Mouflon raises € 16 mln in first property fund, aims for more
Mouflon Real Estate Investment Fund, the CySEClicensed property investment fund, has already raised EUR 16 mln for its first instrument accumulating commercial properties, and aims to raise more that will invest in commercial and residential portfolios.
Attracting overseas investors, primarily from non-EU countries such as Lebanon, the first fund has selected office properties in Nicosia and Limassol with solid tenants, offering investors a yield of about 7%. It aims to continue buying prime assets, but is not too keen on taking over distressed properties from banks that are trying to offload their mortgage-backed non-performing loans.
The fund has a closed-end structure of five years, with an additional two year exit period for initial investors.
A similar structure will continue for two more sub-funds currently underway, said Dr Samir Nasr, a co-executive director of the company which describes itself as an umbrella fund, regulated under the securities watchdog’s Alternative Investment Fund (AIF) Law of 2014.
He added that although the fund will be looking to attract investors in the region of EUR 500,000 to 1 mln, the minimum investment is set at EUR 125,000.
Similar to the government’s citizenship and residency programmes for buying new properties, AIFs require a minimum EUR 2 mln investment, plus a residential property or apartment worth at least EUR 500.000.
George Mouskides, managing director of Fox Smart Estate Agency and co-director of the fund, said that the collaboration with two Lebanese companies for its creation was the fruit of a joint belief in the opportunity offered by the real estate sector of Cyprus.
He said that property prices have started to recover, and that demand in the market is increasing, both from local and international buyers. This increase is expected to continue in the medium term, which creates an opportunity for investment funds to enter the market and benefit from the growth of the sector.
“This is almost perfect timing for the fund. From 2,700 property sales in 2013, this has risen to a healthy 8,000 in 2017, with 12,000 annual property sales in future years very possible,” Mouskides said.
“From the peak in 2008, property prices continued to fall to mid-2016, currently stabilising and anticipating a 2-7% annual increase from now on,” he added.
Nasr echoed a similar optimism, saying that the fund expects to see “reasonable growth” in the next 4-5 years, but that the market is not suitable for speculators.
“Investors are only interested in a good yield and certain capital gain,” he said, adding that the aim is to launch a subfund every six months.
However, he added that the fund would not be investing in hotel properties, “at least not for now”, with Mouskides explaining that hotel assets are usually worth EUR 20 to 50 mln, which is beyond the present scope of the fund.
Lynn Khoury, co-executive director of Mouflon and head of compliance, said that most investors were from overseas, who were seeking better investments than traditional financial instruments.
She added that as part of the services offered to investors, Mouflon will also manage assets on behalf of their clients.
Jad Wakil, co-founder and executive director of the fund, said that the advantages of the AIF law were that it provides a safe, flexible, transparent, and efficient structure for investment, while implementing European directives within an EU harmonised legislation.
“Given the flexibility of the regulatory framework, funds are able to offer both private and institutional investors the possibility of investing through a number of ‘investment compartments’, each of which is authorised as an independent entity, with its own specific investment strategy and specific risk-return profile, in order to achieve superior return on the capital invested into it.
According to Dr. Nasr, who is handling the fundraising for the fund, the objectives of the fund are to identify investment opportunities which can be seen as competitive with other European markets, and which can assist investors in diversifying their portfolios while generating comparable returns.
He said that Cyprus suffers from higher-than-average cost of leverage, which can put it at a disadvantage when compared with other EU countries, but this can be compensated by a higher potential for capital appreciation brought about by the recovery of the real estate sector.
In addition, Nasr said, the fund structure will help move away from the traditional model of having wealthy families or private developers directly owning large numbers of assets, and therefore concentrating risks, to a more modern framework whereby a much broader range of investors can enter the market, directly benefiting the sector as well as the overall economy.
Lynn Khoury concluded that investment through such funds allow local investors access to the real estate sector, through an asset-backed vehicle that provides better returns compared with traditional bank savings, and which can further fuel the recovery and growth of the sector and the economy as a whole.