The formula is intriguing from a commercial perspective and it has pizzaz: the Beirut Yacht Club, scheduled to operate for the next two months under a soft-opening formula and celebrate commencement of business with a formal launch in April, targets the upper crust of the resident business community with a concrete space for reveling, relaxing, and rubbing shoulders — the 14,000 square meter (sqm) Yacht Club building at the end of Zaitunay Bay development in the St. Georges Bay.
The property includes areas for members and their guests in the form of bars, restaurants, terraces, a library, pool, meeting and recreational rooms, plus 53 residential units, of which nine will be operated by the club as exclusive lodging facilities. Of the remaining 44 units, 11 have been sold and the others are for sale as serviced apartments at a range previously not found in the Lebanese market — prices per square meter range from $15,000 to $25,000, according to Farouk Kamal, chairman and general manager of Beirut Waterfront Development S.A.L., the company which owns and operates the project.
The market that a developer can address with such a product is clearly the high net-worth and ultra high net-worth community, or individuals and families in the top 10 percent — those who, globally, own 86 percent of the world’s wealth according to the 2013 Global Wealth Report by Credit Suisse. The segregation of this addressable market from the averagely heeled population is reflected in the access threshold of the Beirut Yacht Club. Enrollment in the club, which will be limited to 500 members and carries an initiation fee of $15,000 for an individual and $20,000 for a couple, is precondition for buying one of the club’s residences.
Kamal is positive about the prospects of finding buyers who will happily part from their cash in exchange for a flat which will cost around $3 million based on average unit size of 150 sqm and median sqm prices of $20,000. People have already shown “a lot of interest,” he says with ostentatious confidence that his target market will jump on the opportunity to procure an apartment which is priced off the local charts but comes “fully furnished” and with the entitlement to use the “4,000 square meters of club area attached to it.”
He admits, however, that the company cannot be sure about the Yacht Club’s performance in the coming summer and is basically keeping its fingers crossed in hopes for improvements in Beirut’s tourism and general security conditions so that the inaugural season will go well in terms of the venue’s usage for events, leisure and food and beverage offerings. A good market response in these areas will also be important for the attractiveness of the real estate. “We are selling club residences and people will appreciate the residence when the club is buzzing and active,” Kamal says.
Reaching the social stratosphere
Besides the knowledge that Beirut real estate prices tend to be extremely resilient against downward pressures, other incentives for investing in a Yacht Club residence include the option to have the management short-let a unit on behalf of the owner. And of course, owners can circulate through the club basking in the feeling that they actually own a piece of the place, in contrast to the 90 percent of their fellow club members who will at least have to cross the street to get home — if they reside in one of the nearby residential structures of the Beirut downtown. Kamal sees a natural reservoir for Yacht Club membership in the district’s population of bankers, high-powered consultants and other business leaders to whom he wants to offer a community environment whose members “want to enjoy a certain level of exclusivity and at the same time rub shoulders with the right people.”
Adding a further dash of reputation, the Beirut Yacht Club might offer honorary one-year membership to select ambassadors countries whose embassies are the most active in Lebanon. Beyond the paying members, diplomatic elites and their guests, however, the club will not welcome the public to revel on its premises. This restriction to a wealthy and minuscule part of the population is perceived by critics of the project as flying in the face of the land reclamation that created the land on which the Beirut Yacht Club and the adjacent Zaitunay Bay hospitality area have been constructed.
The controversy over the transfer of these reclaimed parcels to the private sector — meaning Solidere, the company mandated with the reconstruction and development of the Beirut downtown — has roots in the 1990s that relate to the case of the St. Georges Hotel and the reclamation of land for the New Beirut Waterfront of which Zaitunay Bay is but a tiny part. A reverberation of the old confrontation recently rung through the media by way of a very public altercation between caretaker finance minister Mohammed Safadi and caretaker public works and transport minister Ghazi Aridi. In an exchange of accusations, Aridi asked Safadi if he was a “thief” and also claimed that the construction of an elevated walkway in Zaitunay Bay was illegal.
The Zaitunay Bay project and its managing company are a 50-50 joint venture of Solidere and Stow Group. As Kamal confirms, Safadi is the main shareholder in Stow Group, a real estate and investment holding with interests in the United Kingdom, Lebanon, and Oman. Besides heading Beirut Waterfront Development, Kamal is also the executive chairman and a shareholder of the group’s Stow Capital Partners.
Big fuss over a small construction
On the face of it, the argument over a building violation in Zaitunay Bay is focused on a technicality. The absence of a required decree does not put into question the legitimacy of the land’s allocation for private ownership and the construction is not a recent alteration of building plans or anything such. The 10-year-old original design for the project shows the disputed walkway leading up to the roof of the Yacht Club as terminating point (with exceptional sea view) of a promenade for broad public access.
From the perspective of its use value, the private ownership of Zaitunay Bay’s existing marina-side boardwalk and its upper promenade has caused some restrictions on activities such as skateboarding. From the area’s design point of view, on the other hand, the extension of the promenade has a consistent appeal and from the perspective of balancing the recreational interests of restaurant goers, skateboarders and so on, finding a solution appears to be a matter typical for community arbitration rather than cabinet-level action.
Much more interesting, albeit in hindsight, is the question of how the public interest was represented at the time when Solidere and Stow first forged their partnership. Solidere’s 2012 Annual Report contains an elaborate narration and an impressive pictorial on the downtown’s development that far outshines the report’s financial pages. This narration states as a fact that the two companies formed a joint venture to whose capital Solidere contributed 22,350 sqm of land with permission for 20,000 sqm of built-up area while Stow contributed $31.6 million in cash.
The report’s financial pages specify further that the joint venture was formed in February 2004 with an initial capital of $19,900 and that the partners increased this capital in 2006 by $12.8 million and that Solidere sold “properties with an aggregate cost of $10.1 million… to the joint venture for a total consideration of $31.6 million” against which Stow contributed the equivalent cash amount.
Not explained is how the partnership was agreed upon and if there were competitors for entering a deal with Solidere to develop what are today Zaitunay Bay and the Beirut Yacht Club.
What can be said is that Stow Group, whose founders in 1985 included both Safadi and Kamal, has a visible propensity to collaborate with leading companies. The company says on its website that it is engaged in three “principal industry relationships.” Solidere is identified as a principal partner and so are TAG Aviation, with whom Stow has shared interests in the UK’s Farnborough Airport and Grosvenor.
The latter partnership means that Stow enjoys a strong business link with a company that is not only one of the longest-standing property owners in the posh Mayfair and Belgravia districts of the UK capital but also represents the business interests of the richest man in the country, Gerald Grosvenor, Duke of Westminster.
Stow’s projects in London in several ways give a very different impression from its more adventurous projects in Beirut. For example, an office project in Mayfair was not only blended marvelously into its street’s architectural context but its recent delivery was “on programme” and in line with what the company had said in a 2010 press release. In Lebanon, the congruence between targeted project completion dates and actual deliveries was nil.
If they say anything beyond highlighting that Beirut is not your usual market for projects and developments, the implications of Stow’s UK partnerships and track record may be that the company is both keen on rubbing shoulders with the most potent partners it can find, eager to abide by its contractual obligations, and very much at home in the peculiar segment of the property market where a square meter price of $25,000 is not absolute record material (in 2012, Stow UK put a 870 sqm London townhouse up for sale with an asking price of GBP 17.5 million — about $27 million at the time and in excess of $31,000 per sqm).
A Bay on course?
In Lebanon’s feeble relationship between public and private spaces, the corner that Zaitunay Bay represents in a long shoreline of atrocious vistas interspersed with a few bearable developments is definitely more accessible, more appreciable, and better developed than some of its equivalents.
The hospitality project has lost some of its initial — and quite overbearing — snobbishness during the 2012/13 downturn of tourism and in a somewhat surprising statement, Kamal today emphasizes that “we know that for a project to be successful in Lebanon, whether it is a yacht club or a strip of restaurants, you need to depend on the local people, the middle class professional people. This is because if you are successful with them, tourists will come to that place. But if it is only tourists that come here, the locals will probably not come.”
The hospitality mix in Zaitunay Bay in January 2014 evidences a stronger orientation toward the locals and their tastes and pocket books when compared with the area’s initial tone. According to Kamal, the project owners steered the development partially away from the concept’s very first ambition of creating quality public space. He says they did so out of fears that this space could be abused.
It remains to be seen which course the Yacht Club will steer in the coming years, noting that nothing much in Lebanon ever comes out as planned or expected. But in a sense, the hyper-luxury orientation of the area is not actually new. Some 50 years back, in a period which older nostalgic socialites still like to call Lebanon’s golden era, the hospitality properties in this very neighborhood were the places where the elite sipped teas and aperitifs or smoked cigars in presumed splendid isolation from the squalor of the masses.
The question to be answered in the coming years in Zaitunay Bay, the whole New Waterfront and indeed the entire downtown is whether the necessary profit orientation of a private sector stakeholder is able to put enough emphasis on the social profits of well-managed public space, serving both public and private interests in reasonable balance.