Communicating with Investors
Managing Risk in Gulf Real Estate
Blair Hagkull
Managing Director
Jones Lang LaSalle, Middle East & North Africa
October 2008
Dubai : Boom or Bust – Predictions – 2006
BOOM
BUST
“The supply is not keeping up with demand. If this were true,
then market forces would be driving rents and house prices
down, and the reverse is the case.”
Dubai Property Group
“The market is cooling down, we are not seeing the prices rise
as we saw last year.”
Andrew Jeffreys, Editor In Chief, Oxford Business Group
“Will demand ever be satisfied? I don’t think so – the constant
demand for properties in Dubai will keep pushing prices up
and make it into a premium city.”
Faisal Ali Moosa, Managing Partner, High Rise Real Estate
“Supply will never catch up with demand… What investors are
paying for is not just square feet of built up space, but a
quality of life that is rarely found elsewhere in the world.”
Hashim Al Dabal, Chairman, Dubai Properties
“The market has stabilized… in 2006 and beyond,
unreasonable and unrealistic margins will come down to
more realistic levels.”
Abid A Junaid, Executive Director, ETA Star
“Property prices have jumped over 1000% over the last three
year period in some places in Dubai. Can you name a place
in the world where such a growth has happened without a
crash following it soon? I cannot!.”
Mishal Kanoo, Deputy Chairman, The Kanoo Group
2
GCC Real Estate Investment Trends
INDIRECT
MEED & JLL Estimates
Funds
CMBS
…Approximately USD 2.5 Trillion worth
of real estate and infrastructure projects
in the GCC…
REITs
Merrill Lynch
DIRECT
…UAE, Kuwait and Saudi Arabia
constitute 44% of the USD 1.7 trillion
equity market cap in “frontier markets”…
Destination Communities
Economic Cities
Integrated Mixed-Use Developments
Infrastructure Investment
HSBC
...Active since 1973, ADIA’s assets
account for approximately one-third of
the world’s sovereign wealth funds…
3
Global Ascendancy- The Expansion of the Gulf Investor
Global
REACH
Increasing DIVERSITY
Mobilize
CAPITAL
Leveraging EXPERTISE
Gaining INFLUENCE
Facilitate
CHANGE
…Gulf based Investors are unique in the world in that they
develop other markets at the same time as they develop in their
own…
4
Major GGC Real Estate Investment Bodies by Type
Sovereign Wealth Funds
Prime Real Estate, Low
Yields, Stable
Government Sponsored
Companies
Large Scale Investments
Financial Institutions
Stable, Higher Yields
Family Offices
“Trophy Assets”
Personality Driven
5
The Rise of the Enterprising City States
Dubai
Hong Kong
Singapore
...Each city state is positioned as a regional gateway and has few natural resources
...Each city state was has a more established regulatory framework than its region
...The GCC to achieve in 20 years what others have taken 100 years to establish
6
Inward Investment: The Past 10 Years
Regional Funds
International Investors
1998
1999
2000
2001
2002
Bahrain Freehold
Property Law
TECOM
Announced
Dubai 99-Year
Leasehold Law
Announcement
Dubai Freehold
Property Law
9/11 &
Repatriation of
Arab Capital
2003
2004
2005
2006
2007
Oman Freehold
Property Law Dubai Strata Law
& Green Building
Code
Abu Dhabi, RAK,
Qatar Freehold
Property Law
Establishment of RERA
Registration of Land Titles
Registration of Developers & Agents
Escrow Accounting Procedure
Landlord & Tenant Law – Law No 26
Strata Law – Law No 27
7
Inward Investment: The Next 10 Years
Regional Funds
Boutique Funds
International Institutional Funds
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Short Term
Medium Term
Long Term
Yield Compression
Increased Regulation
Increased Transparency
Export of Expertise
Global Best Practices
Excellence in Infrastructure
Consolidation
Maturing Market
Setting Higher Standards
8
GCC Demographics: Sustaining Demand
2002 – 2007 CAGR
GCC Population Growth Forecast
80
0.45%
70
Population (millions)
60
1.00%
50
40
1.45%
30
20
10
-0.40%
0
2007
2012
2017
2030
Source: IMF & EIU
…2008 GCC population less than that of California
…GCC population to double by 2030
1.60%
0.60%
9
GCC Economic Overview
GDP CAGR 2002 – 2007
9%
2.75%
7%
11.5%
2.80%
9.4%
3.60%
5.5%
5.0%
6.90%
8.50%
Source: IMF & EIU
…GCC 2002-7 CAGR is 7.2%
10.60%
10
The Future: Developing International Investment Grade Product
End User
Compatibility
International Investment
Grade Product
Branding / Delivery
Sustainability
11
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12
The Next Wave:
“Flight to Quality” Creates Two-Tier Market
“Flight to Quality” Creates Two-Tier Market
2008
Investment
Grade
Less
Competitive
Long Term Value
Long Term Value
 Rental Rates
 Occupancy
–
–
–
–
–
Sustainability
Large Floor Plates
Quality Finishes
CBD Location
Multinational Tenants
 Rental Rates
 Occupancy
–
–
–
–
–
Fragmented Management
Small Floor Plates
Poor Finishes
Secondary Location
Small Business Tenancy
January 2008
14
Assessing Risk
Economic Risk
Inflation Rate
Interest Rate
Economic Growth
Changes in government
Policies
 Exchange Rates




Industry Risk
 Regulation / Customer
specs
 Cyclical nature of Industry
 Competition
 Barriers to Entry
 Capital Intensity
Company Financial Risk










Liquidity
Stability of Returns
Profit Margins
Financial Leverage
Operational Leverage
Expected earnings / Cash
flow growth
Market share
Diversification of
customer base
Diversification of products
Geographic diversification
15
Investor Communications
Appropriate to Market
Understandable – “Straight Goods”
Substantive vs Hyperbole
Increasing Sophistication
Global benchmarks - Quantify
16
Q: Best performing MENA real estate markets over next
12Q: 24 months
Strongest Performance
North Africa, 3.3%
Strongest Performance
Bahrain, 5.0%
North Africa, 3.3%
Lev ant, 0.8%
Lev ant, 0.8%
Kuw ait, 5.8%
Oman, 3.3%
Qatar, 10.7%
 Investors
remain bullish towards the
Bahrain, 5.0%
UAE, which is expected to show the best
Kuwover
ait, 5.8%
performance
the short-term
Oman, 3.3%
 Saudi Arabia offers strong potential – large
and rapidly growing Qatar,
market
continues to
10.7%
open up and offer new opportunities
United Arab
Emirates (UAE),
47.1%
United Arab
Emirates (UAE),
Saudi Arabia,
47.1%
24.0%
 Qatar expected to offer strong performance
building upon its reputation as the next
emerging GCC real
estate market
Saudi Arabia,
24.0%
17
Middle East Investors: Where Next?
Where?
Why?
North Africa
Sub-Continent
Culture & Capital
Relationships & Experience
China
Central Asia
Track Record & Appetite
Invitation & Proximity
South East Asia
Sub Saharan Africa
North America
Culture & Inclination
Opportunity
Profile – Market
What?
Destination Communities
Distressed Assets
Integrated Mixed-Use Developments
Infrastructure Investment
18
Middle Eastern Investment Cycle
ACQUIRE
Acquire
 Trophy Assets
 Indirect Investments
 Brands
- Hampton’s
- Sotheby’s
- Four Seasons
- John Laing
Homes
- MGM
Transfer
TRANSFER
 Expect
Development
Activity
 Branding
 Expertise
 Recognition
 Capital
Leverage






Expertise
Brands
Execution
Resources
Experience
Mobilization
LEVERAGE
Implement
 Local Development
 Regional Development
 Delivery of large
communities
 Achievements
IMPLEMENT
19
Conclusion
Global
Increasing
Mobilize
REACH
DIVERSITY
CAPITAL
Leveraging
EXPERTISE
Gaining
INFLUENCE
Facilitate
CHANGE
20
Thank You
Jones Lang LaSalle MENA
Blair Hagkull
Managing Director
Jones Lang LaSalle
Middle East & North Africa
blair.hagkull@jll.com
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