Higher transparency and liquidity have been catalysts for real estate's "growth and popularity as an alternative investment in emerging markets," said Richard Johnson, Istithmar's managing director for real estate, in the statement. The statement added that the fund, known as Dar Istithmar Lel Aqarat, would be "well-positioned to draw on the synergies of Istithmar's extensive knowledge of regional markets and strong reputation in the region, and AIG Global Real Estate's global property development experience."

Istithmar currently manages assets worth $1.8 billion. In June, it bought New York's Knickerbocker Hotel for $300 million. It is also said to be in talks to acquire the Dallas-based Crescent Real Estate Equities. Crescent officials are passing off the potential sale as rumors while sources tell GlobeSt.com that the talks are serious.

Set up in 2003, Istithmar is owned by the government of Dubai, part of the United Arab Emirates. It is one of several vehicles Dubai, the Gulf trade and tourism hub, uses to buy overseas assets.