The investment arm of Al Futtaim Group has teamed up with Fawaz Alhokair, the Saudi retailer, through a $500m real estate investment fund to build shopping malls and residences throughout the Middle East.
Al Futtaim Capital announced a part-close of the fund at $500m earlier this month, making it the region’s largest real estate investment fund, and it plans to raise an extra $200m from European and US investors, says Marwan Shehadeh, managing director.
The Futtaim MENA Real Estate Development fund will develop large-scale urban mixed-use developments, such as the $9bn Cairo Festival City, currently under construction, a portion of which is the fund’s seed asset. The structure allows Islamic investors to participate in the fund which plans to expand soon into Abu Dhabi and Qatar.
The partnership with Alhokair, one of Saudi Arabia’s largest retailers, pits the Al Futtaim Group against rival family conglomerate the Majid Al Futtaim Group.
Alhokair has ties with Geant, the French hypermarket chain, while Majid Al Futtaim Group has a partnership with Lubna Olayan, an influential Saudi investor, to roll out 20 Saudi outlets of another French hypermarket chain, Carrefour, which has been very successful in the United Arab Emirates.
In 2000, the huge Al Futtaim empire was split between two cousins, Abdullah and Majid, in an agreement brokered by Sheikh Mohammed bin Rashid Al Maktoum, then crown prince and now Dubai ruler, to end years of conflict at one of the emirate’s most important businesses.
Al Futtaim, chaired by Abdullah, operates Dubai Festival City and brands such as Ikea and Marks & Spencer, while Majid Al Futtaim Group runs City Centre malls around the region and the Mall of the Emirates, with its indoor ski-slope.
Mr Shehadeh declines to comment on the potential for supermarket wars breaking out across the region, but says he is excited at the prospect of teaming up with the “dynamic” Saudi retailer.
Al Futtaim is already looking at rolling out Jeddah Festival City and Riyadh Festival City as investments for the $500m fund, which could deploy as much as $10bn across the region through leverage and co-investments.
Fawaz Alhokair, the largest investor in the fund, sits alongside other limited partners, such as the interiors group DEPA, whose professional expertise Mr Shehadeh can call upon in future developments.
Mr Shehadeh says the fund, which Morgan Stanley helped to raise and structure, will be capped at $700m, to accommodate US and European investors, who have started to show a closer interest in booming Middle Eastern real estate markets over the past six months. “When we launched the fund a year ago, no one wanted to see us – but four months ago they came calling,” he says.
Mr Shehadeh says his fund gives investors such as these, who are expected to pledge the remaining $200m over the next six months, access at par value to the region’s real estate sector.
Investors, he says, are attracted by the region’s strong fundamentals, with record oil prices translating into a development boom that is rippling through the entire Arab world, not just the Gulf. This has made the Middle East and north Africa an investment destination to rival India and China, Mr Shehadeh says.
The fund’s decision to agree to regulation from the Dubai Financial Services Authority also points to a rare opening up by a large Gulf family-owned conglomerate. Bankers have been disappointed by the reluctance of the Gulf’s leading family companies to open up to public ownership through initial public offerings.
While Mr Shehadeh denies the group has any plans for an IPO, the regulated fund is “one step down from that” and is an important point in the Al Futtaim group’s 70-plus years of history.
“We are opening up to third-party investors, it’s breaking the family-owned business taboo,” Mr Shehadeh says. “It is avant-garde, but we are confident in our abilities.”