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Developer Piety Investments gets $100 million from gulf fund Crestmount Capital

Reporter Su-Lin Tan Australian Financial Review 22 May 2017

Rising Sydney residential developer Piety Investments has closed a $100 million Sharia compliant investment, structured under Islamic finance principals with Middle Eastern fund Crestmount Capital, run by Prince Khaled bin Alwaleed bin Talal, a member of the Saudi Arabian royal family.

While Australian real estate has attracted extensive capital from China and other parts of the world, the Middle East’s huge pool of “gulf” money has yet to hit Australia in a big way, mainly because there are onerous requirements for investments to be Sharia compliant, while adhereing to Islamic finance principals and the volatile currency exchange between the Australian dollar and middle eastern currencies make investment profits patchy, experts say.

Sharia prohibits investments in areas such as alcohol, pornography and gambling, and requires funded transactions to follow certain audits and formats.

As a result, Middle Eastern investors have taken a bigger interest in stable long-lease assets like logistics and industrial assets which even out short-term exchange differences, as seen with Propertylink and Middle East-based fund Sedco Capital’s logistics acquisitions.

Rising Sydney Residential Developer Piety Investments Has Closed a $ Million Investment with Middle Eastern Fund Crestmount Capital

Sharia compliant Islamic finance mezzanine-type deal

Piety and its joint-venture residential development partner, Malaysian government’s TH Properties (THP) were however able to – after a year long negotiation – structure a Sharia compliant Islamic finance mezzanine-type deal for Crestmount to invest in a basket of projects with different life cycles allowing Crestmount to hedge any volatility.

“We have been looking for someone in the Gulf for quite some time,” PietyTHP director Danny Masri said.

“The biggest difficulty with the Gulf is they always look to London first because there is no double tax, or the US because currencies are pegged to the US dollar, so there is no currency risk.”

“They worry that the shifting currency will hit profits. Because we can’t cover a 30 per cent foreign exchange [for example] … we gave them blended basket of projects with different maturities.”

Crestmount, launched through Prince Khaled’s investment vehicle KBW Investments, will invest in Piety and THP’s mega two-stage Wentworth Point development, “One the Waterfront” which will yield 450 apartments in total, a Lidcombe project with 140 apartments, a 100-unit project in Rockdale and a future site in St Leonards south, which is part of a bigger master plan that has attracted big players such as Country Garden, Poly and Greaton.

All projects are in Sydney’s west and south-west except for St Leonards which is in Sydney’s lower north shore.

Helping Piety close the deal is its relationship with TH Properties, also Sharia compliant, and owned by the Malaysian government’s Lembaga Tabung Haji or the Pilgrims’ Fund Board.

Eye-catching Sharia compliant transactions

Piety has made some eye-catching transactions in the five years since they started developing in Sydney.

They snatched the Wentworth Point site from Payce Consolidated and its joint venture partner Sekisui House for $100 million in 2015. Their first project was in Waitara in Sydney’s north shore, also executed with THP.

Since then they have positioned themselves in many key inner-city suburbs with $350 million in funds under management and 2000 apartments worth just under $2 billion in the pipeline.

“We have been strategic with where our sites lie. We are developing on Hurstville. We took Rockdale on as a lower price point to Hurstville. Those who cannot afford Wentworth Point, we use Lidcombe,” Mr Masri said.

“If we are in the right locations we will be fine. Clearly there is some oversupply, but we are not there.”

“Look around, there is migration into the city. The banks can slow things but it’s not different to previous sorts of cycles.”

Piety’s managing director is industry veteran and marble and granite products group WK Quantum Quartz owner, Bilal El-Cheikh.

Mr El-Cheikh’s sharia links put him in front of Prince Khaled, who has invested in a myriad of global companies including US merchant services aggregator Square, Inc.

The investment in PietyTHP will be placed in the maiden Crestmount Fund I.

Prince Khaled bin Alwaleed is also the son of Prince Alwaleed bin Talal al Saud, chairman of Saudi Arabian investment powerhouse, Kingdom Holding Company.