Flagship project fund structure

The situation

The real estate development arm of a GCC family group with leasehold land was looking to develop the mega-plot into a flagship mixed-use city. Because this large-scale city development in direct proximity to a transportation hub had significant capital requirements, group shareholders sought to attract strategic investors into the project through a project-level fund. The company engaged Strategy& to define the optimal structure and governance of the project fund.

How we helped

The team outlined the potential phases of the project and those phases’ different risk/return parameters and explored possible funding options, including single shareholder, public–private hybrid structures, and setting up a company or fund. After gaining an understanding of the local real estate fund landscape and the relevant trends and characteristics of international benchmarks, the team assessed the various funding structures along strategic dimensions relative to the group, as well as the expected financial returns, and settled on a dual-stage hybrid fund. They set fee levels for the different parties and return levels for the investor tranches, used sensitivity analysis on the target structure financials to tease out key risks and develop mitigation plans, laid out an implementation road map, and discussed next steps with the shareholders.

Results

The target structure was approved and is currently being implemented.