The comeback king

When Kabir Mulchandani told the world that off-plan sales would be back in Dubai, nobody believed him. Two years later he is having the last laugh
From left to right: Nadia Zaal, Kabir Mulchandani, Nabil Akiki, Aloki Batra.
By Shane McGinley
Thu 06 Jun 2013 09:41 AM

Indian business tycoon Kabir Mulchandani is the ultimate Dubai comeback kid. Arrested in 2009 on accusations of real estate fraud, he was eventually cleared of all charges by a Dubai court in December 2010 and despite the Dubai property market being on its knees, he set up a new property venture, SKA1. He claimed he was going to come back bigger and better and strike some major multi-billion-dollar deals.

“Two years you asked me how I could come back after the damage to my reputation,” he says recalling the last time he stood in Arabian Business’ photography studio for his comeback cover issue in 2011.

“Here is the answer,” he says, pointing to the lavish plans for his new $1bn Viceroy Dubai Palm Jumeirah project, which will have 481 hotel rooms and suites, 221 apartments, ten top-notch restaurants and a prime location as plot number one on the iconic manmade island.

“It has been tough. It hasn’t been a walk in the park, but if you believe in what you are doing and do good things, people will see it. At the end of the day, I have always been completely transparent. I open the books and show people all the legal documents and people like that approach.”

From languishing in a Dubai jail to launching a new property company in the midst of the real estate downturn, Mulchandani is now one of a host of private developers back riding the latest Dubai property wave, which has seen more than a dozen megaprojects announced in the space of a couple of months. His new project arguably makes him the hottest ticket in town. But is the new property bubble about to go bust soon? Mulchandani certainly isn’t worried and says it’s a good thing Dubai is back thinking big and dreaming even bigger.

“When you think big you are bound to have a few projects that aren’t that great. When you expand and grow it is not every time you are going to have a mega winner. As long as no third-party funds are lost I don’t see any problem with that.

“I am glad the government thinks big, as opposed to others thinking small and taxing people to death. It is good to be part of a system where the government thinks big, it inspires us to think big. Any big thinker knows that if you think big you are going to make mistakes.

“Let’s say the government announces ten megaprojects and they do eight and they shelve two: as long as nobody has lost any money on them, that’s fine. Don’t risk other people’s money. That is not happening now, and that is the fundamental difference.”

Mulchandani is certainly thinking big and not afraid to take risks in order to achieve what he wants - something that was obvious in the early stages of his latest megaproject on the Palm.

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“I had been looking at that section of the trunk of the Palm since 2006 thinking this was the best place to plan. That plot I have been looking at since 2006 and it was always sold, then it came on the market for a day or two. It was first sold in 2001 when the Palm was launched so when it came back as part of some restructuring I didn’t wait.

“A lot of us in the market looked at it. The day I heard it was on the market it was a Thursday evening and I went into Nakheel. On Sunday morning, I wrote cheques for it without getting an SPA [sales and purchase agreement] or any form of contract, and in fifteen minutes I left.

“Even the Nakheel lawyer was telling me ‘you’re a very brave man’. He was sitting opposite me taking the cheques but it didn’t matter. When you see something, you have to go for it. It was one of those things I really wanted and when it comes to you, you don’t hang around.”

All this took place in August last year and Mulchandani certainly did move fast. Now he has lavish plans, has secured full financing and is about to announce a new equity partner in the near future. Construction has begun and the majority of the project has already been sold off-plan – something analysts were saying was impossible in Dubai a year ago.

“I didn’t have financing in place. But when you know you have such an amazing piece of land, that’s when you need to take a call and that’s what I saw and knew I was supposed to do.

“If I were to start doing spreadsheets and analysis over the next two months I would have had great analysis but I wouldn’t have a project,” he says.

The move certainly paid off as Mulchandani is rumoured to have had many rivals swirling around him offering him a huge profit to sell the highly coveted plot.

Instead he decided to push ahead and develop the project himself and the results has been a spectacular success. Sales begun earlier this year and all 221 of the signature Viceroy Residences were sold off-plan, with only three of the six villas still left to sell.

Three different hotel operators were in talks for the project, but Mulchandani decided to go with Viceroy Hotel and Resorts and, somewhat unusually in the industry in the region, the Abu Dhabi-backed hotelier is not just the operator of the hotel but is also a major investor in the project, buying a substantial number of the hotel rooms.

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Looking at the plans itself, the property is located on 200m of beachfront on the trunk of Palm Jumeirah and is the first plot when visitors enter the iconic Dubai landmark. The plot offers breathtaking views of the Arabian Gulf and Dubai Marina.

“Viceroy Dubai Palm Jumeirah will offer the best of all worlds. It is a luxury urban beach resort in the heart of Dubai. It is a family retreat as well as an exciting entertainment destination and its exceptional banqueting and business facilities make it ideal for corporate use. The property will be everything for everyone,” Mulchandani says.

“People want it all and with this project, we intend to deliver. With our previous projects we developed a reputation for unsurpassed quality and Viceroy will truly redefine the idea of an urban destination. It will combine a refined and luxurious environment, with all of the amenities that are vital to a property of this type,” adds Nadia Zaal, CEO of Zaya Dubai.

Zaal was one of the driving forces behind luxury UAE projects such as Al Barari and Nurai Island and is the developer of the new Viceroy property, which marks the Abu Dhabi hotelier’s first entry into the Dubai market. A husband and wife pairing, Zaal and Mulchandani certainly make a formidable and glamorous team.

The property will boast ten restaurants, along with a gourmet market and bakery. It will have over 800 square metres of wellness spa facilities including ten treatment rooms with indoor and outdoor treatments for women and men. The resort will have over 350 square metres of indoor fitness facilities with three separate outdoor swimming pools.

The project will be completed in stages with a central hotel, whose design echoes that of The Gate in Dubai International Financial Centre, while the residences will have a cascading triangular shape reminiscent of the sides of a Mayan or a Babylonian pyramid.

Nabil Akiki, a Paris-educated architect by profession who has worked in projects in Hungary, France, Lebanon, Jordan and Qatar, is the key project lead for the Viceroy Dubai Palm Jumeirah.

He says one of the key briefs for the design was to utilise the project’s two best assets: the beach and the sun. He wanted to have them accessible straight away and, for that reason, when guests pull up to the reception area, there is a glass cube lobby area that offers direct visual access through The Gate-style hotel structure to give immediate views across the Gulf.

“We wanted your sense of arrival to convey the sense of nature straight away, rather than the concrete jungles you sometimes have in Dubai,” says Zaal.

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“When you drive up in a car the first thing you see is the sunset. There are other hotels and it takes fifteen minutes to find the beach as there are walls blocking it,” adds Mulchandani.

Other design aspects include putting the business centre and the ballroom both in the top atrium of the hotel, a move which Mulchandani says was introduced out of personal experience. “The problem with most business centres is they are in the basement and have no views. This has been a problem for me everywhere I have travelled and really frustrated me.”

But the design aspects were not the main selling point for the project. Mulchandani’s business plan also includes offering the first hotel room for sale concept. While offered in western cities like London and New York, this is the first time investors can own deeds to a hotel room and get a monthly yield in return.

“We have sold this residential component, three villas, all the townhouses and now the hotel rooms. It is the first time purchasers and investors can buy hotel rooms [in Dubai],” says Mulchandani.

“The yield per square foot (sq ft) for hotel rooms is much higher than commercial, residential or retail. The numbers speak for themselves: A 500 sq ft hotel room in a particular project goes for AED1,800 a night, so about AED3.6 per sq ft per night.

“A 1,100 sq ft apartment in the same project goes for AED1,100 a night, as it is a longer term lease. So that is AED1 per sq ft. So that is a three and half times kicker on the yield. The finish between a hotel room and a hotel apartment is the same and the cost of building it is the same.

Mulchandani started selling the hotel rooms for AED1.65m, with the price currently rising to nearer AED1.8m, with buyers required to put down a 20 percent deposit, with the remainder on completion. The difference in this scenario is the fact all the rooms are put into a joint rental pool, meaning the rooms owned by the hotel owners and the operator aren’t sold first and the investors left until last, as has been the complaint in some similar set-ups abroad.

“This is the fairest pool as the units we have held and the units Viceroy owns and the investor units are all put in the same pool so there is no segregation,” says Aloki Batra, a financial analyst and Mulchandani’s business colleague for the last 25 years.

“What happens is most of the time is the hotel and operators’ units get sold first, but our units get sold in the same pool. Therefore, it is a revenue share, not a profit share. We are giving 40 percent [of revenue] straight off to the investors. This is paid out monthly, so [for example] as we’ve just finished May the investors on June 20 would get a statement and payment.”

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“People want title deed, it is not fractional ownership and this is not a timeshare. You own the real estate and you lease it back to us,” he explains.

Mulchandani says the project’s buyers have mainly been European expatriates currently living on the Palm who want to make the resort their main residence when it opens in late 2016. But the project has also received a lot of keen interest from elsewhere, especially in Asia.

“We had an amazing conference in Beijing with brokers there. They saw the concept and payment plan and one stood up and said it was the best payment plan he had ever seen. We have a lot of Chinese buyers already.”

With China State Construction appointed as the main contractors there has been speculation and rumours that a large Chinese investor is to come onboard soon, but Mulchandani is coy about the matter.

“We will be making an announcement of some other partners shortly. We have a very big announcement on another very large equity investment,” he says. Watch this space, it seems.

He is obviously passionate about the project but Mulchandani says this one is different from others in the past as its delivery is already guaranteed and not dependent on buyers’ investment to fund staged construction, as was the model back in the previous boom years in 2008.

“We have spent a lot of time on the business plan to get the most out of it for investors. We don’t see a dime until this is delivered. The 20 percent people are paying is even less than the cost of the land. The money we are collecting from purchasers is even less than what the land is worth.

“The land has been fully secured and also the construction costs on the entire project. The entire project has been funded. The day we started sales, the equity and financing we had already in place. All the costs, construction and development are all three already [covered].”

“The Dubai story is intact and Dubai is the greatest platform in the world right now,” Mulchandani says.

“You go to Europe and you are stuck in so much red tape and when you get out of that everything you make goes back in tax. You go to the US today and you have a struggling economy. You come here it is clean, clear and straightforward and that is what everyone is looking for.”

As we finish the interview, it is obvious Mulchandani has turned his fortunes around since we met him two years ago, when he had everything to prove and a reputation to rebuild. The success of the Viceroy Dubai Palm Jumeirah is now his answer to all the critics who doubted him. “We love this project. We want to deliver something that is beyond expectations. This is a legacy project for us.”

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