By Guy Wilkinson
The plans were made, the finance organised, and the project announced, but for some reason, two years later, the hotel never materialises. Guy Wilkinson discusses possible explanations.
This is the season for celebrating all those fantastic future hotel projects that are coming up in the Gulf. What with the Arabian Hotel Investment Conference, followed immediately by the Arabian Travel Market and then a few weeks later, the Hotel Show, Dubai becomes, for a month or so in the calendar, not just the epicentre, but also the meeting point for the region's industry and the spot-lit stage for its development announcements. We pundits wait with baited breath for the next superlative scheme, bigger, better or simply more different than any of the others. Many developers and chains deliberately hold off revealing their projects until one of these events, at which they then do so with a fanfare of trumpets and a flourish of red ribbon cutting.
But did anyone spare a thought to the ones that got away? The projects that from one year to the next, are ambushed, ship-wrecked, abandoned, quietly postponed or simply allowed to fade from our memories?
As a development consultant, I have been involved with feasibility studies for many a project that has failed to see the light of day. I have worked with whole teams of expert consultants, from urban planners and architects to engineers and surveyors, who have become so familiar with our shared vision for a project that we could almost touch the final hotel, and still on occasions expect to see it open for business, by the beach or next to the bridge.
In many cases, these projects were shown to be viable, enjoyed full funding and would by now have been cashing in handsomely on the current buoyant market conditions.
But there are many other reasons why projects go off the rails. I recall numerous real-life instances of projects that fizzled out. One was a mega resort project in Fujairah that was before its time, in which the developer hoped to sell freehold residential plots to ex-pats, to boost his cash flow, but was denied permission.
Another was for a similar resort, about eight years ago I think, only in the centre of Dubai, right on the Creek. There were two full international tenders, in which teams of highly qualified contractors and consultants assembled most elaborate bids for the project, complete with artist's impressions, financial projections, the works. And yet finally the site proved to be of too much strategic interest, and remains unexploited to this day.
In another case, the promoter of a project sadly passed away and his remaining family had no interest in the project. In another, the promoter fell out of favour with his father, the head of the family, and that was that. There was also a beautiful project in Tehran that got shelved because there was a change of regime and the new hotel depended on the support of certain key government figures who got kicked out.
Then there was the developer who assumed he could raise money on land gifted by the ruler and found this not to be the case. Indeed, a very common cause for delay or cancellation of hotel projects has historically been that land owners have failed to raise sufficient equity or collateral to satisfy the debt providers, although the investment climate is more favourable nowadays. Yet surges in steel and cement prices, among other construction materials, can also render projects non-viable if they are delayed unnecessarily.
As a keen observer of the announcements of hotel chains, I also note that future projects that may one year be the subject of considerable publicity are often hushed up the next. The whole process of the ‘marriage' between owners and operators is typically long and drawn out, and can likewise result in marital differences or even divorce, before a new hotel opens. The first step to a happy union is the signing of a memorandum of understanding (MoU) or heads of agreement, a short, non-binding legal document that contains the main terms and conditions that the two parties will eventually agree to when they sign the full management agreement. The MoU typically requires both parties to agree not to speak to anyone else during a period of exclusivity of say, six months. But between the MoU and the main contract, difficulties often arise and sometimes the contract never gets signed. The owner finds out that the operator wants him to pay for everything, in particular a whole raft of pre-opening expenses, which the chain omitted to mention in their first, friendly discussions. Or he begins to think that his hotel is better than a simple core brand X hotel, and wants a Royal X hotel instead. Or he finds out that when he was convinced to open an X hotel, the operator is a global chain and actually has other, more sexy designer brands, called Y and Z. Or he takes exception when the chain wants to open a Z hotel next to his X.
No, indeed, the operator's lot is not a happy one, and sometimes an owner's life can also be filled with worries. Think about these sad realities when you hear that some of the hundreds of amazing new hotels that are postponed or cancelled in years to come. Then you will realise that it is not a matter of the Gulf's economic miracle proving to have been a mirage: it's just life getting in the way of dreams.