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A Lebanese Real Estate Fund: The Time is Now!

Lebanon is at a tipping point. The August 4 explosions, in all their tragedy, have created a sense of urgency. The international community has consistently demonstrated its’ determination to help Lebanon in a remarkably reactive way. This was proved by consecutive visits of several world leaders, such as French President Emmanuel Macron and his cabinet, amongst others. Moreover, several Arab countries have provided generous aid and relief packages and programs.It was in this context that a new designated prime minister was voted by the Lebanese majority in record time. Change is in the air. There is a will to enact much-needed systemic reforms. The new government will be formed in a time of panic and economic anxiety. There is a tremendous need tomake the best out of our public assets. This can be done by creating a proposed Sovereign Real Estate Fund.

While Lebanon is a politically liberal economy, the State holds a considerable amount of assets. Lebanon’s portfolio of public commercial assets comprises a wide range of operational assets. These include telecommunication infrastructure (Ogero fixed network and the Alfa and Touch mobile networks), Electricité du Liban, responsible for electricity production and transmission; and four water utilities. The government also owns Middle East Airlines, Rafiq al-Hariri and Rene Mouawad airports, the Beirut, Sidon, Tripoli, and Tyre ports, the Casino du Liban, the Régie Libanaise des Tabacs et Tombacs, the INTRA Investment Company, the Finance Bank, and two refineries in Tripoli and Zahrani.Unfortunately, many of these institutions face mismanagement and corruption, which makes public investment non-lucrative.

The Lebanese State also owns a considerable amount of real estate and undevelopedlands: the government claims ownership of some 59,353 land plots with a total area of more than 911.5  million square meters distributed across Lebanon’s eight governorates.These assets are not put to their best use. However, they are solid assets that can be used as financially-sound collateral.

In order to deal with the current economic crisis, the new cabinet needs to manage public assets more strategically, and more efficiently. It is a necessity. Such assets can generate revenues to partially cover public debt, fund infrastructure and re-construction investments, and boost government revenues without citizens incurring the cost.

This addresses two of Lebanon’s greatest problems: the lack of attractiveness for the private sector to invest in public infrastructure, and the corruption polluting all branches of public authorities and services.

As Lebanon is deep into economic and political turmoil, and at a time where citizens have lost its’ faith in the current political system, the time is now!

The Diab government has failed to provide a clear economic strategy to bounce back from the crisis, due to the staunch opposition from the corrupted political elite. There were talks of setting up a Public Asset Management Company “tasked with the reconstructing of public companies in its portfolio.” However, the government has failed to define its’ governance mechanisms and objectives. The devil is indeed in the details. Is this proposal a prelude to privatization? Will such an endeavor further consolidate public assets in the hands of the corrupt system?

The Association of Banks in Lebanon (ABL) is the major creditor of the public sector. They proposed creating a sovereign fund which constitute public assets. It would serve as acollateral to the $40 billion USD loan, without impacting the purchasing power of depositors.

The current approach to public real estate management is extremely inefficient, if not inexistent. The National Real Estate Fund (NRF) could be the solution, if properly managed in a transparent and professional way.

The NRF should be structured in a way that benefits the Lebanese economy at large. Any dividend transferred to the government must be used to finance public services. The NRF will have the goal to help alleviate poverty, strengthen public services and infrastructure, as well as totally restructuring the economy. Monies generated from the better management of the assets, in addition to the occasional divestiture or privatization, should first be used to further strengthen the portfolio.

Basic services such as water, electricity, and transportation will become more efficiently managed and operated, to the benefit of end users, the Lebanese people, and the economy.

In addition, with a commercial capital structure and dividend policy in place, the NRF would be able to generate yearly dividend revenues for the government. This sum will be complementary to tax revenues and will help finance other government expenditures.

Moreover, better wealth management means better debt management. Our current politico-economic system forces the new Lebanese cabinet to take on predatory loans. Putting the state in crippling debt will only lead to mass privatization, which only goes in the favor of banks. As an alternative, if we are able to assign an approximate value of $69.1 billion USD to the state-owned portfolio of lands, they can be used as a collateral to bank loans with the right to exploit in industrial, agricultural, commercial and residential projects for a certain period. ABL should be satisfied with such a generous guarantee and a potential investment projects against the $40 billion USD debt.

The creation of the NRF, on the condition of good governance and efficient strategic management, can therefore be of great importance for Lebanon. There are two necessary yet simple steps to launch the NRF:

  1. Creating a public registry of public assets: A central public registry of public real estate assets will be created. An indicative value will be assigned to these assets. This step allows better strategic planning and management of the NRF: it allows for a feasibility study, demonstrating what kind of yield and additional revenues could be expected from the fund.
  1. Transfer the assets to the NRF: In order to avoid a conflict of interest and to insure good governance, the development of the NRF portfolio should be delegated to an experienced and politically independent board and management team.

As a nation, we have survived crises after crises. However, there is a light at the end of the tunnel. By making the best of what we have, we will rise from the ashes. Dr. Mostafa Adeeb and his new government have the opportunity to build a new Lebanon, without jeopardizing public commercial assets, and by leveraging on the state-owned land portfolio. Our country is rich in resources and talents. The cabinet has the responsibility to consider the opinions and proposals of Lebanese experts, who have proven times and times again they are able to manage such endeavors such endeavors. Lebanon’s economic crisis is not above the skills, talents, and capabilities, of the Lebanese diaspora, who have distinguished themselves in the most reputable financial institutions worldwide. They can help us get our country back. If the time isn’t now, when is?

Abdallah Hayek P.E.

Hayek Group LLC

September 2020


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