The current market conditions provide ideal opportunity to liquefy non-core real estate to finance core business investments while attracting fresh capital to Dubai at the same time, said an expert.

'When access to cash is constrained in downturn times it makes sense for public or private bodies to liquidate some of their non-core real estate assets to build value rather than keeping assets with very limited value creation potential on their balance sheets,' Dr Dirk Buchta, partner and managing director (Middle East) of AT Kearney, one of the world’s leading management consulting firms.

'By offloading some assets to locally created funds, such as REITs, Government entities and large family groups could refocus on their core business and strategic plans. This would benefit Dubai and the regional economies overall,” he noted.

Refocusing and repositioning the existing large real estate asset base as an investment target for government endorsed, real estate investments funds (REITs) is a key driver for building a successful and sustained infrastructure for the operation of the emirate’s real estate sector, he pointed out.

To achieve this and maximize the opportunity, Dr Buchta said, there was need for a two-tiered refocus approach.

'The first is to shift large investors’ position on asset holding. Large asset owners in Dubai are often characterized by a unique sentiment driven by the unprecedented property value growth period experienced during 2005 – 2007.'

'As a result they typically prefer to retain their property assets, even if they are not real estate management specialists, in the hope that prices will return to their original levels,' Dr Buchta explained.

'However, due to oversupply in most residential, commercial, retail and hospitality segments, there is little chance of a significant price increase in the short- to mid-term,' he added.

“Owners would be better placed to adopt an alternative exit strategy, with longer term goals,” advised Olivier Laroche, senior manager, AT Kearney Middle East.

'Specifically, exit strategies in the form of sale-leaseback schemes, common amongst large corporations in mature markets, are designed to build value creation in the asset portfolio.'

'In this type of approach an asset owner using the property for its business sells the asset to an investor and leases it back on the long-term, whilst continuing to use it.  The objective is to unlock the value of properties while ensuring stable returns to the investor.'

According to Laroche, the advantage for the seller is that the scheme helps finance expansion or an investment into new business opportunities, whilst improving the balance sheet.

'The advantage for the buyer is a low-risk fair-return on investment on an asset occupied by a reliable tenant with long-term guaranteed stream of income,' he added.

These win-win based exit and asset light growth strategies are not new to the region and can be seen in the hospitality and retail segments, where numerous operators decided to free up cash and fuel their growth strategy, Laroche stated.

Like many of its competitors, the leading hospitality group Accor for example has raised more than $3 billion in cash over the past years by offloading a significant part of its hotel physical assets to private equity funds.

Carrefour, the retail giant, has also offloaded several billions of assets to asset management funds and floated the specific subsidiary owning its real estate assets on the stock market.

Contingent to realizing the full scale of the opportunity for value creation, on both a micro and macro scale is the establishment of a structured long term real estate investment vehicle fund framework, the expert said.

This represents the second tier of re-focus. Real Estate Funds would provide the ideal platform onto which large asset owners’ properties could be offloaded. Such structured funds would demand the set up of high-standard transparency rules in asset management, leading to the professionalization of the property management and real estate services sector at large.

Currently, the attraction of international investors into the GCC real estate market is limited, he pointed out.

Property Funds Research Database shows that in April 2009 only 21 funds target the GCC with no more than 0.2 per cent ($ 3 billion) of the Total Gross Asset Value invested by funds globally ($1,648 billion).

This is insignificant compared to the existing base of assets already delivered to the market and projects worth over $1,500 billion currently being delivered, active or planned in the GCC (Markaz analysis 2009).

According to Laroche, regional REITs would be an ideal tool to change this balance and grow investment interest in Dubai from outside the region. At the same time, regional investors gain access to structured long-term and limited risk investment vehicles, which are currently almost non-existent.

'Combining asset light growth approaches with access to an established framework for the operation of REITs provides a window of opportunity for the sustained growth of the emirate,' he said.

'Governments and local family groups could effectively raise cash which would in turn develop the economy at a time when it is most needed: building platforms for new jobs, sustaining the delivery of the expatriate proposition whilst focusing investment funds into productive asset classes,” Laroche added.-TradeArabia News Service