At the Qatar Property Investment Forum held in Qatar on Monday and Tuesday. Chadi Abou Daher, Regional Manager of the World Trade Center, welcomed the delegates. Daher highlighted the fact that Qatar has emerged as one of the most attractive real estate markets and hoped that the forum would be a yearly platform offering insights into the latest trends emerging in the Gulf region and Qatar in particular.

Said Bahjat Said, President of ‘The Land Holding’, said that the Forum has come at a time when the property Market is enjoying immense growth and the prospects looked reassuring. He stressed the importance of embracing the best international practices and standards.

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Donald Trump

No one could accuse Mr. Trump of not being prepared to blow his own horn, in fact, he even took a stand against Forbes magazine when they included him on their Forbes 400, claiming that Forbes had underestimated his wealth by $4 billion. We hesitate to call it class, but it has a certain flair. Despite nearly losing his shirt in the 1990’s real estate crash, “The Donald,” managed number 117 of this years Forbes 400 with an estimated wealth of $3 billion, although according to the man himself, “I’m worth $7 billion.”

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According to “Emerging Trends in Real Estate® Asia Pacific 2008,” just published by the Urban Land Institute (ULI) and PricewaterhouseCoopers LLP, Shanghai, Singapore and Tokyo rank as the three most promising Asia Pacific cities in terms of real estate investment prospects.

David Sandison, a Tax Partner with PricewaterhouseCoopers in Singapore said, “It is expected that even greater amounts of capital will be flooding Asia Pacific real estate markets in 2008. The real challenge for investors will lie in finding the right assets against the backdrop of yield compression and scrutiny by regional governments and tax authorities.”

Shanghai topped the list for investment prospects, edged up from its second-place ranking last year. Singapore received the highest rating of any of the cities included in the report in terms of overall risk.

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Australia has one of the oldest established REITs frameworks in the world, dating from the early 1970s. In Australia they are known as LPTs (Listed Property Trusts). LPTs come in two forms, firstly, the pure real estate portfolio investments and, secondly, so-called ‘stapled securities’ which would in this instance tie up the direct property investments with investment in a fund manager and/or a property development company. Stapled securities could be seen as an attempt to overcome the country’s relative shortage of potential real estate investments (see below) by diluting the pure real estate LPTs portfolios. The most distinctive feature of Australian LPTs is the investor’s ability to postpone paying tax on part of the income stream from their LPT investment. Typically, the untaxed element of the dividend would be applied to the capital gains tax calculation with the effect of creating a notional (lower) LPT purchase price so that the CGT bill is higher when the investor comes to sell their LPT. It seems that the flexibility in terms of target investments and in paying tax on one’s investment adds up to a more versatile type of investment instrument than the new regimes in Germany and the UK allow for. As in other countries, Australian LPTs are required to distribute to all of their income.
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Continuing with our periodic series on REITs, we take another look at how the UK REITs have fared since the start of 2007.

Generally speaking, progress has been less than impressive but whether this is down to the new legal framework or general conditions in the UK real estate sector remains to be seen. The article ascribes the weakness, including substantial discounts to the new REITs’ net asset values, to the traditional priority given to asset appreciation over cash flow generation on the part of UK property companies. UK commercial property prices rose steeply in the last few years and continued to rise through to May this year but the Bank of England has warned that this was not in line with rental incomes. Asset value appreciation looks likely to be more difficult to achieve from now on and, in particular, there is a lot of prestige office development in the pipeline in London due for completion around 2010. Commercial property bears were already reckoning the implications of the high ‘crane count’ in the City of London last year.

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In our forthcoming piece on Australian REITs we shall be looking at the key role played by the country’s pension funds in property investment. Unlike UK staff superannuation sector where pensions seem to be on track for death by a thousand cuts, Australia pension funds are riding high on the back of an increase in statutory contribution levels in 2002. The result is that Australia has a lot of investable cash looking for good returns and given the limited size of the country’s real estate market, it is not surprising that a lot of this money is going overseas.

The figures are impressive with US$ 7.7bn invested in US property so far this year. This compares to a total of $ 5.5bn invested by Australia in US real estate in the whole of 2006 and gives Australia some 43% of total inward investment into US real estate for 2007 to-date. The reasons that the US is so much in favour are, according to Mark Baillie of Macquarie Bank, a liquid market, good governance and a relatively benign tax regime when it comes to repatriating profits and income.

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In the first of a weekly series this month on REITs we look at their introduction in Germany.

Legislation for German Real Estate Investment Trusts was only passed by the Bundestag on 23rd March this year, though it was with retrospective effect back to 1st January 2007. It seems too soon to draw accurate conclusions about the success of the change although there is an enormous potential upside for German property.

To evaluate developments over the next 12 months or so it’s important to register that both the German property sector in general and the legislation of Angela Merkel’s coalition government to establish REITs have special features that make the situation different from, for instance, the UK, one of the other newcomers on the block.

Taking the general distinguishing characteristics of the German property first of all, the most obvious of these is the size of the real estate sector. Estimates vary in the range of roughly 6.5 to 7.2 trillion Euros, making Germany by some way the European Union’s largest property market. However, up until now the term ‘market’ may have been slightly misleading as Germany has not only had a large proportion of rented housing (57% of the total) but (more significantly for investors) a very high level (73%) of commercial property owned by the companies utilising or occupying premises. The equivalent proportion in the United States is 25%.

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Morgan Stanley’s MSREF VI fund has collected $8bn. This total will be leveraged up to in excess of $30bn to make property investments around the world but with a heavy emphasis on the Japanese market (50%) and emerging markets (25%). However, Reuters report that 30% of the fund is earmarked for Europe and 60% for Asia, which would appear not to allow as much for the Chinese and Indian markets as other reports are hinting. The MSREF series of funds currently have real estate assets worth $83.5bn and $31.6bn under management. The new fund is intended to have a return of 20% a year, in line with Morgan Stanley’s overall success with these types of fund since 1991. To date 45% of the MSREF VI funds are reported to be committed, including the $2.4bn purchase of 12 hotels and two property management units from All Nippon Airways. It is not apparent to what extent MSREF VI will be buying up portfolios of non-performing loans in its target market, one of its customary investment strategies.

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Beauty may be in the eye of the beholder but property assets need checking up on and that is especially true for UK investors, for many of whom, REITs will be a new form of investment, only available since the beginning of 2007. While some of the new UK REITs will be the giants of the county’s property sector, such as Land Securities (converting from a listed company to a REIT), the investor needs needs to have as detailed a picture of real estate held in the REIT as possible. Land Securities, for example, has been adversely affected by a concentration retail property holdings making vulnerable to the least profitable segment of the property market.

It is to be hoped that UK REITs will tend towards the large end of the range if investor confidence in this of investment is to take root. However, whatever the size of the REIT, there’s no avoiding to follow press comment about it’s performance in general, the calibre of the management and specific properties in its portfolio. The likes of Land Securities and British Land are not going to sink below the sights of the financial press (or sink at all, hopefully) but there may be issues of transparency when considering a REIT that’s one of a succession of investment vehicles promoted by the likes of real estate investment management companies, a model that is fairly common abroad. In these instances it’s essential to find out as much as possible about the quality of the assets going into the REIT from prospectus to try to identify any ‘bad eggs’ diluting the potential of the investment. In connection with the distinction between these REIT variants, the UK regulatory situation is that REITs have to be formed out of main-market quoted companies. Whether this implies that no further UK REITs will come into being after the property sector of the London Stock Exchange have converted themselves remains to be seen.

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Aberdeen Property Investors, part of Aberdeen Asset Management, is to launch a commercial property fund specialising in Russia and (later on) Eastern Europe. The fund will be managed by Baltic Property Trust

Nucleus Global’s Europe/Asia Bet, One Year On - The fund’s UK property funds were sold 12 months ago and the proceeds went to European and Asian trusts (particularly Indian and German investments). Since then the fund’s performance has been only modest. It’s investment in AIM-listed Trinity Capital, which invests in Indian infrastructure has not yet delivered a good return owing to hedge funds divesting.

CB Richard Ellis Launches a US Corporate Leasing Site - The website - www.greatleasedeals.com - offers data on subleased commercial property available at a discount. Pre-approved deal terms have been negotiated by CB Richard Ellis’s own brokers. CBRE’s office vacancy and industrial availability indices for Q1 2007 were relatively stable.

Jones Lang Lasalle Merges Indian Operations with Trammell Crow Meghraj to Form Jones Lang Lasalle Meghraj. The merged entity will be headed by Mr Anuj Puri, the former Managing Director of TCM, and the Jones Lang country chief, Vincent Lottefier, will become CEO. The company will employ 2,800 and maintain offices in 10 Indian cities.

Bavaria Hotels International Signs New Management Contract in Sharjah, UAE. The contract is for the management of an all-suite property owned by Doha Real Estate. As with other Bavaria Hotel’s contracts, Siemens’ comprehensive hospitality solution will be implemented.

International Investment Bank’s Abu Dhabi Property Fund. The Bahrain bank’s new fund will start with $65m for investments in projects relating to the Emirate’s Danet Abu Dhabi Master Development Project, begun by Al Qudra Real Estate.

JER Partners Raises 809m Euros for its Third European Property Fund, The US private equity group (JER partners) classes this as an opportunistic fund, one with more flexibility in the types of property investments it can make. The fund is already committed to buying London’s Great Eastern Hotel and property portfolios in Italy and Germany.

Lehman’s Jack Malvey Says the US Housing Downturn Could Last until 2011. However, Malvey, Lehman’s chief global fixed income strategist, said that he wasn’t expecting a general economic downturn in the US. Growth and inflation prospects in the rest of the economy mean that the Federal Reserve is unlikely to be able to provide relief to mortgagees in the shape of lower interest rates.

The Governor of the Irish Central Bank is Expecting a Soft Landing for Residential Property. The irish Independent quoted John Hurley as forecasting “low single digit growth” for 2007 as a whole; there has been a slight decline in Irish residential property prices in the first five months of the year after five straight years of rising prices.