Taufiq Jamil of SPS Investment, adviser to GCC capital on real estate deals in the UK, tells PropertyEU it is not just prime offices that Gulf investors want.
PropertyEU: You just advised a Gulf private sector investment firm on buying Merchant Square in Belfast, the largest office acquisition in Northern Ireland’s commercial real estate history. Can you tell us about the background to the deal?
Taufiq Jamil: Our client on this transaction, Albilad Capital, has ambitious plans with regard to acquiring assets and growing their UK real estate portfolio. Very early on, they aligned with our view on the preference for UK regional cities over the traditional London-centric market. Our focus was on finding high-quality assets with strong tenant covenants in a regional UK city as per their mandate. The quality of the PwC covenant, strong local market fundamentals and the premium nature of the building meant that this investment was a good fit.
PropertyEU: What other transactions have you advised on and have there been any similarities between them? Are they all office deals?
TJ: In the past three years, we have completed a number of transactions on behalf of our clients, both in terms of stabilised and development assets, with a total GDV approaching $650 mln (€539 mln). All our deals are focussed on generating superior long-term returns for our clients.
We are particularly proud of a deal we closed last year, the acquisition of a majority stake in Manchester-based residential development company, Beech Holdings. Our client, the shareholders of a multi-billion-dollar family office in the GCC (Gulf Cooperation Council), have a background in real estate in their home market and wanted to enter the development market in the UK.
The deal was very complex as it involved negotiating out multiple existing lenders whilst we acquired an existing development pipeline of 1,000-plus units at different stages of the development life cycle and had to contend with the significant uncertainty of being in the middle of the Covid pandemic.
The driver for the deal was a strategy to leverage the extremely high-quality Beech real estate product and property management platform in order to take the company from a regional presence to a national profile. This is an extremely exciting endeavour, and we are pleased to announce that we have since acquired our first development site outside of Manchester, in the centre of Newcastle.
PropertyEU: We imagine shariah-compliant transactions would be very important to your clients. What are some of the key aspects to understand?
TJ: SPS Investment is a boutique shariah-compliant real estate advisory firm. Hence, shariah compliance is at the heart of all our transactions. This typically means that we need to ensure the assets being acquired meet our client’s shariah guidelines and that any financing is structured in a shariah-compliant manner which typically involves having an underlying commodity trade as part of arranging the financing instead of an interest-bearing conventional loan. We have extensive relationships with the existing shariah-compliant banks in the UK, but we are also working hard to collaborate with conventional banks looking to be active in the shariah-compliant space as well. We see this as a significant growth area for lenders given the amount of shariah-compliant capital that is looking to enter the UK real estate market.
PropertyEU: In general, when it comes to UK real estate, how would you characterise the market?
TJ: The Covid-19 pandemic has reminded us of the importance of dependability in the context of investments. The UK retains its attractiveness to international investors in terms of its sound legal framework, current sterling exchange rate, market stability and return profile. A key focus for SPS is the infrastructure investments being driven by the government, especially in UK regional cities and the opportunities it creates for our clients across multiple real estate asset classes. We see significant opportunities for long-term investors to benefit from this expected growth as institutional capital gets more and more comfortable investing in these markets.
PropertyEU: How would you describe what your clients are most interested in when it comes to fresh acquisitions. Are there some types of deals they would certainly avoid?
TJ: Generally speaking, there is strong appetite for investment across all asset classes in the UK. This is particularly true of mature long-term investors who already have significant pools of capital deployed. The majority of investors are looking for stable income generation from secure locations with high quality tenants and strong lease covenants. However, an increasing number of our clients are focused on allocating a portion of their UK funds to attractive development opportunities to generate higher returns. In terms of what is not flavour of the month, our clients see less value in the retail and hospitality sector at present, given the market uncertainty and dislocation caused by Covid.
