Student Housing Portfolio Trades Using Shariah-Compliant Funding

MIAMI—Earlier this year, Vie Management bought a student housing portfolio in six states for $134.6 million. Vie purchased the properties with a value-add strategy in mind. “We’re blowing out and expanding fitness centers, improving common areas throughout the buildings and improving upon or expanding the pool decks that exist,” Ari Rosenblum, co-founder and CEO of Vie, tells GlobeSt.com. “In the units, we’re ripping out carpet and putting in vinyl hardwood flooring, replacing old appliances with stainless steel and adding new furniture.”

In a market where student housing deals are getting harder and harder to make, buying and repositioning a six-property portfolio wasn’t the only headliner grabber for Vie, a national real estate investment firm headquartered in Miami. A big part of the story was the funding for the deal.

To buy the portfolio, Vie tapped into investors from Asia and the Middle East using Shariah-compliant funds. The firm has already secured $120 million from investors using this form of funding. Shariah-compliant funds are investment funds governed by the requirements of Shariah law and the principles of the Muslim religion.

While the funding helped Vie secure the portfolio, it wasn’t easy to put together. “Under Islamic law, you can’t lend money in an interest-bearing way,” Rosenblum says. “Now obviously every real estate deal that’s done uses leverage. To be Sharia compliant requires a significant amount of structuring so that you have entities formed that are not affiliated with the capital coming in. The borrowing still occurs, but the structure is one that is pretty complicated.”

Those aren’t the only requirements. These funds require the appointment of a Shariah board and prohibition from investing in companies that derive a majority of their income from the sale of alcohol, pork products and gambling. “We had an Islamic scholar review the structure to make sure that it was compliant,” Rosenblum says.

Despite the hurdles, Rosenblum thinks there will be demand for more Shariah-compliant funding. He believes that Vie is the first to use the funding in the student space, but others could soon follow.

“We had to do a year’s worth of work and in a very short period of time we were able to complete this deal,” Rosenblum says. “I think just the fact that we were able to complete it has made other people in our space start to look at their ability to complete Sharia-compliant transactions.”

If they can pull this off, it can open up large sources of funding.

“I know there’s a lot of capital in the region that can only invest if it is in a Sharia-compliant way and typically, they view the U S as a difficult place to do these kinds of transactions,” Rosenblum says. But there are still hurdles.

“If the process becomes more widely accepted, it needs more attorneys who know how to do it and more lenders who know how to do it,” Rosenblum says.