Deyaar to set up series of distressed debt funds

Dubai real estate developer Deyaar will launch a series of funds of up to Dh1 billion ($272.3 million) to buy distressed debt, including its own, as it looks to boost returns for shareholders, its chief executive said.

Markus Giebel said on Monday there would be a series of funds operated by its new unit Deyaar Fund Management and was close to raising the first Dh500-million fund to buy its own distressed assets.

"These funds have three benefits ... to stabilise Dubai, take distressed assets from Deyaar's balance sheet and bring some good returns for our shareholders," Giebel told Reuters in a telephone interview on Monday.

Real estate prices in Dubai have slumped since the global financial crisis brought to an end a regional economic boom late last year.

The downturn has prompted Dubai developers to cancel scores of expansion projects and led to thousands of job cuts in Dubai, raising the risk of home loan defaults as the global financial crisis hit the Gulf Arab trade hub's once-booming property sector.

Its first Dh500-million fund is about 60-70 per cent subscribed by a mix of local and overseas investors and would buy back properties on which investors have defaulted from Deyaar's own portfolio, Giebel said.

Deyaar will rent out the units to provide cash flow for the company before selling them once the Dubai property market recovers, he said.

"The next one (fund) will be immediately after ... we will go outside (Deyaar) and do funds between Dh500 million to Dh1 billion as smaller funds are more targeted and guarantee returns for investors," Giebel said.

OUTLOOK

In February, Deyaar, of which almost 41 per cent is owned by Dubai Islamic Bank, announced that it was putting at least a quarter of its projects on hold after the financial crisis hit Dubai.

But Dubai's second-largest developer by market value, which manages 16,000 commercial and residential properties worldwide, said on Sunday it planned to deliver seven projects in the UAE in 2009 despite challenging market conditions.

Deyaar posted a 73 per cent decline in first-quarter net profit to Dh54.48 million as the global financial crisis hit the property sector.

"If you have a fire in the middle of Los Angeles you cannot compare before and after," Giebel said on the Q1 profit slump, adding the new landscape was more comparable to 2007 than last year.

Giebel said he expected 2009 would remain tough with recovery only beginning towards the end of next year.

"It can get worse ... we believe 2009 will be a downturn, 2010 will be at the bottom somewhere and end 2010, 2011 there will be a recovery," Giebel said. 

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