US investor backs European Sharia mezzanine fund

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A US investment manager has committed $100m (€80.4m) to a Sharia-compliant mezzanine real estate fund managed by Gatehouse Bank.

The closed-end fund, which will invest in western European financings, is the first mezzanine product to comply with Sharia principles.

Natale Giostra, head of real estate finance at Gatehouse Bank, told IP Real Estate the commitment was evidence that there is appetite for Sharia-compliant vehicles from non-Sharia sources.

“The fund fits both conventional and Sharia investors,” Giostra said. “This is an investment product like any other.”

Giostra said there was a limited market in the US for Sharia-compliant investment.

The unnamed US investment manager had been considering Europe’s mezzanine market for “some time”, Giostra said.

“It’s quite unusual for an investor to accept the criteria of Sharia principles,” he said.

Gatehouse will source, arrange and structure loans up to 85% loan-to-value over the next 18 months. The main principle of Sharia investment involves avoiding assets where more than 10% of the property involves the sale of alcohol, pork or tobacco.

Gatehouse has recently invested in UK hotels. The bank provided £22.5m in senior financing to Al Dau Development to finance the Holiday Inn London West.

“From a lending perspective, we have also financed conventional, non-Sharia borrowers with Shariah compliant financing,” Giostra said.

With three to five-year terms, the loans are expected to generate net IRRs of between 6% and 10%.

“There’s a two-year window for the strategy in the countries where we are active,” Giostra said. “The return expectations are reasonable in the current climate, with senior lenders becoming more aggressive.”

Giostra said that by offering mezzanine, Gatehouse – already a senior lender – would be in a position to offer whole loans and allow borrowers to deal with a single party.

The fund will target financings for both value-added and opportunistic property in the UK, Ireland, Benelux, Germany, France, Spain and Italy.

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