Sharia-compliant financing comes to Texas.
BMO Harris and Synovus Bank provided $200 million in Sharia-compliant financing for a joint venture between Dallas-based Big Sky Medical and Bahraini investor GFH for a medical office portfolio.
The financing was connected to the joint venture’s purchase of 13 medical office buildings and healthcare facilities across seven states for over $400 million. The buildings are occupied by healthcare providers such as Children’s Wisconsin, Beaumont Health, Texas Health Resources, UPMC and Women’s Care Florida.
The lender provided the financing in different tranches through June and July. Some of the portfolio was acquired with cash so the debt was placed after closing, while the rest of the portfolio was acquired using BMO Harris and Synovus Bank’s financing.
John Nero and Ben Appel of Newmark brokered the deal.
Sharia-compliant financing was a requirement for GFH, according to Nero.
Islamic law prevents usury, or interest payments on a loan, so often Islamic banks will buy the asset, then sell it back to the borrower at a higher price, typically paid in installments, in a structure known as Murabaha. In the case of the medical office acquisitions, the financing was structured as a master-lease, since lease payments are technically considered rent rather than interest.
Sharia-compliant financing is not new to the U.S. real estate market. Notably, Sharif El-Gamal used the model for his luxury condo development in Tribeca at 45 Park Place when he scored a $162 million loan from Malaysian lender Maybank in 2016.
While such arrangements can facilitate huge investments in real estate projects from petrodollar-rich institutions, sharia-compliant financing can also complicate the already complex relationship between lender and borrower involved in a struggling project.
Four years after securing his financing, El-Gamal faced foreclosure on his 667-foot condo tower and went to court claiming that Maybank “failed to act in conformance with the principles of Sharia law,” which requires a “heightened standard of good faith and fair dealing.”
GFH is headquartered in Bahrain’s Financial Harbour and has over $15 billion in total assets and assets under management, according to its website.