A Middle Eastern fund called Crestmount Capital have closed on a $100 million investment Sydney residential developer Piety Investments.
The deal represents a significant step forward in Middle Eastern finance, according to the Australian Financial Review, who said while Australian real estate attract extensive capital from China and other parts of the world, the Middle East’s huge pool of “gulf” money has yet to hit Australia in a big way, mainly because there are onerous requirements for investments to comply with sharia.
The AFR said Sharia prohibits investments in areas such as alcohol, pornography and gambling, and requires funded transactions to follow certain audits and formats, and the volatile currency exchange between the Australian dollar and middle eastern currencies make investment profits patchy.
“As a result, Middle Eastern investors have taken a bigger interest in stable long-lease assets like logistics and industrial assets which even out short-term exchange differences, as seen with Propertylink and Middle East-based fund Sedco Capital’s logistics acquisitions.”
In order to lock in interest from Crestmount, Piety and its joint-venture residential development partner, Malaysian government’s TH Properties (THP) reportedly organised a “mezzanine-type deal” which would allow the Middle-East investors to engage with a range of projects with different life cycles, “allowing Crestmount to hedge any volatility”.
PietyTHP director Danny Masri tole the AFR that the company had been looking for someone in the Gulf for quite some time, but the biggest difficulty is the fact the Gulf typically looks to London first because there is no double tax, or the US because currencies are pegged to the US dollar, so there is no currency risk.
“They worry that the shifting currency will hit profits. Because we can’t cover a 30 per cent foreign exchange … we gave them blended basket of projects with different maturities,” he said.
Crestmount’s investment will be directed towards Piety and THP’s mega two-stage Wentworth Point development, “One the Waterfront” which, according to the AFR, comprises of 450 apartments, a Lidcombe project with 140 apartments, a 100-unit project in Rockdale and a future site in St Leonards south.
Crestmount Capital is run by Prince Khaled bin Alwaleed bin Talal, a member of the Saudi Arabian royal family.