Blumberg Capital Partners, a US-based investment management company, said it will invest around $400 million (Dh1.47 billion) into developing office projects in the GCC countries and Brazil through its newly-launched $1 billion off-shore real estate fund, company’s chairman told Emirates Business.
“The Blumberg Strategic Asset Fund is targeted at $1bn, taking debt into account. Around 30 per cent or less of this will fund development of office projects in Brazil and Gulf. The expected annual return on the fund is likely to be around 26 per cent to 32 per cent,” Philip Blumberg said.
Blumberg Capital said it has already received commitments to the tune of around $100m from six to 10 confirmed investors from the Gulf on this closed-end real estate fund.
He said: “We are in the process of completing the fund-raising on the real estate fund, which we launched three weeks ago, specifically focused on non-US investors. We have a very strong tax-structure on the fund with liquidity built into the funds. Liquidity provides the ability in a closed-end fund to take money out every year.”
According to Blumberg, the real estate fund will see investments in three platforms, development of office projects across the Gulf and Brazil, real estate investment trusts (Reits), primarily in the US, and thirdly in the form of debt.
“This real estate fund is a first of its kind in the US as it offers a yearly redemption despite being a closed-end fund. The fund will also have a currency hedging option but the liquidity feature is the most unique as it creates more liquidity for investors. This is important because non-US investors particularly high-net-worth individuals like to know that they are able to access absolutely. Due to the nature of the fund, it is very private and we don’t want to disclose any names,” he said adding that the fund will have a tenure of five to eight years after raising the capital on the fund. Blumberg Capital has set 18 months time to raise the capital from the time it was launched three weeks ago.
“We gave ourselves 18 months time to raise capital on the fund, but we will be able to meet our commitments well before that. We are also talking to investors in India, Latin America, and later further in Asia. It is a global fund.”
He added that investors from the Gulf countries looked keen to diversify their investment portfolio out of their home country.
“This tax-structure of the fund is focused on a debt-equity structure that takes equity cash-flows that are taxable and converts them to debt,” explained Blumberg.
He said the investment units are split into equity and debt with 50 per cent of the investment in the form of debentures to the parent of the entity, which owns the real estate.
“In the fund structure that we have, there is an eight per cent coupon we pay investors on the debt part of their investment. So they have an active eight per cent cash generation and the equity takes the balance of it,” said Blumberg.
“The balance targeted 50 per cent of the investment in equity captures the balance of cash flow and appreciation of the property portfolio, and the return on equity is generally not expected to be subject to US withholding tax,” he said.
According to Blumberg, the US is currently recording the highest debt and “disintermediation” in it history. There is more debt in the commercial market than ever before. Further supply of capital into real estate has been at an all-time low. The only new lending in the US commercial markets is likely to come through private real estate funds, hedge funds and Reits.”
He said currently the growth markets in the US are concentrated in Texas.
“The underpinnings would be employment, income growth and friendly business environment those. We see some strength in the north-east – Boston and Chicago. It is gradually likely to shift as we see more markets picking up strength.”
According to Blumberg, from the Gulf, the company would be looking keenly to invest into the office sector in Abu Dhabi and Oman. “Dubai can pose a few challenges as it has an office structure in a floor-by floor ownership. So you now have multiple managers and no unified office management system.
“We would not develop projects that are to be sold on a floor-by-floor basis,” said Blumberg.
He said the company does not allow tenants of a building to get large due to the higher risk in buildings. “As a policy, no tenant can take up more than 25 per cent of any single building. We are also very focused on long-term management and we manage buildings for the long-term.
“We are looking at Abu Dhabi and Oman to develop and get investors. We are very impressed by the oil and gas revenues of Oman. “The same applies to Abu Dhabi but on a larger scale” he said.
According to the chairman, another fund privately started by Blumberg Capital is for the media and entertainment industry. “This will have a global focus and will be a $1bn or more fund.”
Healthcare fund
Blumberg Capital Partners will launch a new Shariah-compliant open-ended $500 million (Dh1.8 billion) Middle East and North Africa Healthcare Fund in the second half of the year to develop healthcare systems across the region, its chairman said.
“We are in the beginning phases of launching the fund and we are now putting it together. We are planning to do it with a US hospital group and a local health-related group to develop this Shariah-compliant fund.”
According to Blumberg, the fund will aim to establish very strong healthcare systems across the board in the region. “It will be an open-ended fund with a possible exit strategy to take the healthcare fund public. One needs an open-ended environment to take the fund public, but we want to talk to governments in the Middle East about their desirability.”
In some cases healthcare is already taken care of, said Blumberg.
He added that response from investors on the fund has been positive, so far.
According to Blumberg, there are some heavy capital needs within the healthcare sector. “If you are going to develop hospitals you are going to need debt as hospitals are very expensive and not productive. One of the platforms for the Mena Healthcare Fund will be establishing infrastructure for sharing techniques and imaging centres across the region.
“We expect a return in the range of 20 per cent to 30 per cent per annum on the fund,” he said.
Keywords: Abu Dhabi, Blumberg Capital Partners, Brazil, Emirates, fund, GCC, healthcare fund, investment, Oman, Philip Blumberg, real estate fund, Strategic Asset Fund
