By Parag Deulgaonkar
Kabir Mulchandani has successfully completed his comeback in the Dubai property industry, handing over more than 200 stunning apartments and preparing for the launch of the five-star Viceroy Dubai Palm Jumeirah resort. Six years after he beat fraud allegations, the Indian developer has proven why you should never give up
Kabir Mulchandani is a hands-on developer.
While he may not be laying bricks, the SKAI Holdings CEO forwent his air-conditioned office in Downtown Dubai for an often stinking hot construction site on the Palm Jumeirah for the two years that it took for his flagship $1.2 billion hotel to be built.
It was only in November that he finally walked offsite when the Viceroy Dubai Palm Jumeirah was given regulatory approval.
Residents are now moving into the property’s 222 apartments and the plush 5-star hotel is preparing for a March 31 opening.
As we meet the Indian-born businessman on site days after he received the indelible ‘completion’ stamp, Mulchandani walks us through to his bespoke four-bed show apartment overlooking Dubai’s impressive skyline.
“We took the least down payment that has ever been taken for development of this size,” he declares. “We delivered ahead of schedule; we delivered a product that beats market expectations, and that should speak more than my words.”
You can forgive him for being so proud. Almost a decade ago, Mulchandani was holed up in a Dubai jail cell on fraud charges that were ultimately dismissed. With $6.5bn worth of real estate projects on his books in 2008, he became a victim of the global financial crisis that brought the Dubai property market to its knees.
After a horrendous 140 days in jail and his subsequent exoneration, Mulchandani was firm in his decision to stay in Dubai and rebuild his dream career.
The Viceroy Dubai Palm Jumeirah is the outcome of an instinct-driven decision to do what other developers were not: build a resort on the famous man-made island’s trunk.
While the world’s biggest developers have cherry picked the Palm’s Crescent for their mega hospitality projects, Mulchandani believes his choice of plot – a lone resort among residential buildings and the bustling Golden Mile retail and residential strip – today offers him a distinct business advantage.
“The traffic on the Palm is going to get heavier and heavier with the [Nakheel] mall and other properties opening. They always say ‘location, location and location’ and it’s true - we are three minutes in and four minutes out from Sheikh Zayed Road,” Mulchandani says.
“So we are on an island, but we might as well be in a city. We are a resort, but we have the urban feel. And our residential product has done so well because people don’t feel they are stuck on the Crescent.”
With thousands of residential apartments at near-full occupancy along the trunk of the Palm, the 5.5 kilometre stretch leading to the Crescent can take more than 25 minutes to travel during peak hours. On New Year’s Eve, queues to the Crescent are hours long.
“So any of our competitive properties on the Crescent might as well be in Jebel Ali right now and if you wanted to go to Jebel Ali they might as well be in Deira. So we have a huge competitive advantage by being at the trunk of the Palm,” Mulchandani says, referring to the city’s southern and northern ends, respectively.
The father-of-three does not believe in crunching numbers but rather relies on instinct when making a business decision.
“My first challenge when I purchased the land [in 2012] was whether there would be demand [for residential properties]. Though intuitively I felt it, convincing others was very challenging. Convincing anybody to participate in any form was a challenge as people didn’t have the confidence,” he says.
The difficulty in selling units to finance the development was naturally overcome as the property market recovered in 2012-13 and Dubai reclaimed its lost mantle as one of the world’s most sought-after property investment destinations. Mulchandani says the residential stock sold in just 10 days.
Mulchandani’s determination to build a mixed-use development from the day he bought the plot was supported by market analysis.
“A lot of research showed amenities played a crucial role and so if you wanted to sell [residential real estate], amenities were important. Making an amenity-rich building without having a hotel attached to it would make it impossible for residents to afford in the long run,” he says.
SKAI is subsidising residences’ use of amenities at the Viceroy Dubai Palm Jumeirah, charging $.055 per square feet for the first five years and $0.82 per square feet for the next five years, with the fees included in an annual maintenance charge of $6.81 per square feet.
Residents have access to the 477-room resort’s 10 signature restaurants, three swimming pools, an international spa, a gym, a beach club, a hair salon and a patisserie.
“You simply can’t have all those amenities attached to a residential building,” Mulchandani says.
“We have given a clear 10-year commitment [to our residents], thereafter the cost will be inflation adjusted. Hence, it is effectively a lifetime commitment to our buyers that we are here for you.”
In September 2015, SKAI raised a $300m syndicated finance facility to pay for the Palm Jumeirah project as well as the company’s second venture, the 60-storey Viceroy Dubai Jumeirah Village. The latter is about one-third complete.
The facility was backed by seven local and major Chinese institutions, including Abu Dhabi Islamic Bank, Invest Bank, Arab African International Bank, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Minsheng Banking Corp.
Mulchandani claims SKAI will repay the entire loan 18 months before it matures in September 2018 – a move seldom heard of in Dubai’s real estate market. Having already paid 30 percent of the loan, the remaining amount will come from payments expected to be received at the handover of 222 residential units when buyers are obliged to pay the remaining 80 percent of the unit value.
“Even the banks had not anticipated the completion [of our project] on time and so they gave us a facility that allowed for the normal Dubai delay. Since we are done on time, and as money comes in, we are going to repay the banks,” Mulchandani says.
Viceroy Dubai Palm Jumeriah opens at a time when industry reports suggest the emirate’s hotel industry is facing tough time due to the knock-on impact of lower crude prices and a flat global economy.
Global consultancy JLL said room rates across Dubai’s mid-market, luxury segment and holiday homes fell by 10.5 percent in the first 10 months of 2016, compared with the same period in 2015. STR, a hospitality analytics company, reported average daily rates fell by 9.8 percent to $208.34, while revenue per available room (RevPAR) declined by 11.6 percent to $162.44 in October.
However, Mulchandani is least unperturbed by such statistics, rooting for Dubai as a “great place to do business.”
In fact, SKAI expects 70 percent occupancy in the hotel’s first year of operation, with occupancy levels stabilising at 80 percent thereafter. That is in line with Dubai’s current occupancy levels.
“When I moved to Dubai [12 years ago], we had 40,000 to 50,000 hotel rooms, and we were building hotels. Everybody then said ‘you know supply is going to outpace demand’.
"We are here 12 years later [and] we have 100,000 hotel rooms with 80 percent occupancy. Our rates are better than a decade ago, but still we are asking the same question,” he quips.
Even though RevPARs have adjusted by 10-15 percent, he says, Dubai still ranks high in the list of global cities with the highest room revenues per night. The higher margin to developers and hotel operators is attractive.
Last year’s softening in Dubai’s luxury property market has not impacted the resale value of residential units in his project, with four-bed apartments selling for between $4.09m and $4.36m, compared to the launch prices of between $3.41m and $3.54m.
“People are still significantly making money despite the market going through its relatively tumultuous period. Our product has more than exceeded the expectations of our buyers,” he says.
The real masterstroke was Mulchandani’s ability to convince China State Construction Engineering Corporation, one of the largest construction firms in the world, to buy an equity stake in the project.
“As an entrepreneur, there is an underlying philosophy that I always follow, which is to align [business] interests. If you want to be successful, you need everybody on the same side, with the same goal, or helping each other get to the same goal,” he says.
A relationship between a developer and a contractor can be fractious, Mulchandani says, but when the contractor has an equity stake in the project there are likely to be less disagreements.
“Having them [China State Construction] as an equity holder [meant] we were in alignment. So whenever the usual conflicts were there, I would always be able to say ‘hang on guys, we are partners here… we have the same end goal’,” Mulchandani says.
“Psychologically, it gets people to take a step back and say ‘yes we have the same envelope’ and not get into the details of that petty argument, which leads to another argument and another, then conflicts and problems. This is a philosophy we follow.”
In 2013, SKAI projected returns of 12-14 percent per annum for the Palm project but Mulchandani concedes those profits are unlikely to be realised until 2018 or 2019 when the hotel operations “have stabilised”.
“I think when people guarantee a return, their product isn’t selling. If you are giving a car free with real estate… there is something wrong with your pricing. I think our real estate speaks for itself as real estate should,” he says, referring without name to a Damac sales campaign.
While Mulchandani has moved on from his prison experience - he says it no longer haunts him – convincing China State Construction Company and banks to partner with him was not a simple task.
“It does not affect me at all. Even physiologically, it doesn’t bother me. But the impact obviously isn’t going to erase,” he says.
“I had to send [the banks and China State Construction Company] huge files on the fact that the case was finished, on the fact that I was innocent, on the fact that all those accusers told significant lies - not just small ones, but many on top of each other. So it was one of those things where I had to keep convincing banks.
“But, now with this project being delivered, I think this speaks volumes about who was right and who was wrong.”
Back in the 1990s, Mulchandani, then in his mid-20s, was hailed as the “Baron” of India’s consumer electronics business. He singlehandedly took on the Goliaths of the CTV market, launching marketing campaigns such as “buy one, get one free” or “cashback” – never heard of India.
In Dubai and with his Palm project, he is keeping away from marketing [Viceroy being responsible for the marketing part], but he does confess real estate is more lucrative than consumer electronics, at least in the emirate.
“When I held inventory in the electronics business, it was depreciating every day, and when I hold inventory in the real estate business, it appreciates every day,” he concedes.
As we leave the impressive show apartment – the Dubai skyline shining as the sun sets down on the Arabian Gulf - Mulchandani reveals he will be hosting a glitzy launch party in April to coincide with Arabian Travel Market.
The Palm will then indeed shine in Viceroy’s glory.