Scream 2.0


Reflecting on the recent IFN UK Islamic Finance Week, for which 90 North was very proud to be a sponsor, it occurred to me that we are seeing a fundamental shift in Islamic investors’ approach to real estate investment. Perhaps we should call it a new stage in Shariah compliant real estate asset management, or with a slightly unfortunate acronym: SCREAM 2.0.

For me, SCREAM 2.0 reflects a deeper analysis and understanding of the physical property itself, an analysis of the requirements of the users of the property and in many cases, the business being
operated from the property itself.

One driver for this has been necessity. As Adam Cavanagh of Rossette Merchant Bank shared, with the gap between finance costs and property yields tighter than they have been for many years,
there are no easy deals. While long leased properties let to investment grade tenants are still available, their pricing rarely makes them attractive for those seeking 7%+ annual distributions.

Meanwhile, investors have witnessed increased acquisition costs around the globe, largely driven by higher purchase taxes, as well as a relative scarcity of quality assets to exchange assets, with
our own Nick Judd concluding that investors are therefore deciding to hold individual real estate investments for longer, having to therefore contemplate lease renewals.

Naomi Heaton of London Central Portfolio picked up on, is that properties are more frequently multi use. Our own acquisition outside Brisbane, Australia is a great example of this, with an apart-hotel combined with a daycare nursery for children and two retail units. Sometimes referred to as a ‘live, work, play’ environment, there is far more to consider.

During one of the panel sessions, I spoke of the need of investors to consider the business being operated within the property itself. Those investing into student accommodation, for example, need to contemplate the costs of operating the facility, not just the rent being paid by students themselves.

Meanwhile, Richard Payne, speaking from a finance provider’s perspective at the Bank of London and The Middle East, highlighted that his credit team asks, for any property, what the plan would be if the tenant were to vacate, either at the end of the lease or through financial difficulties. Again, a further level of analysis and not taking the status quo for granted.

I am personally delighted to see this new level of scrutiny and sophistication among Islamic investors, who can sometimes mistakenly be characterized solely as purchasers of trophy city center real estate based on a whim. So, I embrace SCREAM 2.0, but I do need to work on the acronym!

This article was first published in Islamic Finance news dated the 26th September 2018.