_36.jpg)
Kuwait Financial Centre S.A.K. “Markaz” organized in Kuwait City a roundtable discussion to discuss opportunities and challenges in the U.S. distressed real estate debt market with key real estate investors.
The meeting was attended by a number of Markaz board members, Markaz Chief Executive Officer Mr. Manaf Alhajeri and Markaz Chief Operations Officer Mr. Ali Khalil in addition to Markaz U.S. Real Estate team which included Mr. Sami Shabshab, President of Mar-Gulf Management, Inc. (Markaz U.S.-based subsidiary) and George W. Ceithaml, President of U.S.-based Banyan Reality Group.
Mr. Khalil opened the discussion stating that “the objective of this roundtable discussion to explore the investment opportunities prevalent in the US real estate debt market. We are continuing to grow our U.S. distressed debt activity and seeking to invest in non-performing and sub-performing commercial mortgages in the U.S. which; since the 2008 crisis, continue to generate the better risk return among real estate related investments.”
Mr. Khalil noted that: “there were two historic real estate dips in the U.S. market worth mentioning. The first was in late 1980’s and early 1990’s while the second is the recent dip which came in the aftermath of the global financial crisis. The first crisis was a result of the excessive oversupply of commercial real estate following the deregulation of the saving and loan institutions. However, the drop in prices in this crisis was a result of the credit squeeze, yet, the supply of real estate remain in balance with long term demand.”
Mr. Khalil added “full recovery from the early crisis took six to eight years; on the other hand, the recovery this time is likely to be much shorter. Real estate remains fundamentally healthy; supply has been low in the years preceding the crisis, and demand will catch quickly as employment in the US returns to normal levels, which is creating very promising opportunities in the distressed real estate debt market.”
Mr. Shabshab explained Markaz investment in the distressed real estate debt market saying: “Our strategy is focused on timing the market. We build and develop real estate when the spreads between the yield on real estate and 10-year treasury rates are low, and we buy stabilized real estate properties when the spreads are high, and sell when the spreads start declining. However, we act opportunistically when we see attractive investments and distressed transactions.”
Mr. Shabshab added: “Distressed debt is available in the form of notes which are secured by real estate. These notes fall into two categories: sub-performing notes where the borrower is currently making payments but has either history of missed payments, request to restructure debt, or the value of property securing loan has dropped below the loan amount; and Non-performing notes where borrower has not kept loan current and lender might have filed formal notice of default and initiated foreclosure process.”
Mr. Shabshab pointed out that Markaz is targeting commercial and industrial real estate in the distressed debt market, showcasing two projects in the State of California.
Mr. Ceithaml went through the process saying: “we pursue only the loans that are secured by high-quality real estate. Then we shortlist and select assets based on size, location, property type and quality. After visiting the sites to make sure of the assets quality, we start the due diligence process which includes reviewing legal documents and evaluating the property, the borrower, and the market.”Mr. Ceithaml explained the exit strategy from distressed debt noting that “performing loans could either be held to maturity with IRR of approximately 12% to 15% or the borrower could decide to make an early repayment through refinance or sale. Non-performing loans, on the other hand, could be restructured for the borrower to become a performing loan, or we could seek foreclosure, stabilize and then sell the property.”
Mar-Gulf Management, Inc. acts as Markaz’s asset management arm in the United States. The company has a team of professionals with, on average, more than 20 years of experience in the acquisition, disposition, development, and management of real estate properties in the United States. Over the years, Mar-Gulf has developed or acquired over 75 properties with a total development / acquisition cost in excess of US$ 1 billion. This includes approximately 500,000 square meters of industrial warehouse space, 330,000 square meters of retail, 60,000 square meters of office, and almost 900 apartment units. Mar-Gulf currently manages US$ 370 million of real estate assets in three real estate funds.
About Kuwait Financial Centre “Markaz”
Kuwait Financial Centre S.A.K. 'Markaz', with total assets under management of over KD865 million (USD 3.1 billion) as of December 31, 2011, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.