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Fri 29 Aug 2008 04:00 AM

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Profit sharing plan for IFA

IFA Hotels and Resorts vice president vacation ownership Piaras Moriarty outlines the company's strategy and explains its policy of delivering projects with a range of asset classes for sale.

IFA Hotels and Resorts vice president vacation ownership Piaras Moriarty outlines the company's strategy and explains its policy of delivering projects with a range of asset classes for sale.

What stage are the developments on The Palm Jumeirah?

We started on the Palm four years ago now, when the Palm was still a concept and a dream - possibly an advanced concept.

Right now we have a total of 4000 residential and hotel keys on the Palm, divided into a few projects. There is the Fairmont Palm Hotel and Resort, which is just under 1000 keys between the hotel and residential units. That's just topping out and will be opening towards the back end of 2009.

It’s difficult in a market like dubai where everybody is speculating to know if your product is really what people want.

The sales are done; we have sold out the residential units with a few keys here and there that we are holding back. It's been an incredible success, and a really good project.

The Palm Golden Mile, which is also a Fairmont-managed project, is 890 units comprising residential townhouses, along with 220 retail units all along the 10 buildings, and also including more than 200,000ft2 of office space.

That project is a joint venture with Nakheel, where we have been retained for the hospitality management component of that with our partners Fairmont, and the sales and marketing and asset management. We will start delivering that project in the first quarter next year [2009].

Obviously there are a lot of units being delivered all at the same time, and a lot of challenges, but we have done it before and we will do it again. It's great to see a project reach that end of the cycle where all the work you have put in is starting to pan out to that moment where you can say ‘here are your keys'.

That's what is different about IFA and our organisation, in that we stay with the project. A lot of developers - and there is nothing wrong with this - will build the units, hand over the keys and then say ‘thank you very much'.

We on the other hand like to stay with the project, so we will retain ownership of typically a substantial part of the commercial units and then manage the property going forward, ultimately guaranteeing the success of the project.

A lot of clients purchase property with us because of that fact, because there is a management company in place that is going to stay with the project, which guarantees the revenue, especially if it is a buy to use and let proposition.

Another project is the Palm residences, which are two buildings on the right hand side of the trunk. We purchased these buildings from Nakheel, and they will also be managed by Fairmont. Those buildings are completed, handed over and operating. The beach club and the retail units are now being occupied, and again we are getting very happy feedback from our customers and our purchasers.

We are getting higher rental yields than anyone else on the Palm simply because it's managed, and simply because hospitality operators know what they are doing - they know how to take care of a guest and they know how to fill a unit, and that obviously is very valuable to the end user whether he is a renter, an investor or lives there permanently.

On the crescent we have the Kingdom of Sheba. That really epitomises the IFA business model: it's a true mixed-use resort in every sense. There are 300 residential units, which are villas, which are now selling around AED 4 million to 5 million each (US $1.08 million to $1.36 million).

The apartments are reaching just over AED 5000 ($1361) per square foot, and that price is going up. People see it as a very valuable project - that is just about all sold out, it hit 70% after just three months from launching. We then started letting the inventory out at a slower pace to generate maximum yield.

We launched the fractional component last year, which is also doing extremely well. We have hit 25% of sell-out on that, which is just on target, and we are achieving a fantastic yield on that as well. There has been a great response from the market. Obviously they are a bit nervous about that one because it is a new product for the Middle East, but we knew that ultimately it would be a success. It has not just been a success, we have doubled the price since we launched to today.

That product is true end-user product, there are no speculative investors there, so there is a testament to the fact that you are not just playing with a real estate boom, the product is actually desired and wanted by the consumer, which is ultimately our goal.

It is difficult in a market like Dubai where everybody is speculating to know if your product is really what people want, or is it simply a play on the market? In order to have a sustainable business you need to have the end-user in mind who is actually going to be in your new product. The vacation ownership component will be launched just after the summer, with a slow start to be ramped up to full speed around Christmas time.

We are developing a portfolio of products within the same development which really meets a lot of different markets.

What impact have you seen from the new timeshare regulations being introduced in Dubai?

To this point I don't think the law has been passed, but the draft regulations have been circulated, and I understand from my colleagues that it has been widely accepted as a good law and a good regulation.

Nobody plans for poor execution, but a lot of developers in the past sold vacation ownership as a get-rich-quick scheme. They thought they could sell the product at four times more than what they would normally sell it - but it is not that simple.

Vacation ownership can be a quite complicated structure to get right, and you need the right professionals in there from the sales and marketing perspective, you need the right operators, and you need to develop the right product, which requires a lot of thought and study.

The regulation gives a framework and a guideline to ensure developers do it properly, and I am more than happy to see it come through. I think it will help the industry and help the success of the developers.

The mixed use you have employed at Kingdom of Sheba is a first for the region. How easy has it been to sell to consumers?

I think there was a bit of an education process, but it is very straightforward. Instead of selling a purchaser an apartment in a building with little or no services, you are selling them an apartment in a building with more services, right next door to a hotel with more services there. There is more security, more beaches, more amenities... it's all more, more, more!

It is quite straightforward for a consumer then. I think it is an easy decision for the customer. They decide if they want more facilities, and the customer is willing to pay for it - for more services and better facilities, and all the extras. Especially in a destination like Dubai.

Dubai is very much a part of the Middle East, and although it is more modern and a better standard than many ‘western' cities, for a foreign investor to come in and purchase a property that is managed the way that we manage it gives the investor peace of mind - especially if the operator is an international hospitality brand like Fairmont.

These outlets open up our market considerably to an investor who may think twice about investing in a standalone project without all those other elements of management and service we provide.

From an operator's perspective, was it easy to have them understand what you were trying to do?

Fairmont have a lot of experience in managing large developments, which is one of the reasons they were a key choice. They were experienced and understood the model, and embraced it wholeheartedly, and as a result we have an excellent product to provide our customers.

Obviously the devil is in the details, and there are a lot of details in managing a mixed-use development with all these different elements, but we have had some time to work through those details and as a result we are here where we are today.

Looking further afield, what is next for IFA Hotels and Resorts in the region?

In the Middle East we have just entered into a new joint venture with Nakheel for the two plots which are next to the Kingdom of Sheba project, so now we are going to extend that - that will be more residential, more apartments and more villas. I think we're back up to being the biggest private investor on the Palm now, although it changes.

We are launching phase two of Alabadiyah Hills, which is a Kempinski managed project near Beirut. Again, we have had a good response and thankfully the political issues are being sorted out, and it looks like it is going to be a very strong summer. We never stopped building, and went on full force and full confidence in the region, and it is paying off now. Sales prices are going up, and we are very happy with that.

It is going to be a great development managed by Kempinski, with fantastic views over Beirut city, and it is a bit higher up in the hills so it is not humid, even in the summer.

Also going forward we are looking to expand on the condo hotels project, and we are always looking for good opportunities. If the opportunity is there, and it's feasible, then we will always look at it.

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