By Claire Ferris-Lay
The Palm Jumeirah's biggest investor talks about the ambitious developments for the man-made island.
The Palm Jumeirah's biggest investor talks about the ambitious developments for the man-made island.
It was a bold move to sign up serious amounts of money for just water," Patrick Smith, vice president asset management for IFA Hotels & Resorts, tells Arabian Business.
Like Pine Cliffs, the Kingdom of Sheba resort will also be home to a timeshare development, the first of its kind in the UAE.
It was a bold move - it was also a move which is currently costing the company US$2bn in construction alone - but it was also a decision which places the hotel and resort developer as the biggest investor in The Palm Jumeirah, with three stand-alone hotels and three separate residences.
"Dubai had just started booming and Talal Jassim Al-Bahar (chairman and managing director) saw the opportunity to align the company alongside the likes of Nakheel, so he signed for the plots when they were literally water," continues Smith.
No longer just water or plans, IFA Hotels & Resorts is the owner of approximately 50% of the land on the trunk of The Palm and three prime plots on The Crescent, next to the famed Atlantis Hotel. "There is a real mixture [of investments in The Palm].
We've taken equity stakes in the hotels and we've sold property. Sales have been strong; we've effectively sold out of trunk developments, and are still selling in the Kingdom of Sheba." IFA has already sold more than 2000 residential units and just last week started to hand over keys to owners of Dubai's first freehold residential building to be managed by an international hotel operator.
Its investments on the trunk of The Palm alone exceed US$2.5bn and include both hotel and residential developments. The Golden Mile is a joint project with Nakheel and is the company's largest development consisting of ten 11-storey apartments housing 860 residential units.
Other trunk projects include The Fairmont Palm Residence and The Fairmont Hotel & Resort, both due for completion this year and wholly owned by the company. As the name suggests, all three developments will be run by international hotel operator the Fairmont; IFA's choice for many of its investments across the world including Fairmont Zimbali in South Africa.
Completing its portfolio of investments on The Palm is the Kingdom of Sheba, a "mixed-use hotel, residence, timeshare and fractional ownership" covering three plots of land next to the Atlantis Hotel.
The Kingdom of Sheba, a family friendly project, is based on IFA's first successful business model in Pine Cliffs, Portugal.
Like Pine Cliffs, the Kingdom of Sheba resort will also be home to a timeshare development, the first branded one of its kind in the UAE.
The timeshare model is about being able to come into a resort where you can stay for one night in the hotel, or buy and stay in the timeshare as an investment, stay a week or a month in the timeshare, buy time into the fractional ownership or live there," explains Smith.
IFA is currently working on getting the correct legislation into place with both the local government and its partners, RCL, an affiliation company which allows timeshare destinations to be swapped between owners.
Smith anticipates it will be a successful business model and one which will be replicated by other operators in the region as it was when Pine Cliffs first opened.
Timeshares work when you have good access, great seasonality, plenty to do. Coupled with the fact that there is nothing like it here at the moment, we're very excited about it."
Due to its versatility Smith expects to appeal to a broad range of holiday-goers and investors. "Younger families tend to buy into the timeshare, if buyers are a little more wealthy they can buy a fractional ownership or an apartment. It's a product for the generations," he continues.
The company currently has another project underway in Dubai, Laguna Tower Dubai, which will be operated by Mövenpick Hotel & Residence, but with so much investment in one area, IFA has been keen to diversify its investments in other parts of the world.
We are Dubai-based and that has been our focus. With US$2bn worth of construction just in Dubai - which in our overall portfolio is a lot - there has been a concerted effort to diversify into Africa and the Indian subcontinent," says Smith.
Residential properties still remain the company's biggest focus with 43% of the company dedicated to it but investments aboard include hotel, vacation clubs, office and retail space as well as equity investments.
We are effectively a real estate company," explains Smith. "Residential is where our main focus lies but that can change depending on where the development cycle is on the project. We play it [assets] off against each other.
In markets such as this [the Middle East] you can sell the residential upfront and you utilise it, whereas a hotel doesn't start making money until it's up and running and is more of a long-term investment. By mixing and matching those different asset classes you can diversify and create the most value."
It's a strategy that seems to work well for the company. Diversifying into other markets has included investment into Thai development company, Raimon Land, which is listed on the Thai Stock Exchange.
IFA currently has nine developments under construction with the company including projects in Bangkok and Pattaya.
It [the Dubai business] is growing and it's an ongoing process, and who knows we may look at more things here locally but the focus has been to diversify into other areas," Smith emphasises.
In entering into new markets, the past few years have seen massive expansion for the company. From its first venture, a joint development with United Investments Portugal to oversee the development of 173 acres of undeveloped beachfront land for Pine Cliffs, the company has been on a steep upward growth curve.
In 2006 the company posted profits of US$83.5m, an increase of 236% compared to the previous year. 2006 was also the year the company listed on the Kuwait Stock Exchange and its South African subsidiary, IFA Hotels & Resorts Limited (IFA SA), listed on the Johannesburg Stock Exchange.
Smith doesn't rule out any listing on the DIFX or any other stock exchange for that matter. His focus, he says, is the company's continued growth and along with that keeping its current shareholders happy.
From a management perspective the focus is to make sure we execute and bring new projects into the system. Of course [we will continue to grow].
These are exciting times for IFA. We're a young company and we're starting to push things forward and there is little bureaucracy around. Equally we have enough senior people here to be able to offer that guidance as we go forward," says an enthusiastic Smith.
Choosing the correct hotel and resort operator is vital to the company's growth and success and while typically IFA tends to stick to its tried and tested operators such as the Fairmont, Mövenpick and Starwood Hotels & Resorts, it doesn't rule out new operators as it moves into new areas.
Typically we expand with our joint venture partners. We find a strong regional player and we come in with the international backing, either through our existing client base or other hotel partners and we can help unlock value."
Like Dubai and its Palm investments, emerging markets are important for IFA. The resort and hotel investor has just announced the development of a 480-acre resort, hotel and residence on the island of St Anne in the Seychelles, an area which has recently opened itself up for foreign investment and most notably foreign freehold investment.
Smith remains tight-lipped about other markets the company is looking into, promising future announcements soon, but does hint at expansion into the likes of India and China. "We have been looking at India very closely. It's a natural expansion to go into the likes of India and even to the China's of the world," he says without elaborating.
Such markets, however, come with obstacles, Smith notes. "We have been typically looking at emerging markets but they have factors which are beyond our control, and it can become frustrating from a team point of view when you can't hit deadlines.
Overall, though, the returns that we are offering back to our shareholders and our customers who are equally our shareholders are good. Our goal is to make sure they make a lot of money and they buy more. It becomes a self-perpetuating thing.
Most of the IFA's investments are in the luxury five-star resort sectors, however, its most recent acquisition demonstrates its diverse approach to the industry.
IFA is the majority stake owner of Yotel, a futuristic-style cabin hotel concept, the brainchild of Simon Woodroffe, creator of the Yo! Sushi brand. Yotel features 10 sq m ‘cabins' and has already proved to be popular in its current airport locations: London Heathrow, London Gatwick and Schiphol Airport, Amsterdam.
Rooms can be rented out on a four-hour basis, followed by an hourly rate or by the night, making it ideal for business travellers, says Smith.
"The design is very much about utilising expensive real estate correctly, such as city centre locations. With this we are able to get into places where normal hotel operators cannot go. With windows facing into the corridor, we can go into places that typically would be back of house and can turn them into income generating space," explains Smith.
"Business travellers typically have meetings all day, go out in the evening and then just want a decent place to stay with good quality linen, a plasma TV screen and somewhere to plug in their laptop.
They don't need huge seating areas when they are not there to use them. It's a global venture, we are looking at sites in the UAE and there are some aggressive plans in play.
Will we see one in Dubai airport any time soon? "I would love to have one in Dubai and it's a segment within the hotel industry that is starting to grow.
If the budget hotel is set to grow in Dubai or if the luxury hotel and residential market continues to flourish, there is no doubt that if it does, IFA will be there first.