Real Estate Investment Trusts can attract fresh capital to the GCC, says A.T. Kearney

REITs are structured and regulated investment portfolios made of various real estate assets from a range of asset classes and are privately or publicly owned. Their main purpose is to give individual investors access to real estate portfolio investments without personally owning assets and to allow for asset owners to access a broader and more liquid investor base.

"REITs are a great way to bring liquidity to the market which is particularly needed in a depressed market with distressed investors, a situation the local real estate market faces at present. REITs offer transparency and confidence to the international market, making them attractive to international institutional investors as they can diversify their investment and risk." said Dr. Dirk Buchta, partner and managing director, A.T. Kearney Middle East.

There are other vehicles available but public REITs are traded on stock markets with available transparent regulations, making them more trustworthy and more liquid than other forms of real estate investment. Over 20 markets worldwide have REIT regulation, including Dubai since 2006, which has helped fueling growth with a global REIT market cap of over 700bn$ in 2009.

A.T. Kearney's findings show that, historically, diversified REITs have generated the highest margins when compared to other segments. REITs are typically a medium risk investment, delivering 6 to 8% returns on average.

Their minimal correlation on the long-term with other asset classes makes them an attractive investment. However, when the REIT bubble in the United States burst with a dramatic correction of prices of around 65% compared to their peak in 2007 (according to CBRE research), the confidence in the tool was significantly affected. But REIT managers and investors have learned their lessons and are now returning back to fundamentals, focusing on management of existing assets rather than more risky activities, including new developments.

"An active and transparent UAE REIT market would benefit the local economy now as it provides a fresh new source of investors and capital. The valuation of real estate assets globally and specifically in Dubai are attractive, making today a very interesting time to raise funds and consolidate assets under one vehicle,"

said Olivier Laroche, senior manager, A.T. Kearney Middle East.

"Owners will also have an opportunity to divest distressed assets to reduce their risk exposure, diversify their incomes and get alternative revenue streams. Several funds are already focused on UAE and GCC to invest in income generating real estate assets. With time, more cash will become available across the globe, especially with long term institutional investor" added Matthieu de Clercq, senior manager Real Estate A.T. Kearney Middle East.

The most important factor according to A.T. Kearney is the fact that the local stock markets in the GCC need to differentiate and diversify, as well as generate new opportunities to attract international investment in real estate, other than the risky developers' stocks picking. REIT and other investment vehicles will provide the GCC with new products, new investors, new capabilities and overall with a new segment strengthening it's positioning as a financial hub globally.

"The fundamentals of the business today lie more in managing and optimizing revenues generated by existing assets and activities than by planning new developments. Structured REIT and real estate portfolios will force asset managers to develop long term and sustainable tenant management and care practices," concluded de Clercq.