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Dubai developer Nakheel reconsiders REIT route to lure investors

Nakheel, the state-owned developer of Dubai manmade island Palm Jumeirah, is once more considering listing part of its business as a real estate investment trust in order to attract European and U.S. investors, the company's chairman, Ali Rashid Lootah, told S&P Global Market Intelligence.

The company first considered the option in 2008, when it revealed plans to create two REITs — one to finance infrastructure schemes and the other to fund residential projects. The plans were scrapped following the onset of the global financial crisis, which hit Dubai's real estate market particularly hard.

Speaking on the sidelines of the EXPO Real trade fair for property and investment in Munich, where Nakheel was exhibiting on its own for the first time, Lootah said the company was again entertaining the creation of a REIT in light of its attractive model for international investors.

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Ali Rashid Lootah
Source: Nakheel

"Sure, [attracting U.S. and European investors] is why we're thinking of it," said Lootah. "We are at the initial stage [of considering the option], but this is a path that we're thinking of because we have the land, we have the money to invest we don't lack resources, so this is another window to explore."

Nakheel was showcasing $1.77 billion worth of investment opportunities at EXPO Real, where its only other appearance in 2015 was alongside German real estate brokerage firm and then joint-venture partner Engels & Volkers. The company is now hoping to boost investor interest in Dubai with the promise of a stable investment and better returns, Lootah said.

"We think there is a lot of potential in the central European market [to attract] investors from this region," which represents the highest concentration of wealth in Europe, he said. "We have a lot of good opportunities in Dubai, especially for private investors or institutional investors. The yield in Dubai is much, much better than here," he added. Rental yields on Dubai properties can range from 5% to 9%, according to a statement promoting Nakheel's presence at the event.

Recent political and economic turbulence in the Gulf should not concern international investors who are considering investing with Nakheel or in Dubai, said Lootah. The Persian Gulf region, in which Dubai is a federal state in the United Arab Emirates, has witnessed political and economic turbulence in recent years. Since June, a diplomatic row has been rumbling between Qatar and a handful of Arab states, including the UAE, Saudi Arabia and Bahrain, who accuse the country of having ties to terrorism and pursuing close ties with Saudi Arabia's regional rival Iran. They have hit Qatar with economic sanctions aimed at forcing the tiny, gas-rich state to change its direction.

The Gulf states, which depend on oil and gas exports as their main source of income, are also struggling to recalibrate their economies after energy prices fell by more than half between 2014 and 2015 and have since failed to fully recover.

If investors are worried about political and economic risks in the region, they should take a lead from some of the larger institutions, said Lootah. "If financial institutions, who are supposed to know their business better than anybody else with all their risk departments etc. see no problem and put their money [in the region], I think the message to individual investors or institutional investors in real estate is to follow the [same] path."