The new fund, IIB-Abu Dhabi Properties 1, will be 66.7 per cent owned by IIB, with the remaining 33.3pc owned by the UAE-based United Friends Company (UFC).
It will purchase two plots of land at Danet Abu Dhabi and will develop the land into a mixed-use, 21-storey twin-tower building.
One of the towers will comprise exclusively of offices, whilst the other will be a mix of office and residential units.
The building will also include shops and entertainment facilities, as well as car parking for 632 cars.
The office and residential units will be let initially and then sold.
The fund will exit from the investment within four years and is targeting an annual Internal Rate of Return (IRR) of 24pc.
"Both residential and office property markets have seen significant growth in Abu Dhabi and both markets are set to deliver future growth due to a number of factors, said IIB chairman Saeed Alfahim.
"Abu Dhabi's population growth, which is expected to grow by 6.9pc between 2006 and 2010, is driving a need for new housing units.
"Demand for state-of-the-art office units remains strong, and despite the upcoming supply, market projections indicate high demand and occupancy rates will continue in the coming years.
"Both office and residential markets have seen increases in property value as well as rent. Rental rates for the residential market in prime areas have increased by 22pc from 2005 to 2006.
"It is projected that residential rents are likely to rise at around 10pc to 12pc annually for the next three years. Equally, it is expected that commercial rents will increase by 10pc to 12pc annually for the next two years."
The government of Abu Dhabi has also introduced new policies aimed at driving further growth.
The Abu Dhabi Tourism Authority plans to double the number of tourists visiting Abu Dhabi to three million by 2015, which will encourage further expansion of real estate activity in the hotel industry and commercial sector in Abu Dhabi.
The government has also relaxed real estate ownership restrictions over the past few years, which has fuelled significant real estate activity.
Mega projects such as Al Raha Beach, Shams and Reem Island projects have already started, providing a much needed impetus for real estate activity in Abu Dhabi.
"We believe the Abu Dhabi real estate market offers the potential for superior returns for our investors," said IIB chief executive officer Aabed Al Zeera.
"With the recent strong trends in property valuations and rental growth in Abu Dhabi, and with these trends forecast to continue in both the office and residential markets, now is the right time to invest in a project such as Danet Abu Dhabi.
"Population growth, demand and government policy are creating an ideal environment for future growth.
"In addition, Danet Abu Dhabi will be one of region's best-planned communities and will meet the growing demand for sophisticated mixed-use projects. Its location close to downtown Abu Dhabi will also make it a very attractive investment."
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