Courting investors in the Middle East

In a sand-coloured room on the fifth floor of the Shangri-La Hotel, about two dozen men and women sipped champagne from glass flutes and nibbled on mini spring rolls and bite-sized cheesecakes from platters held by waiters who weaved through the crowd.

Although the gathering took place in Abu Dhabi, the capital of the oil-rich United Arab Emirates, in some ways the event was a decidedly Canadian affair.

The talk often turned to Canada, as many citizens were in attendance – including the Canadian ambassador to the UAE, Ken Lewis. The event also meshed with Canada’s demure global image: there was no flashy lighting or triumphant movie-score music that often blares at similar events in the region. The room had a low-lit caramel glow, but was not dim, and no music played.

And of course, there was the Canadian element that drew everyone there – the opportunity to buy in to the newly built Ritz-Carlton Residences, in the heart of downtown Toronto.

In between bites and sips, would-be buyers flipped through glossy brochures showcasing the property’s luxury serviced apartments on Wellington Street overlooking Roy Thomson Hall and peered at the five-foot-tall model of the building in the corner.

Middle Eastern investors have traditionally funnelled their money into property in countries such as the United States, the United Kingdom and Hong Kong. But now, interest in Canadian property is growing, with the global economic downturn as the active catalyst, said Alden Holden, the head of real estate with Pure UAE, a real estate services firm which worked with the Ritz-Carlton developer Graywood Developments Ltd. to put on last month’s event.

“The Canadian economy has got a few plus points,” he said. “It didn’t take such a big slump, as many major economies did, and it is underpinned by natural resources.”

Canada’s economy has emerged relatively unscathed from the financial crises that have hit the United States over the past two years. With the International Monetary Fund predicting GDP growth of 3.1 per cent for Canada this year, and a bailout-free banking system due to its traditionally conservative approach, investments in the Canadian property sector look like a safe bet, Mr. Holden said.

It’s a point that Garnet Watchorn, the president of Graywood Developments Ltd., drove home during the promotional gathering.

“It’s politically stable, there are a lot of good reasons why they should come here,” he said. “The gross national product is rising and we have a very strong real estate industry.”

The lure of Canada became evident in April, when the Halifax-based Killam Properties signed a joint-venture deal with Kuwait Finance House, an Islamic bank in the Gulf country, to acquire up to $450-million worth of residential property in Canada. The deal makes KFH the first Middle Eastern bank to make a firm cash commitment in Canada.

Lou Maroun, formerly the chief executive officer of Summit REIT, but who now heads Sigma Properties which worked on the landmark agreement, said the deal has sparked interest in neighbouring Gulf markets.

“As soon as that KFH Killam deal was announced … I got phone calls and some e-mails from several investment groups I work with in the Middle East,” he said.

And it’s a lucrative customer base, if it can be tapped. Despite the oft-publicized debt problems in Dubai, the countries in the region are home to ultra-rich sovereign wealth funds, state-owned investment funds. One of Abu Dhabi’s investment arms already has a high-profile real estate development in their portfolio: a stake in New York’s Chrysler Building.

SWFs across the Gulf manage assets exceeding $ 1.4-trillion (U.S.), according to the Sovereign Wealth Fund institute.

“They’re heading to the right place,” Mr. Maroun said.

The Killam-KFH deal was four years in the making, but he expects other investments to follow in shorter order. Doing business in the region starts with relationships, and one bond leads to many others.

“With the people of the Gulf region, they are very hard to get to initially and you have to be patient,” Mr. Maroun said. “But once you’ve developed that relationship, they become extremely trusting and loyal.”

But safety comes with lower returns, said Fadi Moussalli, the regional director of International Capital Group, based in Dubai.

“The perception of Middle East investors is there are better deals to be done in places that did suffer from the crisis,” he said.

Jamie Ziegel, the senior managing director at Cushman & Wakefield based in Toronto, said there is interest, but whether that will turn into investments remains to be seen.

The initial stage of the Killam-KFH deal is to buy up $250-million of multi-family residential properties within the next two years.

The apartment-shopping spree has already begun, Mr. Maroun said. KFH and Killam have already invested in residential properties, mainly in southern Ontario cities around the Niagara Peninsula, but also in Ottawa and they are looking at areas in Alberta, he said.

Others may follow suit, but Canada needs to toot its own horn to attract them, he said.

“Canada does an abysmal job of marketing and promoting itself, particularly in this region,” he said.

There needs to be more of a systematic effort by the Canadian government to help overcome unnecessary hurdles. For example, lengthy procedures for obtaining Canadian visas for business travellers puts up another barrier, he said.

“There is huge investment potential from this region,” he said. “Canada, make it a bit easier for them.”

Graywood Developments is optimistic about a deal, and is going the extra mile – or 6,906 miles. The developer returned to the Emirates last week to market the Ritz-Carlton Residences project again, and follow up with potential investors they met at the initial meeting last month.

“Early indications are that there are some people interested,” Mr. Watchorn said.