Evolvence Plans $700 Million Mortgage-Backed Bonds (Update1)
By Will McSheehy
Feb. 17 (Bloomberg) — Evolvence Capital Ltd., the Dubai-
based investment company managing $1.5 billion, plans to sell as
much as $700 million of bonds backed by commercial mortgages to
help start its first real-estate investment trust, or REIT.
Evolvence will start a $1 billion REIT this year, containing
United Arab Emirates warehouse, migrant labor camp and office
properties, aiming to earn an internal rate of return of 16
percent a year for investors, Chief Executive Officer Khaled al-
Muhairy said in a Feb. 14 interview.
U.A.E. property “is showing good appreciation so there will
be appetite from investors, al-Muhairy said. Commercial
mortgage-backed securities, or CMBS, “fit REITs well as the
interest on the bonds needs to be secured on rental income and
the balloon payment on an appreciative asset, he said.
U.A.E. real-estate prices will probably rise 5 percent to 10
percent this year, according to Egyptian investment bank EFG-
Hermes Holding SAE. Evolvence is in talks with banks to sell CMBS
in the fourth quarter, though it may start with a syndicated loan
if investor appetite for mortgage-backed debt is still hampered
by U.S. subprime home loan concerns, the companys chief
executive said.
“By the end of the year conditions may improve, but at the
moment the chances of getting out CMBS with decent pricing are
quite limited, Kaveh Ertefai, director of investment banking
for UBS AG in Dubai, said in a phone interview today. “It might
work if its sold in local currency targeting local relationship
investors.
Arabian Real Estate
Morgan Stanley and Bear Stearns Co. in the U.S. on Feb. 14
sold the first CMBS of this year in a $1.2 billion transaction
with yield spreads over benchmark rates at the widest ever,
signaling investor concern that mortgage bonds dont have enough
protection amid rising U.S. loan defaults.
Arabian Real Estate Investment Trust in June sold $67
million of CMBS secured on a Dubai office tower in the Middle
Easts first sale of the securities, according to trust co-owner
HSBC Holdings Plc. Nakheel PJSC, the Dubai-based developer of the
worlds biggest manmade islands, last month said it may sell $1.5
billion of REITs in Dubai and Singapore this year as part of a
plan to expand into investment management.
Closely held Evolvence expects demand for a REIT in tax-free
Dubai where “property yields are high, interest rates are low
and it can list the trust on the Dubai International Financial
Exchange, al-Muhairy said.
A typical CMBS bond pools loans for offices, retail malls,
apartments or hotels and sells them to investors as bonds.
The U.A.E.s mortgage market started in 2002 with Dubai laws
that allowed foreigners to buy property in some areas, and will
expand 10-fold to be worth $44 billion by 2020, according to EFG-
Hermes.
To contact the reporter on this story:
Will McSheehy in Dubai at
