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Wed 11 Apr 2018 09:34 AM

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Keys to success: Why developer RSG International is fosucing on the hotel sector

RSG International has recently shifted gears, moving away from residential developments into the hotel sector. Here, owner and founder Raj Sahni tells Arabian Business why he made the switch

Keys to success: Why developer RSG International is fosucing on the hotel sector
Balwinder Sahni, more commonly known as Raj, the founder and CEO of property development company RSG International.

There’s an immediate contrast at play when you meet Balwinder Sahni, more commonly known as Raj, the founder and CEO of property development company RSG International.

His offices in Marina Plaza, adjacent to the Marina Mall, have the polished, slightly overstated grandeur of an aspiring law firm or boutique asset management company; all dark, varnished woods and expanses of marble with a well-buffed gold logo glinting from behind the reception desk. Inside Sahni’s own office, though, informality is much more in evidence.

Yes, the desk is huge and there are leather chairs everywhere, but there is also a treadmill parked against one wall and, most importantly, Raj Sahni himself, complete with trademark baseball cap, talking animatedly into his phone. Even with the tape machine running, he remains ebullient and pleasingly unguarded as he describes his latest projects.

There is much to discuss, too. RSG, which began life in Kuwait as a dealer in automotive spare parts before moving to Dubai and into industrial equipment and, latterly, real estate development, has now entered the hospitality sector, partnering with homegrown hotel brand Rotana to construct two new properties in Dubai.

The first is the Sabah Rotana, a five-star hotel of 500-plus rooms in the area near Umm Suqueim now known as Sufouh Gardens. The piling and shoring wrapped up a little over two weeks ago and it is on course for completion before Expo 2020. The second is the four-star Jebel Ali Central Rotana in Jebel Ali Zone 1, adjacent to the Metro station and an important addition to the growing area’s hospitality offerings.

These may be Sahni’s first hotels, but Rotana appears excited about their choice.

“Synergistic partnerships have been a key component throughout Rotana’s journey, and our partnership with RSG International to develop two new properties is a proof of this statement,” the company’s president and CEO Omer Kaddouri told Arabian Business ahead of the meeting. “RSG is a reputed name in the UAE’s property development sector and they add a significant value to our portfolio.”

Omer Kaddouri, president and CEO of Rotana

It’s the nature of that value that we have come to discuss. As Sahni outlines during the conversation, he believes it’s a combination of speed, contract security and quality that continues to propel RSG forward – whether the end result is a residential complex in Jumeirah Village Circle or a new tower overlooking Sheikh Zayed Road.

What explains RSG’s switch from developing residential buildings to hotels?

I wanted to do something different. I was tired of doing the same developments, all residential, residential, residential. And Dubai is always building new attractions for people to visit and experience, so I felt tourism will really boom here. I’d been thinking about a partner in the hotel sector for some time and Rotana were very competitive and very aggressive. So, I took the decision to sign up for two hotels with them.

How have you found working with a partner, the brand that will go on to operate the hotel?

Honestly, I had no idea what a hotel needs when we began the project. Some of my friends told me not to go with a hotel chain as they will put all of their guidelines in place and they will make it hard throughout the process. Instead, from day one, we joined hands with Rotana. We have weekly meetings, their engineers jump from Abu Dhabi to our offices, so it’s been very interesting and very positive so far.

What are the key differences between this type of deal and your usual projects?

Consultants! In a residential building, you acquire the land, hire a consultant and find a contractor. This is completely different; you acquire the land, hire a consultant and then hire another 20 consultants. There are IT consultants, kitchen consultants, security consultants, RTA consultants, interior designers… and every one of them gives you different ideas. You enjoy it, of course, but there are certainly more headaches.

Is there an advantage in Rotana being a homegrown brand?

Easily, yes. It’s much better, much smoother. Working with international brands requires a lot of approvals, they don’t compromise easily, they have their guidelines from the US or Europe and they can’t be twisted. There is more flexibility in this relationship – although to be honest, we are basically building what they want us to build. The number of meeting rooms, kitchen requests, whatever they said, we wanted to do for them. Omer Kaddouri is a decent guy and the relationship is good.

Did the relationship breakdown between Five Holdings and Viceroy Hotels and Resorts give you any pause?

We don’t know what happened there, so, it’s not easy to have an opinion on those things. We can only take care of our own house.

Burj Sabah is a 19-storey residential tower that will feature studio, one-, and two-bedroom apartments

Where are you in the construction process with these first projects?

We are building the first one like crazy right now, working day and night, trying our level best to finish it before Expo 2020. It’s a big property – 58 floors, 1.2 million sq ft, 536 total rooms – and once the podium level is finished, we’ll be jumping to the second project. We’ll be appointing a contractor for that by the end of April and looking to start in six months’ time. We wanted to get the main work out of the way on the first as we felt the second would be easier as a result.

Those are pretty tight deadlines…

People were saying this is a four-year project, but I looked for contractors who could build it in 28 months. It was in the RFP [request for proposal]. It will be expensive, as costs are higher by about eight to ten percent when you work around the clock, but that’s what I wanted. The contractors don’t mind the timescales if the down-payments are strong, and that’s why I give 20 percent of the contract value up front instead of the usual five or ten percent. It means they can buy all their steel at the same time and work on those margins.

Does that mean you have to very hands-on?

I’m involved in every part. Every night I go to the site. After work, I go to the gym, I go home, I take a shower and then I go the site. If you want to be big, you have to see that construction doesn’t stop. Back in 2014, we were the only developer in the history of Dubai to finish a project ahead of time.

It was for three buildings and more than 400 apartments over half a million sq ft, and I said it would be ready in 18 months. Everyone laughed, saying it would be three years at least. We finished in 15 months.

You don’t use leverage, either. Why not?

I’m scared of it, honestly. I use it if I have to but I’m a cash business. More than 40 years ago, when I used to go my father’s office in Kuwait, he had a very big sign behind his desk. It read, “Never borrow money from a bank”. I asked him about it and he said, “A bank lends you an umbrella in the summer and takes it back when it starts raining”. That was always my thinking and that’s why we do projects one by one.

Which also means, we assume, that your partners such as Rotana are more secure…

Look at the Pearl. Stuck for ten years and many contractors must have been burned. This won’t happen with one of our buildings.

Obviously, there is a lot of talk about oversupply in the hotel sector. Are you meeting a need or creating one?

Well, I don’t think the 1,000-and-something rooms I’m building will affect Dubai’s hospitality sector. It’s not as if I’m competing with Jumeirah. Besides, the city needs more rooms, more rooms, more rooms. And Dubai is a funny city, you might say; people may say they are building, but how many are actually starting and completing projects?

As I’ve said before, tourism is going to keep growing. Look at where we are: Iran, India, Saudi Arabia and Iraq are all next to us, all with huge populations that want to come here for entertainment, the theme parks, the attractions, the safari... For people in countries who don’t have this, they will come to Dubai. It’s much nearer than Europe and you don’t need visas.

You are still engaged in the residential sector.  Will you return to residential projects when these hotels are completed?

We are completing 230 units in Jumeirah Village Circle early next year – we’re now aiming for Q1. After that, I have no plans, I’m just focused on finishing these hotels. In fact, I’m too focused. When we are at the podium level on Rotana Sabah, then I will jump to Jebel Ali. You’ll start to see something there before the end of this year. Hopefully, we’ll be on the fifth floor or even tenth floor at the Sabah by that time.

The Sabah Rotana Hotel project by RSG

How will declining rental yields affect you?

When you build to lease, you’re always looking long-term. Yes, we’re expecting there will be a decrease in rents this year, but they’ll go back up. As long as the finishing is good and the facilities are good, you’ll get good tenants. These things are always in waves. You’ll probably see a wave with 50,000 people arriving from India or wherever and all of a sudden, there’ll be no apartments.

You’ve always concentrated on the UAE. Any plans to operate overseas?

Listen, this country is very, very easy to operate in. You don’t need connections, you don’t need people to do you favours. You can just do things here. They see a company like mine, with a proven track record, and the approvals become more straightforward, even if they’re a little out-of-the-box. No one can stop this city. This city has no limits. It’s unstoppable.

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