Niche marketing is alive and kicking, even in the seemingly unsegmented market of real estate financing.

It is undisputed that bankers and brokers get a lot of odd requests from clients. We Americans are a peculiar group, adorned by the complications and complexities brought on by unprecedented prosperity. I’ve heard stories of commercial real estate leases held up by demands that a 100-pound dog be given free run of a multi-tenant property, or that a major tenant be given control over decorating a common lobby with possibly offensive post-modern art.

And in our society, which has suddenly declared religious sensitivity with an Orthodox Jew on the Democratic ticket, it seems only fitting that a new market niche be carved out by those real estate folks willing to bow to the religious propensities of their clients.

This week, Key Global Capital and KeyBank, N.A., boasted they are helping to fund the first Islamically acceptable, Shari'ah compliant, construction and mini-perm financing of a multi-family real estate project in the United States.

The 235-unit Maconda Park Apartments project in Austin, Texas, is being developed by Fairfield Residential LLC, one of the largest multi-family developers in the country. The King & Spalding law firm's Islamic Finance and Project Finance team in New York City and Key Global Capital in Boston developed the financing structure that enabled the financing to be in compliance with Islamic Shari'ah precepts.

The Shari'ah, including the Quran, the foundation of Islam, prohibits the charging or paying of interest and requires the sharing of project risks between the lessee and lessor of a property. Lenders must share in the risks and rewards of their customers and have their remuneration tied into the success of the project being financed.

Both King & Spalding and Key Global Capital have developed financial instruments that allow investors and bank financiers to be compensated for their participation in such projects, foregoing the collection and payment of interest.

Check out this financial structuring. An affiliate of KeyBank holds title to the project and provides financing for the project. The KeyBank affiliate entered into a construction agreement with an affiliate of Fairfield Residential LLC, which will act as the general contractor. The KeyBank affiliate then leased the project to a limited partnership, which includes Fairfield Residential LLC, as general partner, and Gulf Investment House, the largest equity investor in the project, and affiliates of Key Global Capital, as limited partners.

Under Islamic Shari'ah precepts, the lessor and owner of the project (the KeyBank affiliate) must retain financial risks that would not typically be retained by a lender in a conventional construction or permanent financing. These risks were eliminated by entering into a managing contractor agreement, and a unique general contractor's consent agreement. The project structure not only preserves the transaction as an ownership lease financing for Islamic Shari'ah purposes, but also allows the transaction to be treated as a loan financing for U.S. and state law purposes.

Personally, I’ll stick with collecting interest.

And in other news, along the lines of “physician heal thyself,” real estate professionals are being reminded that their personal investment portfolios should include real estate assets, in addition to stocks and bonds.

Christopher Cain, a noted vacation property expert, suggests, “Diversify your assets. Reinvest some of your stock market equity in (for example) a seaside condo, or a villa at a golf resort. Real estate tends to experience strong, steady appreciation and vacation property can add fun and excitement to your returns.”

This advice takes on particular importance on the cusp of Labor Day weekend, one of our nation’s most intense vacation periods. And most of you commercial real estate folks out there definitely need a holiday.

Meanwhile, the Securities and Exchange Commission has declared effective the registration statement of DM Mortgage Investors, LLC, a fund which will invest between $1.5 million and $100 million in Nevada commercial mortgage loans.

The fund will be managed by Vestin Mortgage, Inc., a subsidiary of Vestin Group (Nasdaq: VSTN). Units will be sold to investors for $10 a piece.

Published: September 1, 2000

Use of this article without permission is a violation of federal copyright laws.

Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net