LONDON: Ali Rashid Lootah has a reputation for being a tough businessman. He has certainly led Nakheel through the toughest of times.
But nine years on from a crisis that threatened to send the Palm Islands developer to oblivion, the company has quietly built up a retail empire that will soon cover 17 million square feet of leasable area across the city.
Nakheel was arguably more instrumental than any other company in awakening the world to the ambition and drive of a small trading sheikhdom called Dubai.
When the developer completed The Palm more than a decade ago, it cemented the emirate’s international reputation as a place that could make the impossible possible.
The Palm made people believe in Dubai’s ability to deliver on the big talk. Without it, there may not have been a Burj Khalifa, a Ski Dubai or a Dubai Mall. It was not just about making tourists gasp in admiration from the top of double-decker sightseeing buses but, rather, eliciting the same enthusiastic response from the international investment community, which bought into this vision with nothing but “Field of Dreams” belief.
That belief suffered what could have been a fatal blow in the wake of the 2009 Dubai World debt crisis when the state-controlled conglomerate was forced into restructuring $23.5 billion of debt — most of it amassed by Nakheel.
The debt crisis marked the end of the era of “name lending,” not only in Dubai but across the Gulf — where banks had lent billions on the strength of a reputation — and with little care for credit ratings or due diligence.
That all changed on March 25, 2009. On the eve of the Eid Al-Adha holiday weekend, the Dubai World conglomerate, one of the big three “Dubai Inc” companies, asked its creditors to “stand still” on billions of dollars of debt.
Taking the helm of the developer in 2010, in the wake of a financial crisis that should have wiped it out, Lootah’s first job was to instil some discipline into a company that had lost the run of itself.
That demanded regaining investor confidence and formulating a business model that was not literally built on sand.
A civil engineer by profession, his tenure as chairman has been characterized by a sober and superlative-free approach to property development.
“I’m a pragmatic guy,” he said. “Why does everything have to be big? You have to launch what the market wants.”
Under Lootah, Nakheel has dialled back on the mega-projects for which it became known during the boom years. The Dubai World crisis, in which Nakheel was the principal protagonist, represented a radical change of direction for a developer that for much of the previous decade had kept the dredging fleets of the Netherlands busy building ever-bigger artificial islands.
Each day the fleets would sail out to the shallow waters of the Gulf before lowering giant suction machines to suck up the sand from the seabed. Then they would sail back to blast it from their hulls along the Dubai coastline in formations that became so large they would eventually be visible from space. It was construction on an epic scale.
Before the crisis, each new project had to outdo the one that went before.
Palm Island was followed with plans for another development down the coast in Jebel Ali and then another up the coast in Deira, and then a collection of islands formed in the shape of the globe that was called “The World.”
That, in turn, was followed with another islands development called “The Universe” which was never built, coinciding as it did with the global financial crisis.
In a few years, the hype had become the business model, and there could be only one outcome.
Since the Dubai World crisis, Nakheel has reinvented itself as one of Dubai’s biggest mall operators with ambitions to become a major hospitality player as well. By reducing its exposure to the boom and bust of residential development, the Palm builder is gradually morphing from developer to landlord.
The company now has about 15 malls across the city either under development or already opened — including the vast Ibn Battuta Mall and the soon-to-be-delivered Nakheel Mall on the trunk of The Palm. Hotel building is also a core focus of the new Nakheel, which is investing more than
€1 billion ($1.19 billion) in the hospitality sector and has 17 hotel properties under development.
But in the quest for recurring revenue, does Nakheel risk replacing a residential bubble with a retail one?
Lootah doesn’t think so, despite a glut of new shop space that has forced commercial rents down across the city.
He acknowledges that “landlords are adjusting” their rent expectations, but stresses that Nakheel malls are built to serve the developer’s existing communities.
“All our projects are carefully studied. We have retailers coming forward to rent space in our developments, so I think they will know their business and where to spend their money.”
Lootah estimates that the Nakheel Mall now under construction is already 70 percent pre-let, a figure that is likely to rise to about 80 percent by the end of the year. About 75 percent of The Pointe, another Nakheel bar and restaurant development on The Palm, is also let ahead of its completion later this year.
Still, the retail sector is hurting in Dubai, with the emirate’s government recently announcing plans to investigate measures that will help support the sector, which is confronting not only a glut of new space but also the introduction of value-added tax (VAT) since the beginning of the year.
“The government is trying to help retailers and see what it can do,” he said. “Dubai depends on tourism and retail is one of the attractions of Dubai.”
Eight years after Lootah took the helm at Nakheel, the developer has repaid the bonds it sold as part of its financial restructuring and is ready to take on new debt to fund its expansion. The chairman has worked hard to regain the confidence of contractors and investors in that time.
Lootah sees that as a big part of his job and, typically, does not like to launch projects before contracts for their construction have been tendered. “We want the buyer to be confident,” he said.
He travels overseas frequently, often to finalize deals with retail or hospitality partners, such as the $160 million tie-up last month with Vienna House, Austria’s biggest hotel operator.
At such events you will be more likely to find him in the hotel gym than the reception ballroom.
“Everywhere I go, I take my gym bag,” he said.
We meet at one such event in Madrid where the movers and shakers of the global retail industry have congregated, many in survival mode amid the decimation of the High Street.
Lootah has just sat in on one of the conference sessions titled “Keep it simple, stupid.”
He chuckles at the title, which could also describe Nakheel’s approach to building small community malls.
That may explain why digital disruption in the retail industry does not, for the time being, seem to be causing Lootah too much lost sleep.
He is a believer in Dubai’s ability to reinvent itself and adapt to changing economic realities. “Retail will stay,” he said. “It will adjust. It will not die.”