Investcorp's US real estate acquisitions to decline by 33%

Fraser says banks are not giving loans to finance real estate deals. (PATRICK CASTILLO)

The number of real estate acquisitions by Bahrain-based investment bank Investcorp in the United States is likely to decline by 33 per cent this year compared to 2007, a top company executive said.

"We will be down in the terms of number of transactions and end up investing approximately $400 million in equity with an aggregate transaction size of $2 billion (Dh7.3bn) in 2008 compared to total transactions of over $3bn last year," Investcorp's Co-Head of Real Estate Investment Group John R Fraser told Emirates Business.

"There is an interesting buying opportunity environment in the United States today as pricing has softened. However, the number of buyers who were able to actually conclude deals has been reduced, as debt financing is not readily available. So entities with the ability to write 'large equity cheques' were able to acquire assets at historically favourable pricing," Fraser said when asked on why the real estate acquisitions in the United States by Investcorp will decline.

Investcorp's US real estate business focuses on institutional quality assets outside of the sub-prime sector, where demand and supply continue to be in good balance with ample opportunities for value generation in the medium term.

According to its 2007 annual report, the bank sold 15 properties, returning $201m to investors in the form of cash returns and sales proceeds, while about $369m was deployed across 15 new investments.

On the other side, Investcorp has been quite active in terms of purchasing mezzanine debt from US lending institutions.

"The market in the US is marked by a real breakdown in lending crisis. A lot of the banks are not giving mortgage loans to finance real estate but are selling those loans on selective basis in order to create liquidity on their own balance sheets. We are buying a lot of these loans at a favourable pricing and are able to generate attractive returns on those," Fraser added.

Investcorp, he said, has bought 20 loans of aggregate value of close to $1bn till date and plans to buy debt of several million dollars in coming months.

In January 2007, it closed a Real Estate Mezzanine Fund I for a total of $108 million for which funds were raised from Gulf-based clients.

The first investment by the fund was the acquisition of an existing Tranche B Note on a condominium conversion project in Bethesda, Maryland.

Investcorp is considering setting up a $1bn fund to take advantage of turmoil in global credit markets, Reuters reported last week.

The investment bank has 1,500 clients both institutional and high net worth individuals with $15bn in invested assets under management. Investcorp bank operates out of three centres: Bahrain, London and New York, and is listed on the Bahrain and London Stock Exchanges.

Latest deals

Investcorp has completed two real estate transactions in the past 15 months.

In July 2007, the investment bank entered a joint venture with Schnitzer West, a Seattle area real estate development group, to develop a 1.6 million square foot office, retail and residential project in Bellevue, Washington, outside Seattle. The transaction is valued at more than $800m.

In January this year it completed $1.4 billion acquisition of the 280 Park Avenue building, located in Midtown Manhattan in New York City.

The 280 Park Avenue comprises approximately 1.2 million square foot of rentable office space in the heart of Manhattan.

It consists of one 31-storey office tower fronting Park Avenue and one 43-storey office tower with a connecting 14-storey mid-rise office building. It has 29 passenger elevators and four freight elevators.