It plans to set up two funds in partnership with Al Mal Capital worth Dh1 billion each to acquire property in the space. Dubai Investments will support the funds with seed capital of up to 10 per cent.
Dubai Investments owns 60.86 per cent of Al Mal Capital.
“The funds will be structured to provide cash yield of around 8 per cent per annum with attractive [internal rate of return] on exit,” said Khalid bin Kalban, the managing director and chief executive of Dubai Investments, in a statement to the Dubai stock market.
Al Mal Capital and Dubai Investmentswere not available for comment.
The first fund is expected to launch in October with a focus on acquiring real estate assets in the healthcare sector. The second fund, expected six months later, will acquire assets in the education sector.
Al Mal Capital said on Saturday it was entering direct investments as well as corporate advisory and investments management services. Al Mal Capital said it would focus on alternative asset management and target real estate and private equity transactions in the US and Europe. “This also includes clubbing [together] of regional deals across the [Arabian Gulf], combining strategic and financial equity partners,” it said.
Demand for healthcare and education services in the region is attracting private sector investment in new hospitals, clinics and schools. But experts say that funding greenfield projects is a challenge given the sizeable investments needed and long-term outlook for such investments.
A sale-and-leaseback model is more attractive for investors and established healthcare and education players than bank funding, for example, according to the consultants Colliers International.
“There is a lot of focus on acquiring ready assets in the healthcare and education sectors compared to offices, hotels and residences as [healthcare and education sectors] are typically less risky assets, and they can be given on long-term lease for around 25 years,” said Mansoor Ahmed, the director for healthcare practices at Colliers.
“But the issue is that there are too many funds, private equity and individuals that are now looking at acquiring assets and there are not too many assets available.”
As such, the assets available are not available at a reasonable price, he said.
“There are less than 10 assets in the UAE in the healthcare and education space where the landlord is seriously interested in selling.”
The increased number of funds looking for the same assets is also bringing down the rate of returns.
The current rate of return on investment is around 7 to 8 per cent, whereas two years ago it was 9 to 11 per cent, Mr Ahmed said.
The increase in the number of investors in the UAE is also because the assets in the Emirates is sought after by the regional investors outside the UAE as it is perceived as a safe haven. The local funds are therefore looking to invest outside the Arabian Gulf region, according to Mr Ahmed.
“A new trend that we will see is that the funds will support construction of new schools and hospitals whereas currently most are looking at ready assets,” he said.
Emirates REIT is already doing that with the investment of Dh208.3 million to develop an education complex at the Akoya by Damac project off Umm Suqeim Road. It has leased the education complex to Jebel Ali School for 26 years. The company had entered into one of the first sale-and-leaseback transaction in Dubai in 2013 for its World Academy building to Gems education provider in Al Barsha South.