Arzan Wealth (DIFC) Limited (‘Arzan Wealth’), a Dubai-based advisory firm regulated by the Dubai Financial Services Authority, is pleased to announce that it has advised on a mezzanine lending opportunity in the United States, as part of the launch of a new strategy focusing on investments into debt structures. This first investment utilizes the innovative Property Development Certificate (“PDC”) instrument, which is an amortizing mezzanine loan and has been structured in a Sharia-compliant manner.
This first PDC finances the acquisition of a portfolio comprising three multifamily properties (“Portfolio”), consisting of 399 apartments located in Jackson, Mississippi, USA. The properties currently have an average occupancy of over 90% and are rented just below market rates. The borrower is a specialist multifamily asset management company that is providing the equity to acquire the Portfolio and has previously improved operations of similar assets in the same regional market.
The current PDC transaction is structured with a 9% coupon, payable quarterly, and with an escalating quarterly amortization schedule. It is expected that at the exit, the investors advised by Arzan Wealth will have received more than 95% of their investment through quarterly payments alone, and will receive an additional payment at the end of the instrument’s term that is linked to the Mississippi Apartment VMI index. The total IRR of the PDC is structured with a floor of 9% and a ceiling of 14%, depending on the performance of the index. This index has grown by around 50% in the last 6 years period.
Arzan Wealth acted as the Strategic Advisor on the structuring of the PDC instrument and the due diligence of the underlying assets and will continue its advisory role during the holding period of this investment.
Muhannad Abulhasan, CEO of Arzan Wealth said:
“As market conditions change around the world, Arzan Wealth is always searching for opportunities that provide clients with safe and predictable income streams, while reducing risks as much as possible. I believe that debt instruments offer such opportunities now, especially in markets where buying property directly can come with higher risks. I am pleased that Arzan Wealth has been able to launch this new strategy for our clients, and am grateful for their continued support and trust.
What is most interesting about the way we have structured this PDC instrument, is that due to the escalating amortization schedule, our clients are de-risking their investment from the first quarterly payment, while receiving as fixed 9% coupon. In addition, the linkage of the final payment to the performance of an index rather than the Portfolio itself creates further risk diversification for investors.
We look forward to growing our new debt strategy during 2018, as we continue to work on similar advisory assignments for our clients. Our aim will always be to create low-risk opportunities for our clients to earn a predictable and regular income stream from their investments, and with as much diversification as possible.”