Middle East investment in US realty rises

Investors to pour up to $20b into global real estate, according to real estate advisers CBRE

The boarded-up building sat vacant on a tattered block in San Francisco until a small New York developer and a Kuwaiti real estate partner snapped it up in April 2014, attracted by the proximity to Twitter Inc and other tech companies.

Over the next year and a half, New York’s Synapse Development Group worked to win approval to redevelop the 1904 landmark on Market Street into a 203-room hotel run by London-based Yotel.

The Kuwait Real Estate Co, or Aqarat, later approached Synapse to deepen the two firms’ ties as general partners, and they plan to invest $25 million (Dh91.9 million) in the future.

They are working on a project in the Williamsburg section of Brooklyn, and Synapse is eying other US urban markets for future deals.

Synapse and Aqarat aim to leverage their capital with an outside investor to buy about $200 million of real estate, Synapse Chief Executive Justin Palmer said in a recent interview. “This is a calculated manoeuvre to invest more capital in US real estate,” Palmer said, referring to the higher risk that general partners take on compared with limited partners.

Yotel’s “small, but smart cabins” — rooms about half the normal size — demonstrate the partners’ efforts to maximise their revenue per square foot.

Capital flow

The Kuwaiti money is an example of the increased capital flowing into global real estate from the Middle East, some of which is heading abroad for the first time. This year, investment from the region is poised to hit a record $18 billion to $20 billion, or at least 13 per cent more than the prior record in 2013, according to real estate advisers CBRE.

Ninety per cent of Middle East investment hails from Saudi Arabia, Bahrain, Kuwait, United Arab Emirates, Qatar and Oman, the six countries that form the Gulf Cooperation Council.

Ethika Investments LLC, a Los Angeles-based real estate investment firm with a number of Middle East investors, said it noticed an increase in capital flows about 18 months ago, just before the sharp downturn in energy prices.

“What drove it initially was just flight to quality assets and (US) economic growth,” said Austin Khan, chief investment officer at Ethika.

Early in the economic recovery, capital flowed to London and Paris, markets Gulf investors traditionally favoured for their proximity to home, Khan said.