What's Brewing in the Real Estate Market

(The Wall Street Journal)

by Christine Haughney

August 31, 2005 - It may seem like a long trip to take for a mortgage, but a Dubai businessman Is breaking from the ranks of many of his Middle Eastern developer rivals who pay for projects, with their own cash, and heading to Wall Street to finance his latest venture.

Shehab Gargash, who runs Dubai based fund management and development group Daman Asset Management, is hoping that Wall Street banks will lend about $150 million for his $450 million luxury real estate project. The 1.6 mlllion square foot development complex, with 600,000 square feet of offices, a 100 room luxury hotel, and roughly 650 apartments, will be located in Dubai's International Financial Centre.

Mr. Gargash says most developers in Dubai foot the bill themselves to build skyscrapers known for their record-breaking height or hotels distinguished by their extravagance. He says local banks offer shorter term and less sophisticated loans than he sees appearing in the Western markets, which are eager to finance any new buyer with larger loans and more flexible standards.

"We don't necessarily yet have a specialized real estate debt market," he says. "Dubai, I think, has become a more important destination for world money and ...a more attractive proposition for lenders...It fits nicely that we're using a more international methodology."

The George Washington University graduate, who has worked in finance in Dubai for 16 years, hired New, York-based wealth management advisory firm Prescott Group-which works with private families such as the Gordon P. Getty family-to find willing lenders.

Prescott's executives are approaching 10 to 20 global banks and financial institutions to find financing. Executives hope to secure financing for the project by early 2006 and are confident that Western banks will like the fatter returns than they can find in their overheated real estate markets at home.

Mr. Gargash says that if he has any, problem getting money, he will adopt the strategies of his local competitors, depending more on local equity. and trying to presell more of his apartments for cash. Prescott Managing Director Susan Stupin stresses that Daman still can handle the deal on its own.

"They all could have done this easily on an all-equity basis," she says.