Solidere, the developer credited with breathing life back into Beirut’s civil war-ravaged center, has struggled in recent years to weather the impact of continuing regional unrest inspired by the Arab Spring. But there are now real signs the company may have finally turned a corner.
By Dina al-Wakeel
The past three years have not been kind to Lebanon. Domestic political unrest and spillover from violence in neighboring Syria’s have both dealt a heavy blow to the country’s fragile economy, including its tourism and real estate sectors which Solidere so heavily relies upon.
As a result, Gulf countries, including Saudi Arabia and Qatar, warned their citizens against visiting Lebanon last June, and Jordanians who used to travel by car through Syria, now find it harder to visit the small country.
While foreign tourists to Lebanon plunged to 1.3 million last year from 2.3 million in 2010, Solidere’s General Manager Mounir Douaidy said retail sales in downtown Beirut dropped by almost half over the same period, and land transactions—his company’s main source of revenue—also fell significantly.
But even though Douaidy said it will take time for Solidere to claw back lost ground, the bellwether company’s much anticipated financial report for 2013 is expected to show a major leap in profits.
The political turmoil in Lebanon and Syria has pushed many tourists away. How hard has the last few years been on the real estate sector in your country, and Solidere in particular?
When we talk about real estate and investment in the real estate, all of this really needs political stability and economic growth, as well as a security situation that allows investors to come and feel comfortable. Unfortunately during the last couple of years the turmoil in the region and all the negative impact that we have seen on Lebanon have not really helped this investment climate. Therefore there has been a major drop in investor appetite towards Lebanon and the general retail activity in the country.
The Solidere district of Beirut is a place that relies on investors to buy land to develop projects. It has a flagship project called Beirut Souks, which is a prime commercial area at the heart of the city where all this retail activity should be taking place. We have lots of boutiques, shops, and restaurants. What all this needs to work is people −we should have tourists and visitors. When the project kicked off we had lots of visitors coming from neighboring countries; Syria, Jordan, and the Gulf whose visitors consider Lebanon their favorite country in the region, and they have a lot of investment there. Now they have stopped coming because of the border closure with Syria, and because their governments have banned them from coming to Beirut for security reasons. We had a big influx of Syrians into the country but this is not really what we wanted in terms of investment because the bulk of the influx was refugees. So it was a burden more than something to help the investment climate. We had some high network individuals coming from Syria, fleeing the crisis, but they didn’t really stop in Lebanon for a long time to deposit money and to invest. Anyway, there have been many restrictions on them depositing money in the banking sector, so they moved to places like Egypt and the UAE.
We have also lost a lot of the Jordanian visitors because many of them used to come through the border with Syria, which is closed now so they have to come by plane. All this does not help. You have a lack of investors and potential shoppers, and therefore we had a major drop in the sales figures of most of the retailers [within Solidere] by about 30 to 40 percent. If you don’t have this volume of people, the restaurants cannot survive just on the Lebanese population itself.
Nevertheless, all these retailers are still trying to make it one way or another but I think that things are becoming a little difficult now. If things continue the same way for longer time, I think we will see a lot of difficulties in the economy.
For many years the Solidere district of Beirut’s city center was much in demand by retailers. How much is the occupancy rate today?
Today, 50 percent of the buildable space remains undeveloped. This will be constructed upon in the next phase of the project. The 50 percent in use covers about 2 million square meters of built -up area, and includes a lot of the old buildings that were renovated plus all the new projects that were built by Solidere or third-party investors. I would say that overall, 60 to 70 percent of the space has either been leased or bought by investors. But maybe not all of it is occupied. Around 95 percent of retail space is occupied and between 95 and 100 percent of office space is occupied. But when it comes to residential space, there is a much lower occupancy rate. Many units have been purchased by Lebanese expatriates abroad or Gulf investors who bought these apartments but they’re not coming to Lebanon for the time being.
Despite all of these hardships, your company’s financial results are almost out and the FFA Private Bank projected your revenue to have tripled in 2013. What should we expect?
Our profits are mainly generated from the sale of land to third party investors, which generates about 80 to 90 percent of our revenues, and from rental income of the space that we own which has stabilized at a certain level at about $50 to 55 million a year. So this is stable, but this income goes to cover most of the overheads and other costs like maintenance. What we really depend on is the revenue generated from land sales. If land sales drop, then we’re going to see a drop in our results and our profits. And this is what happened in 2011, and particularly in 2012, because we have seen our profits drop significantly by 80 percent. We went down from $160 million of net profit in 2011 to $16 million in 2012. This was mainly due to the lack of land sales. Now this is not to say that land sales have stopped, they haven’t but they have become very slow because investors want to take their time and judge the situation. In terms of 2013 results, which are now in the process of being prepared and finalized, all I can say is that we expect to see better results than 2012. There were some additional sales that materialized during 2013 which will certainly reflect on the results, but it will not take us to the previous high levels of profit and revenue. I think we need to wait a little bit longer for that, maybe until 2014 or 2015.
We are all waiting this year to see the geopolitical situation unfolding into a peaceful situation, especially in Syria because I think what’s happening there has a major impact on Lebanon. If things are resolved there and on the local political scene in Lebanon; a president being elected and politicians coming to agreement on many things in the country, then I think that the situation will improve. Lebanon is known for rising out of the ashes in no time. One day you see disaster and the next day you see a boom. We’ve seen this many times during the last 20 years.
Have you introduced new aspects to the Solidere area to attract visitors and appeal to different tastes, particularly the local clients who make up the majority of your visitors today?
The cinema and entertainment complex is one component of the Beirut Souks project which is a whole commercial space open to the rest of the city −it’s not a closed mall. The complex was completed in December 2013 and has been operational since. We believe it will bring more activity to the area, and this will help us generate more income from the operation itself and from renting the space. There’s another component to the souks that’s not there yet which is the department store. The spot where it has to be built is there, we just need to come up with the structure. Designed by architect Zaha Hadid, it’s an avant-garde, state of the art building which will add more value to the area and to the rest of the city center. So with all these components coming along, I think this is how we’re moving forward in completing the project and building value over time.
Jordan has embarked on a similar model at the heart of Amman with the Abdali project. What do you think of the project and what advice do you have for those working on it?
I hope that the Abdali project will be a success. It all depends on the market here in Amman. I don’t know much about the potential of the real estate market and the retail market here, but obviously it will have to depend on tourism, maybe this is a point of comparison. It’s the same thing as for Beirut; you cannot depend only on your local demand, it has to depend on demand coming from abroad.
I think all city’s need a project that dynamizes it. This logically should be a very good project for the city of Amman because it will create a buzz, new activities, and it will become a destination in its own right. Any city in my opinion today needs a point of reference, a city center. This is the whole point why Solidere is a success story because we have recreated the city center.
How do you see Solidere going forward and the demand on real estate in Lebanon?
Solidere still has a long way to go. We’re still half way through the process, we still have all the water front area which will take another 10 to 15 years to develop. What’s left in our land inventory today is worth about $7 billion based on today’s selling prices. So there’s a lot of potential for profit making going forward. Again, our strategy during the last few years has been to also develop real estate projects ourselves and to keep them in our portfolio. Today we have a portfolio of real estate properties worth about $1.8 billion. This portfolio, which is expected to grow further as we complete the other components, will bring more rental income and allow the company to generate a bigger income stream over the coming years.
Unfortunately we have a timing problem. Because of the circumstances in the region we haven’t been able to achieve enough sales to pump up the profits. But this doesn’t mean that we will not be able to generate these profits in the future. All the lands we own is prime land. As we sell from this portfolio and as we develop ourselves, the inventory will deplete overtime and as it depletes you have less quantity of land available in this inventory which will push its prices up. It’s really a self sustaining process.