Gulf's Biggest Buyer of U.S. Properties to Double Investments

  • Investcorp plans to return to Europe after 22-year hiatus
  • Company to rebuild hedge-fund business, plans bigger deals

Investcorp Bank BSC, the Gulf’s largest private investor in U.S. real estate over the past 10 years, plans to step up property investments in the world’s largest economy as it seeks to double assets under management to $25 billion over the next five to seven years.

The company expects to spend $1.5 billion on U.S. real estate in the fiscal year through June, compared with about $860 million in the year-earlier period, Jonathan Dracos, head of real estate at Investcorp, said by phone from New York. The company, which has backed companies including Tiffany & Co. and Gucci Ltd under founder Nemir Kirdar, is looking to grow its real-estate business in the U.S. by acquiring office and residential buildings, he said.

Investcorp is also planning to invest about $200 million in European property in the 12 months starting from July, Dracos said. The firm is returning to European real estate after abandoning the market in 1994 because of low returns. This time, returns from European deals are not expected to be “that much” lower than those in the U.S., he said.

The Bahrain-based money manager is charting a new growth plan under executive chairman, Mohammed Al Ardhi, after a generational shift in the management of the company last year. Mohammed Al-Shroogi and Rishi Kapoor were appointed co-chief executive officers in April last year after Abdul-Rahman Salim Al-Ateeqi, who had been chairman since Investcorp was founded in 1982, retired and Kirdar became chairman.

Bigger Deals

Under the new management team, Investcorp aims to double assets under management, expand investment products, rebuild its hedge-fund business, and may also seek to do larger transactions in the U.S. through its private equity arm.

The company announced earlier on Tuesday that it sold Texas-based technology company, CSIdentity, to Experian for $360 million. The sale is the company’s fifth exit in the last six months, it said in a statement. It is also preparing an initial public offering of Saudi Arabia’s Leejam Sports Co., which operates gym chain Fitness Time, people familiar with the matter told Bloomberg last month.

Last month, Investcorp hired Neil Hasson from Macquarie Group Ltd. to spearhead its European real-estate investments. The company will be looking to buy residential and commercial properties in the U.K., France and Germany, Dracos said. Real-estate investments account for 15 percent to 20 percent of the firm’s revenue, and has around $1.5 billion of assets under management.

“We’ve been talking about Europe internally for a long time, been asked about it by clients for a number of years, and we see a good investment opportunity there for us as a logical extension of our private equity and hedge fund platforms, which are already in Europe,” Dracos said.

Compelling Returns

Investcorp was one of the first companies from the Gulf to channel capital into the U.S. and Europe, and into real estate. Over the past six months it has purchased residential property in metropolitan areas of Boca Raton, Florida and Minneapolis, and office and industrial property in Atlanta, San Francisco and Boston.

Investcorp buys real-estate and private-equity assets using its own balance sheet to underwrite deals and then syndicates the equity to its clients, and charges a fee. When the firm acquired an office building in Washington for about $180 million earlier this year, it sold the $90 million of equity to at least four investors in less than two weeks, Dracos said. The transaction was the first as part of the company’s plan to target larger real-estate deals that can be sold to a smaller group of investors happy to hold the assets for longer.

“There are still good deals to be found in the U.S.,” Dracos said. “There’s been more foreign capital coming in but the returns we see are still quite compelling.”

(Corrects Washington deal value in second last paragraph.)
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