Robert Lee is used to talking up ambitious mega projects. The Canadian real estate executive has 25 years of experience in the business behind him and since arriving in the Gulf in early 2000 he has held several senior executive positions and was instrumental in bringing iconic projects, such as Dubai Marina and Palm Jumeirah, to fruition.
We first met Lee during the epic days of the boom at Cityscape Dubai 2008, when he was working for Nakheel and launching its big showcase for the event: the 1km tall Nakheel Harbour and Tower. Sadly, Nakheel’s big 2008 gamble never paid off as the Dubai real estate market imploded and the master developer entered one of the darkest periods in its recent history.
In 2012, while working for Emaar and with Dubai on the cusp of a recovery, Lee decided to take on another challenge and accepted the position of CEO of Bahrain Bay. Within the previous 12 months protests against the government had seen the cancellation of the 2011 Formula 1 Gulf Air Bahrain Grand Prix and the only headlines coming out of the Gulf state seemed to be Arab Spring unrest. Many people were surely asking the question: Why Bahrain?
“Why not?” is Lee’s standard response. “I have never been exposed to that in the last two years. We have all seen how certain things can be seen from certain prisms and how [the media] seek out to report a certain story. I’m not saying it doesn’t exist but it is not the 90 percent of life,” he adds.
“I spend a lot of time travelling around and you start on a one-to-one level,” he says of how he goes about selling Bahrain on the international stage. “The real estate industry is very small. You start there because most savvy investors will not rely on what is written in The Guardian but what it says in Jones Lang LaSalle reports or what Cluttons says about the market as then you can get a real feel for the market.”
Things certainly seem to be moving in the right direction and real estate firm CBRE describes the Bahrain real estate sector as showing the “first small signs of recovery”.
At a macro level, the country’s oil output has revived and gross domestic product (GDP) grew by 2.5 percent in the first quarter of 2013, compared to a contraction of 0.2 percent in the last quarter of 2012.
While there had been previous reports that companies were leaving for safer havens such as Dubai and projects were stalling, employment in Bahrain has also risen significantly over the last year, largely on the back of real estate and infrastructure pushing forward.
The country’s total workforce grew to around 650,000 out of a total population estimated at around 1.3 million. The number of permits issued in the first quarter of the year grew by 5.5 percent to 32,200, with 30 percent of these being in the construction sector.
With the government set to spend $8bn on housing projects up to 2017 and its housing arm, Eskan Bank, appointing specialists earlier this year to identify the most efficient fundraising methodology to support its plans to develop 2,500 housing units, the data and reports certainly speak for themselves.
Sitting in the midst of the country’s plans is the $2.5bn Bahrain Bay project. Launched in 2006, the multi-phase project faced the same harsh realities all master developments did in 2008 but the costly land reclamation is complete, the infrastructure is in place, one of its main anchor buildings is complete, the second is in the final stages and things appear to be pushing forward with a new sense of urgency.
“In terms of actual construction and completion I think we are probably at about 25 percent,” he estimates. “If you come talk to me this time next year that number will probably have gone to about 40 to 45 percent... at the rate [third-party developers] are talking and people are coming to us with the genuine seriousness and capital strength to go ahead with the projects.”
The 43-hectare project sits on reclaimed land just north of Manama’s Diplomatic Area, the current Central Business District (CBD). The project’s vision is to create an extension of the CBD, creating a 24-hour downtown where people will live, work, and be entertained in an open atmosphere.
As part of the Bahrain 2030 Plan, Bahrain Bay will become the central heart of the new Manama, connecting people from the airport directly. This new connection will eventually tie into the King Fahd Causeway, which carries 50,000 passengers to and from Saudi Arabia daily.
Around 65 percent of the project land has been sold at this point and while it had been rumoured the remaining 35 percent was to be sold to a mix of local, Qatari and Asian investors, this never transpired and while things are starting to recover, Lee is still cautiously optimistic.
“What is happening is from the international side it is too early to expect a return on international investment as capital is fluid around the world and opportunities seem to be easier in other parts of the world right now. Dubai is the centre of the region right now but, as it rises, people’s attention will veer towards the peripheral cities.”
The main issue facing Bahrain Bay, says Mike Williams, senior director of research and consultancy at CBRE in Bahrain, “is that it is a brand new district and as such doesn’t really have any major anchors or attractions at present. However, a number of major buildings are under way and it is hoped that these will provide the basis for future growth.”
The big difference between Bahrain Bay and some of the master developers in Dubai is the format of how deals were positioned. In Dubai, land was often acquired and the initial deposits from investors were used to finance the start of the project, while bank loans and investors’ staged payments brought it to completion.
The credit crunch, a lockdown in bank lending and investors defaulting on payments rang the death knell for many large Dubai projects. In Bahrain, Lee says this was not the case; the regulations were a lot tougher and while this meant it did not accelerate with the same speed Dubai did, it also meant developers were able to sleep a lot easier.
“Because we are a master developer we had sufficient cash to do our stuff, so our infrastructure never stopped and continued on. Our power, water, sewerage and cooling are all operational and we have zero debt. When you don’t have a bank chasing you every day you can sleep pretty well.”
On top of zero debt, Lee says the company also has sufficient money in the bank to push ahead with its timeframe and get nearly half the masterplan out of the ground by the end of next year. That’s not to say he probably didn’t have some sleepless nights as the project has faced some testing times, many of which were out of its own control.
One of the main hotels, the Four Seasons, started construction in 2011 and is likely to open at some point next year. With its dramatic H-shaped design, it will comprise a 201-metre waterfront community with 43 storeys, 260 guest rooms and a penthouse level “Sky Pod” restaurant which will offer extensive views of the Arabian Gulf.
While the Four Seasons moves towards completion, another main investor, Arcapita Bank, completed its headquarters in 2010 and is fully operational. However, the investment bank ran into trouble when the full impact of the Eurozone crisis saw it unable to refinance a $1.1bn financing facility due at the end of March 2012 and it was forced to file for bankruptcy protection in the United States.
The Islamic investment firm eventually emerged from Chapter 11 proceedings on 17 September and under the court-approved restructuring plan it will be split into two entities: one that will hold the existing company assets as they are sold down to pay creditors, with a second in charge of the process’ management.
However, Lee is quick to point that there are no plans for Arcapita to sell its interest in Bahrain Bay: “No, luckily Bahrain Bay is one of the prized projects and because it is a real estate developed project it takes a longer time [to mature]. The reason they went through restructuring is because they don’t want to go through the liquidation process. So you want to wait until the value is enhanced.”
The third major investor is a whole different ball game and is still likely to be causing Lee some trepidation. CapitaLand, south-east Asia’s largest property developer, announced plans in 2006 to build Raffles City Bahrain, one of several Raffles City-branded developments it was working on across Asia.
Designed by internationally acclaimed architect Rafael Vinoly, the 43,000 sq m site was originally due to be completed in 2010, according to the 2006 plans still listed on CapitaLand’s website.
By mid 2009 Capitaland had issued a statement that its Raffles City Bahrain Fund was “evaluating various options for the project” and “at the opportune time, CapitaLand will initiate the main construction contract tender process.”
That opportune time has not yet materialised and little progress has been made on the project. Earlier this year, with its fourth-quarter profit down 45 percent, a Bloomberg report claimed the Singapore-based firm was restructuring and “reorganising into four main units to help focus on its key markets and has said it may exit some projects in the UK, India and the Middle East.”
On this third pillar to the master plans, Lee is more ambiguous: “So far we have done two out of the three. The third one... We don’t know what will happen. They will either come up with a reconstitution of either the partners or the project scheme [or] maybe a different milestone timing... But we believe it is going to go ahead as it is a prime piece of real estate. We are pretty confident about that and in the next quarter there is going to be the next announcement to come out.”
There is some optimism to be seen in the fact CapitaLand announced in September it planned to issue convertible bonds worth up to $555.8m and it plans to use the proceeds mainly to refinance its debts, including the repurchase of its outstanding convertible bonds, and for working capital.
However, one of the development’s standout projects is the Wyndham hotel project. While the word ‘iconic’ is overused in this part of the world, the tower’s twisted design is truly one of the most attractive and eye-catching buildings I have seen in the Middle East and a lot more iconic looking than some of the more generic buildings in Dubai.
Currently around nine months away from being fitted out, the hotel will be the first hotel in Bahrain for the Wyndham Hotel Group, the world’s largest hotel company. The five-star property will cover 14 of the tower’s 50 storeys and will contain more than 260 guest rooms, over 500 sq m of meeting space and a 900 sq m ballroom on the building’s top floor, which gives some of the best views of the city.
An example of the differences between Bahrain and Dubai comes in the form of the Infinity Tower in Dubai Marina. Recently renamed the Cayan Tower, it first grabbed headlines as the most twisted tower in the world, but soon ran into trouble when developers realised incorporating such a design quirk was more expensive and time consuming than first anticipated.
“Most twisting towers are that way,” says Lee, but not the Bahrain Bay one. “The smart thing is the design itself: the structure is straight but the plate just changes so even the glazing is unified. Structurally it is like any other building. That is where a truly great architect comes in. I call them developer architects. It is visually functional and easily, cheap and quick to build and technically beautiful to look at.”
However, Bahrain is following Dubai in some ways, as Lee reveals that he is part of the country’s process to set up its own real estate regulator, similar to RERA in Dubai.
“I am actually involved with the local land department for the establishment of something like RERA. The process itself is confidential so I can’t talk about it but the efforts and initiatives that are coming through are very similar to what you will see around the world and investor protection and that there is a recourse if there is a default.”
Consultancy firm KPMG has been commissioned to undertake a root-and-branch review of the organisation of the real estate sector in Bahrain and has carried out interviews with the country’s main players in the industry and will soon make its recommendations on the best way to manage the country’s real estate sector.
While Bahrain has faced some tough issues and Bahrain Bay has overcome some of its own challenges, the country does seem to be looking to make sure it avoids the problems that befell the market during the first property boom and avoid potential pitfalls now that the market is starting to make the first tentative steps towards recovery.
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