You’ve had decades of experience in senior strategic leadership positions across some of the UAE’s biggest developers. What advice are you providing to your clients in the sector during these unprecedented times?
Masood Al Awar: I strongly believe all real estate players, regardless of size, customer base or even type of developments, must work on many fronts. Looking forward, it’s not a bright blue sky; storm clouds are heading towards many industries including the real estate market, but hope remains if proper and timely actions are taken.
During these challenging and unprecedented times, real estate players must first of all deploy a liquidity management strategy, which will define their post Covid-19 future. Many delayed development projects should now take advantage of cheap and accessible financing.
The corporate bonds market is larger in some economies such as the US when companies were able to issue in March, for instance, more than $260 billion of new issuance at 3-5 per cent yields, which is tremendously different from the last crisis in 2008 when banks were not lending and companies were issuing at 8-10 per cent yield.
Many companies started to build huge liquidity buffers earlier this year by undertaking loans or investment-grade issuance, which for sure will have a tremendous negative impact on their creditworthiness post-crisis and will undermine their re-deleveraging actions taken over the past few years.
However, we know also that other real estate players are already leveraged and don’t have access to loans or debt issuance and therefore they are facing major liquidity problems that will undermine their post-crisis growth and in worse scenarios will become solvency issues.
All this will also lead to a major shock against the valuation of companies’ post-crisis in both scenarios but those who manage their liquidity well and build liquidity buffers during this crisis will be the winners.
Real estate players should also, and I know how difficult this is to deploy, have a clear public opinion-oriented strategy. The brand value of a company brings a direct contribution to its financial valuation premium. The players that are taking actions during this crisis will go out with a tremendous advantage in terms of customer engagement, which will be reflected by a fast post-crisis recovery in terms of sales and enterprise value, attracting the same or more institutional and individual investors. The collective customer long-term memory will define the customer behaviour long after this crisis and customers will remember what company, especially large local corporations, acted socially responsible by taking care of their employees’ living and their investors/tenants’ financial situation during the pandemic.
While some companies are laying off employees, giving unpaid leaves, pressing investors and tenants to pay their term/rent regardless of their financial situation, others that are more prepared are taking more socially responsible actions, decreasing salaries for the management, extending payment terms, providing forbearance or even announcing catastrophe pay to guarantee a living for their employees.
The real estate stakeholders should take actions in line with their economic, social and civic responsibilities that come along with their position as a major local economy player. Therefore, they should support local initiatives from a civic responsibility standpoint; they should take the lead in supporting their employees’ obligations during these difficult times from a social standpoint; and finally they should build innovative product and service offers to adapt to the post-crisis landscape.
Post-crisis, real estate players should anticipate a tsunami of consolidation and those who will survive this unprecedented crisis will have cheap and quality investment opportunities to come back and support a growth even higher than before for the next three to five years.
Real estate players should also anticipate customer behaviour changes and work out a new set of innovative products that will be in line with an ebullience in investor, customer and regulator expectations. They must also establish a road map to embracing the transformative age and accelerate its execution.
What kind of changes have you implemented at Medallion so far to address the new norms brought about by the coronavirus?
MAA: Since we are an advisory business with multiple geographically well-positioned partners that takes full advantage of technology, in February we launched our advisory arm in response to the growing demand for process enhancement, data analytics and most of all financing (re) structuring to support the survival and growth of our local businesses. We anticipated very early in 2020, when a lockdown in the UAE was yet to be announced, that this outbreak in China would be a global crisis and we would witness companies shut down their operations and governments across the globe imposing strict circulation rules to their citizens. Since then, we had a tremendous demand for our financing structuring set of products through which we offer complex out-of-the-box financing mechanisms.
We have currently over Dh5.5 billion complex capital raise in progress, involving international investment bankers, and we are in the final negotiation stage with other local medium-to-large businesses to support them through these challenging times. We have been managing successfully all this remotely. Proof that we can work, deliver value, achieve greatness, dream big and inspire success even under lockdown, and proof that despite the naysayers, the UAE will remain a great economy and a greater nation.
We are also working on a set of innovative real estate products that will renovate the concept of property and we will make exciting announcements shortly with the goal of bringing the tremendous global capital flow and huge wealth redistribution that we are witnessing now towards our beloved country, to support our local businesses and our global landmark of land of opportunities.
With property prices currently at a low ebb, what are the most promising developments you might recommend to investors seeking solid mid-term ROIs?
We are heading towards a new long cycle, characterised mainly by a prolonged bust and few boom, and investors should be looking for new innovative products.
On the first hand, the boom of affordable housing during the last decade was a sign of the maturity of the real estate market in the UAE. Today more than ever, due to the expected downtrend in the spending capacity of customers, investors should consider jumping in affordable homes’ investment type. We are indeed anticipating a tremendous demand for this type of residential properties.
In the other hand, those investors lacking resources and scale should consider optimising their portfolio. One of the most common strategies in a crisis is to consider the redevelopment opportunities by improving lower quality properties and flipping them to generate cash flow in order to seize opportunities of investing in higher quality properties.
Investors should also consider waiting, as we are starting a new cycle and the real estate industry that maybe sum consolidations and exit deals to seize in the next few months. Free cash flow availability will make the difference between the winners and the losers.
Can you highlight some of your big ongoing projects along with your upcoming offerings?
MAA: Our development arm is currently engaged in a private-public partnership (PPP) for the development of affordable homes with a total budget of over Dh2 billion involving bankers from Asia, contractors from Europe, asset and property manager from the UAE, majority shareholder from Dubai and a complex financing structuring.
We also have an international project venture that requires financial restructuring and funding of $200 million to be marketed within the Middle East and the GCC. On the other hand, local start-ups scramble for cash as venture capital investments freeze during Covid-19. Moreover, Middle East-based entrepreneurs are facing particular obstacles in terms of lack of larger funding levels and follow-on investment, access to capital and strategic support from reputable local investors.
We are aiming to support the local businesses and expand our activities by launching before end of 2020 a venture capital arm of Medallion and run an early stage fund out of Dubai for seed and start-up companies with innovative entrepreneurs seeking financial and strategic leverage.
Medallion ventures will be the most important network of local angel investors in the GCC investing in companies with early commercial traction.
Visit Medallionuae.com for more information
The property advisory for a post-pandemic era
Medallion Associates is a real estate investment advisory firm with a global business network that has been assigned by the Dubai Land Department as an international promotional trustee with offices in London and Malaysia to attract real estate investment.
With more than Dh5.5 billion complex financing in progress since the launch of its advisory arm in February, Medallion is the rising star of the real estate industry that dedicated its expertise and resources to support local companies in finding ways to forge ahead during this challenging and difficult times, dealing with complexity, moving fast and leveraging strategic international and local partnerships.
It is backed by a talented and experienced team who choose to lend a hand in shaping the future rather than wait for it to happen.
Medallion is ahead of the pack in the new age of the real estate industry and is growing fast armed with its values of professionalism, integrity, accountability, innovation and courage.
LinkedIn: Medallion Associates