’ equity is 7.6%. He adds that Noriba remains on the look-out for new attractive investments. “We’re looking at opportunities everywhere – the US, UK, Germany, France, Spain – wherever the numbers make sense,” he says.

While the initial transaction is a pure real estate transaction, involving the acquisition of property via a bank loan, Kanafani explains that the deal is structured in a Shariah-compliant manner. The equity portion is set up separately from the loan portion, to overcome the Islamic prohibition on usury, and the property’s tenants must also comply with Shariah regulations. This means no casinos, conventional financial institutions, or arms or alcoholic beverage manufacturers, among others.

Mounzer Nasr, of Shariah-compliant investment firm Arcapita’s London-based corporate investment team, says that such restrictions make Islamic investments more costly and complicated but stresses: “We don’t let this disadvantage us versus conventional investors.” Arcapita has gone from strength to strength since its 1997 inception, doing about $8 billion of deals across its three business lines.