LONDON: Another sign that the real estate market in the UK is bouncing back as investors are increasingly targeting bespoke and added value opportunities in traditional asset classes including real estate, albeit with selective niche opportunities, is the launching last week of the Peterborough Garden Park shopping complex development, following a 6.8 million pounds mezzanine financing by the Bank of London and The Middle East plc (BLME), the wholesale Shariah-compliant bank authorized by the Financial Services Authority (FSA) in the UK.
Peterborough Garden Park, which is owned by a private company, Garden Parks (Peterborough Two) Limited, comprises a 89,000 square foot purpose built park with 16 retail outlets, and anchored by garden center specialist Van Hage. The park has managed to pre-let 80 percent of its retail shops prior to opening and employs 300 people.
Other recent Islamic real estate financing for assets based in the UK include the CL Global Property Fund PCC Limited, which is registered in Gibraltar and which according to Saadat Sultan Khan, the investment manager, will invest in a portfolio of student accommodation assets and other real estate developments such as residential property and distressed property developments, which may be leveraged through Shariah-compliant facilities such as commodity Murabaha or Ijara arrangements. Indeed BLME was also involved in the CL Global Property Fund PCC Limited agreeing in principle to allocate 25 million pounds as mezzanine financing to the fund.
In September 2009, Gatehouse Bank plc, the latest Islamic investment bank to be authorized by the Financial Services Authority (FSA) in the UK, launched a 350 million pounds Shariah-compliant London Office High Income Recovery Fund. The investment strategy of that fund is to purchase real estate in the London office sector as well as greater London and the London Orbital Sector locations let on long leases to high quality tenants.
The mezzanine financing provided by BLME for the Peterborough Garden Park project, sits alongside senior conventional debt provided by a UK high street bank. The mezzanine financing, according to BLME, was a Murabaha transaction providing 6.8 million pounds of “mezzanine-type” financing for the construction of the project. This financing, provided alongside conventional senior debt, “is somewhat groundbreaking from a Shariah point of view”. The deal matures in June 2010 and was structured for Garden Park Investments, a subsidiary of Garden Parks (Peterborough Two) Limited.
Humphrey Percy, chief executive officer of BLME explained that the Peterborough Garden Park project “highlights the revival of the retail property market which is reflected by BLME’s property transaction pipeline.
In particular garden parks have the potential strong growth above the general retail trend. With garden parks benefiting from the increased spending power of the ‘grey pound’ and the ever growing popularity for gardening, allotments and growing your own vegetables this trend looks set to stay.”
“This transaction highlights BLME’s ability and willingness to provide flexible Shariah-compliant financing which can sit alongside conventional debt. We look forward to developing a long-term relationship with Garden Park Investments and to adopting this approach to other property transactions in the future.”
For Garden Park Investments, this was the first uptake of an Islamic financing facility, although such secondary financing facilities such as Murabaha and Ijara have been common in Shariah-compliant real estate transactions in the UK for the last two decades. Gordon Edington, chairman of Garden Park Investments, stressed that he “appreciated throughout the funding period the high level of experience in property lending from BLME, who were flexible to changes and supportive of new opportunities. We were looking for a long-term banking partner, and that happily dovetailed with BLME’s philosophy of seeking long-term customer relationships that support businesses in a flexible way as they grow and change to take advantage of market opportunities.” BLME is indeed also currently funding the acquisition of additional land for more parking for the Peterborough Garden Park project.
BLME was incorporated in August 2006 and received FSA authorization in July 2007. Since authorization, BLME has provided innovative Shariah-compliant funding for a diverse client base located mainly in the UK, US and Europe.
“At the heart of our business strategy,” stressed BLME, “remains the building of an institution which will provide business solutions, using innovative Shariah-compliant investment and financing products, whilst addressing all the financial needs of our customers. BLME carries out its business with fairness, transparency and integrity which are the basic tenets of Islamic Finance.”
BLME’s paid-up capital of 250 million pounds makes it the highest capitalized bank of the five Islamic banks in the UK.
The bank also launched a Shariah-compliant Umbrella Fund in Luxembourg last year. According to BLME head of asset management, Derek Weist, the Umbrella Fund has had a good year, with overall yields on its US dollar income fund at the end of January 2010 hitting above the target benchmark yield, and the fund is in the top 5 percent in its global money market peer group. Investments in the Umbrella Fund are now in excess of $50 million.
