By James Bennett
With the demand for waterside property rising by the hour in the region and the demand for yacht space dramatically outstripping supply, the need for marinas has never been greater. James Bennett moors up and meets Ralf Heron, CEO of lsland Global Yachting, to talk about financing, multi-billion dollar contracts and why Germans never give up
I earned it. I was knocking on doors for 12 years,” says Ralf Heron gazing out of his 40th floor office that has a spectacular view overlooking the Palm Jumeirah where three marinas will be built by Island Global Yachting next year. “In those days Nakheel was unreachable and now it’s one of our partners. To get the chance to get into this company and build it up is one of the most exciting things I’ve ever done. I’ll never get a chance like this again.”
To say Heron is having the time of his professional life is an understatement. He tells me throughout the course of the interview, like a kid in a sweet shop buying his pocket money’s worth of strawberry laces, that everyday is like living the dream. He can think of nothing better than to be running the Middle East and Asia arm of marina mega-giant Island Global Yachting (IGY). And it is no wonder.
The company, part owned by Istithmar – the multi-billion dollar rich and highly active investment arm of the Dubai government – is currently sitting on a goldmine. With the boat and yachting industry growing at a rate of knots, the demand for berths far outstripping supply with owners begging for mooring space, and IGY’s multi-billion dollar regional contract with Nakheel for a staggering 40,000 berths (just in the Middle East) is well underway. The tall, welcoming German has every right to underline just how far he has come and just how lucky he is.
“Joining a company of this quality, profile and with that background, I mean how many people get that chance?” he says excitedly.
From starting out in 1983 as the head of quality assurance at a German company, to, as he says “banging on doors for 12 years” as managing director of Homeport Management, a marina berths research, marketing and sales business to its eventual sale to IGY in October 2005, Heron has often struggled but worked tirelessly to fulfil his ambitions. And he has made it – the hard way.
“There were hard times,” he says smiling, deservedly easing back in a leather armchair. “We were always knocking on the same doors and nothing happened. I asked myself many times whether or not it was really worth it. Sometimes I said ‘let’s just go back to Europe, people don’t listen to you, they don’t believe in this industry, everyone is concentrating on making money from real estate and nobody really values what a marina can give you. Nobody was really listening.
“That was a down time for me, but I’m German and Germans don’t give up easily. So I just kept on banging on the same door, and on the same door, and on the same door. And luck brought me here, I knocked on the right door.”
IGY is the world’s largest and most cash rich designer, developer, and operator of mega-yacht marinas and related upland facilities including retail, restaurant, and commercial space on the planet. It is developing in virtually every large space of waterside property in the world and has particularly large investments in Dubai (the three Palms: Palm Jumeirah, Palm Jebel Ali, Palm Deira) for example, and the Caribbean where it owns the largest mega-yacht facility in the world in its flagship marina, Yacht Haven Grande, in St. Thomas, USVI. Other developments or management projects include Marina Bander Al Rowdha in Oman, Isle de Sol, Port de Plaisance and Portofino in the St. Maarten, Netherlands Antilles, and a large marina in Mexico. Its biggest contract by far, however is with Nakheel (for 40,000 Middle Eastern berths in preparation for the regional spread in luxury sea travel), one of Dubai’s largest government-owned property companies.
Amazingly no one knows what the contract is worth. Heron tells me “a real humongous sum” and I don’t disbelieve his thoughts.
The company’s global CEO and chairman is Andrew Farkas, who visits the Dubai office every four to six weeks according to Heron. He is the founder of Insignia real estate that he set up with five employees in 1990 with US$5m and merged it with CB Richard Ellis in 2003 to form the world’s largest commercial real estate company. More importantly he is a passionate boater, one of the US’s most powerful businessmen, and one who has significant connections in the Middle East.
“Andrew works in the boating industry with his heart. He doesn’t have a boat at the moment, he’s looking for one. He had a 140-footer and just sold it because he doesn’t have time. He regrets it already,” laughs Heron.
Heron says he is being pursued by developers who are keen on partnering with them. “We’ve been approached by developers active in marina developments throughout the region. And our efforts in other parts of the world are really taking off! IGY has very exciting deals underway. Unprecedented in history, we now have the opportunity to develop and manage truly world-class, five star quality marinas in the world’s best cruising waters. Some of these are very popular today, like Croatia and Greece. But others are going to open up only because IGY is paving the way, like the Chinese coastline development and the Black Sea.”
Filling the gaps
But despite the financial assets and the big names the company has behind the brand, major challenges still exist. Boat financing is still way behind the UK and the US, and demand for berths far outweighs supply. So how does Heron plan to fill the seemingly huge void left when the 40,000 berths come onto the marketplace?
The German CEO says that IGY is in constant contact with boat manufacturers and brokers to discover the latest trends. However, one trend remains apparent, the lack of berths is causing a huge problem for everyone involved. “We carry out a permanent market study with the industry because we need to define the size of the berths. It’s crucial,” Heron explains.
“The situation is exactly as we expected. Whoever we speak to says ‘listen, we could have sold 12 yachts this month, but get me a berth’. In reality they sell two or three yachts per month because the buyers just squeeze them in somewhere. The lack of space for these yachts is a huge problem.”
The waiting list for berths at every marina and waterside space in Dubai is high, but fortunately for Heron, so is demand. This year’s Dubai boat show proved his point. IGY distributed hundreds of application forms for those in need of a berth and a staggering 500 forms were returned – an enormous amount from one show. As Heron proclaims, “once this business really starts rolling, there will be thousands and thousands of berths on offer”.
The second iceberg in the boat industry’s, buyers’ and IGY’s side is financing, or rather the unwillingness and snail-like pace of change within regional and international banks based in the Middle East. Once banks realise the profitability of financing boats, Heron explains, manufacturers, brokers, marina builders as well as customers, will able to get the benefit.
“The majority of comments from the industry revolve around financing. There are only two banks that offer financing, HSBC and Abu Dhabi National Bank. Even if you have the money to afford to buy a US$1m yacht, right now, you’d rather invest that into real estate that can offer you various finance plans preventing people buying boats.”
Until financing issues are solved in the region, Heron says it will always hold back sales but he is positive that banks will soon wake up and follow the lead of their foreign counterparts.
“If you look at Barclays or the Royal Bank of Scotland (RBS) in the UK they are making enormous amounts of profits from boats. RBS finances thousands of boats in the UK area only. I’m sure we will slowly see banks here in the Gulf do the same.”
With the demand for boats set to exceed 20,000 yachts within the next five years in the UAE alone, things are moving fast – an aspect of the Middle East that Heron greatly admires.
“It’s wonderful to see change move so fast. You talk to people directly, you don’t have to fill in paperwork and wait three years for it to come back and you don’t have a bunch of politicians arguing about silly things. Here you present something, the person says he likes it and you do it,” he says.
“You know that everyday you wake up, you go to work, things move here, you do your designs, present them, go through the municipality, everything gets approved in a very fast way and you just start working.”
With the first IGY marina in the UAE set for completion by March 2007 and with the company designing marinas worldwide, Heron will never have to bang on the same door twice again.