Dubai's Damac Properties eyes distressed real estate in prime European cities

Sales of the developer's Nine Elms project in London stall during Covid-19

Canary Wharf financial district is seen in the distance as construction work continues on Damac's Nine Elms development on the South Bank. Covid-19 has affected sales of the project, which have stalleShow more

Dubai’s Damac Properties, which owns and operates the Middle East’s only Trump-branded golf club, is eyeing empty office blocks in Europe as Covid-19 clears city centres across the continent and companies switch to a remote working model.

The company, one of Dubai’s largest property companies, said its development teams in Europe and North America are also scouting for fresh opportunities in the US and Canada, where it has an existing joint venture, and in London, home to its existing Nine Elms development on the South Bank. Damac, which posted a loss of Dh280.5 million ($75.36m) in its second-quarter results, said it would finance any acquisitions from "its excellent balance sheets and big cash reserves".

“We are always looking for opportunities and there are various ways we can finance any acquisition, through debt, a loan or equity," said Niall McLoughlin, senior vice president at Damac Properties and Dico Group. "So we can look at that as and when an opportunity arises."

Mr McLoughlin said the company was in "continual conversation with the banks" with the financing of any new acquisition dependent on the location, size and timeline of any project, such as whether it is a single plot versus a master development.

"The 'home office' model has worked well for many companies and will have a lasting impact on their need for office space. If the economic outlook continues to darken and recovery is slow, as most economists currently forecast, demand for office space will stagnate or decline in the medium term,” Mr McLoughlin said.

”It will be interesting to see if there will be any rezoning of offices to residential. The effects of Covid are still ongoing, but if there is some emptying of offices in prime European cities, Damac would be interested to explore those opportunities.”

The company, which has more than 1,400 employees and a presence in six countries, said it is interested in international rebuilds, refurbishments and new builds in this “uncertain” climate where many companies have cancelled or postponed plans to lease additional office space.

Damac reported a second-quarter loss of Dh280.5m for the three months ended June 30 on higher impairment charges, according to an August statement posted on the Dubai Financial Market where its shares trade. This came amid a climate of global movement restrictions and a slowing Dubai property market.

Last year, the company reported its first full-year loss in nearly a decade, as revenue fell 28 per cent. The 2019 loss of Dh36.9m followed a profit of Dh1.15 billion for 2018.

‘’Whilst we have been going through headwinds, both from a tough GCC macro environment and a global real estate asset class perspective, Damac remains extremely strong from a balance sheet perspective,” Hussain Sajwani, chairman of Damac Properties said in August about the company's second-quarter results.

Covid-19 also affected sales of Damac's Nine Elms development, which have stalled at a sold rate of almost 60 per cent since November last year. The development's completion date has also been pushed to the fourth quarter of next year from the first quarter.

“Due to the unforeseen circumstances of the Covid-19 pandemic and subsequent travel restrictions, it became difficult for potential customers to visit London to view the project first hand which explains the percentage of units sold. However, we are planning to boost our sales drive as the project progresses and have seen a lot of interest in remaining inventory,” said Mr McLoughlin.

The 50-storey development of 450 studio and one, two and three-bedroom apartments is a tie-up with Italian fashion house Versace, which will provide the interiors.

From a finance standpoint, Damac said its Nine Elms project, which is being sold with an off-plan finance model, was “far better positioned than other developers to absorb market shocks due to its strong business model and balance sheets”.

As of September, about 500 workers were on the site with the north and south towers now structurally complete and the façade on floors two to 50 finished.

Britons, Chinese and Gulf buyers make up the core of the UK customer base for the development, with many of them repeat buyers. The homes are on the market from just over £900,000 to £14 million, with luxury features such as a swimming pool and Jacuzzi on the 23rd floor, as well as a gym, valet parking and 24-hour concierge.

“The launch of Nine Elms came at a time where London was facing a massive housing shortage crisis, so we have already seen a lot of interest coming from Londoners themselves, especially those looking for luxury living,” said Mr McLoughlin.

While Covid has affected the global real estate industry in general, Damac said it is not worried about its London development because of its central location.

“Apart from that, London will always be London - arguably the most sought-after destination in the world and the world’s leading financial centre. These are unique selling points … so we are confident that the project will not be affected by the Covid-induced market shock,” said Mr McLoughlin.

Despite the challenges in London, which is now facing stricter lockdown measures amid rising numbers of coronavirus cases, the company is bullish on investing in further developments in the British capital as well as other “international gateway cities” such as Paris and Berlin.

“We will continue to look for opportunities depending on land acquisitions,” Mr McLoughlin said.

The UK is particularly attractive, he said, because its legal system is globally renowned for its transparency and its time zone, stable business environment and political system are considered advantageous by investors.

"London itself is a microcosm of all those advantages. Apart from being the world's leading financial district, the UK offers a world-class education system and London has some of the best schools and colleges. It is a multi-cultural city that has four main airports in close proximity and is centrally located between Asia and America. All of this makes Damac keen on investing in London and expanding its brand there," said Mr McLoughlin.
Looking further afield, the company is also considering more joint ventures (JVs) in North America, following its entry foray into the market with Marlin Springs, a Toronto development in Canada, which is under construction.

“Damac's strategy is to target international markets that are customer led and where we have existing brand equity with customers who would be interested in these markets. We would enter these markets under JV’s so that capital exposure would be measured,” said Mr McLoughlin.

“These markets would also have to be scalable to consider. We are always looking for areas where we can add value and are exploring new markets such as Maldives [and] Saudi Arabia.”

In July, the company said it had not received any potential acquisition offer following a report that Mr Sajwani, who retains a 72.2 per cent stake, was exploring a bid to take the company private. Reuters reported that Mr Sajwani had been weighing up a bid to take the company private following a sustained decline in its share price.