As the recession began to bite and traditional sources of finance, such as the banks, became risk-averse, significant funding gaps appeared in the mouth of the commercial property sector.
Consequently other methods of treatment have become common; in particular, there has been a growth in Sharia-compliant funds, sovereign wealth funds and private investors.
Sharia-compliant funds place an emphasis on a ‘diminishing Musharaka’ agreement, a partnership where both the customer and the lender take responsibility for managing the commercial property. They adhere to strict Sharia law, which states the lender must offer some form of service in addition to the funds, forbidding lenders from making money only on the interest.
Sovereign wealth funds are state-owned investment funds, composed of financial assets including bonds, stocks, precious metals and property. Since 2000, the number of these funds has dramatically increased and many Gulf States are reported to use these funds to aggressively seek higher returns on investment. These have fuelled unease, particularly within the EU, owing to a lack of transparency in the means and intentions of the purchasers.
Closer to home, Legal & General have illustrated the trend for private commercial property investment. The UK financial company provides a range of investment and insurance services to individuals and businesses. Its latest financial move is a £14.38m purchase of more than 50,000 sq ft of office space, set to become the centre for its UK Property Unit Trust Fund.
The move comes as little surprise to those who have followed L&G’s commercial property ventures since 2007, when they appointed Ashley Goldblatt to spearhead a strategy of moving into commercial property investment.
While the economic climate remains uncertain, the face of commercial property investment is set to continue changing. Whether future work will involve severe root canal operations or merely a straightforward polish is yet to be seen.
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