Thursday, Dec 08, 2011


 
   By Craig Karmin, Nicolas Parasie and Tahani Karrar 
   Of THE WALL STREET JOURNAL

Dubai Investment Group is closing its New York office and transferring control of its $1.1 billion U.S. real estate portfolio to a private equity firm co-founded by Mark Walsh, the former head of Lehman Brother's real estate operation.

Mr. Walsh's new firm, Silverpeak Real Estate Partners, will try to improve the value of the portfolio's 30 properties with an eye toward selling assets over a period of time. The portfolio includes Manhattan's famous Essex House hotel on the south end of Central Park and two properties in Germany.

(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)

Dubai Investment Group is the real estate and asset management arm of Dubai Group, which itself is part of Dubai Holding, the investment holding company owned by Sheikh Mohammed bin Rashid Al Maktoum, Dubai's ruler. Dubai Holding is currently restructuring an estimated $6.2 billion in debt taken on to fund an aggressive acquisition spree that abruptly came to a halt following the financial crisis and a regional real estate downturn.

"Given the current market environment, this outsource strategy offers us extensive on-the-ground resources and market leading real-estate management experience," Fadel Al Ali, Acting Chief Executive Officer of Dubai Group, said in a written statement. "We expect to see strong returns over the remaining investment period."

Some see the transfer of control over the portfolio to Silverpeak, and the closing of Dubai Investment Group's New York office, as an early indicator that Dubai may be planning to exit the U.S. property market. The fund has not bought any properties since 2008, and has been making some sales recently.

Dubai's state-owned entities have been forced to undergo major restructuring as the global financial downturn has made it difficult for Dubai companies to raise new debt and repay existing loans.

But some of its U.S. properties have yielded profits. For example, the fund made money on its recent sales of hotels in Chicago and San Francisco, according to people familiar with the matter.

Craig Plumb, head of research at Jones Lang LaSalle in Dubai, said depressed real estate market conditions at home makes it more attractive for Dubai government-run companies to sell assets overseas. That would allow Dubai to inject more cash into its domestic market.

The deal is the largest transaction yet for Silverpeak, which has been managing assets that were controlled by Lehman Brothers. Silverpeak is expected to refinance Dubai Investment Group projects and renegotiate agreements with operating partners to increase the value of the properties.

The firm, founded last year by Mr. Walsh and Brett Bossung, began running private equity funds with about $18 billion in assets after buying the unit that managed them.

Silverpeak officials could not immediately be reached for comment.

(END) Dow Jones Newswires

08-12-11 1750GMT