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Downtown and out

Souks expand while Solidere profits contract

by Thomas Schellen

At long last, Beirut’s urban experience may finally be ready for visitor masses.  Two projects — an entertainment center fitted with a multiplex cinema and a department store — are slated for completion at year-end 2013 and 2015, respectively. The entertainment center will go into business “in October or November; in any case before the end of the year,” says Mounir Douaidy, general manager of Solidere. 

The two projects comprise what is called the “North Souks”, located on the edge of the current Souks, and representing close to 40 percent of the Souks’ 118,000 square meters (sqm) after completion. The North Souks have been delayed several times, and the current projection of their delivery puts is roughly 15 years past the initial target date for opening the Souks. 

The uppity, well-to-do crowd among Souks’ patrons will moreover have a 16,000 sqm wellness center cum furnished apartments complex in nearby Patriarch Hoyek Street at their disposal, for convenient stay.

As for other downtown development projects, such as landscaping the Waterfront District and completing infrastructures, citizens will have to wait until 2014 to see what Solidere decides on their implementation timeline, according to Douaidy. Perhaps unsurprisingly, the reason for those new delays is the dearth of investment deals.   

According to data circulated in June by FFA Private Bank, Solidere’s total land sales in 2012 were driven entirely by a single, $50 million transaction — a roughly 11,000 sqm portion of the Waterfront District. With sales revenue contracting that year by 79 percent to $49.6 million, net profit dropped 90 percent year-on-year to $16 million. 

When Executive interviewed Douaidy in mid-2012, plot sales had failed to materialize in the first part of the year but he professed optimism, saying that larger sales might return in the third or fourth quarters. Now, a year later, he confesses that “things do not look very bright” for 2013 sales revenues. But he adds a small note of positivity, emphasizing that investor interest has not shriveled up completely. “We have people knocking on the door, but all of this is not translating [into sales] because every day there is [a new problem] and investors keep postponing.” 

Financially, the Solidere story serves as a case study on non-predictability, demonstrating perfectly how extraneous factors have voided any ability to make assessments related to downtown Beirut. When equity analysts for Blominvest started covering Solidere in May 2010, they estimated that 2012 results would come in at $451 million in revenue and $272 million in net profits. 

When compared with the real results, this 17-fold over-expectation of Solidere’s 2012 annual profit illustrates how extremely vulnerable the company is to external security and political factors, reflecting the vulnerability of Lebanon’s entire economy. This also explains why Douaidy defiantly says, “The only negative impact on the share price of our company is the political situation.” 

Solidere stock slipped below $12 per share in early June and entered the slow trading days of summer at $11 to $12, levels not seen that low since summer 2005. Douaidy, ever the optimist, contrasts the dramatic drop in Solidere’s share price with the company’s net asset value (NAV). Combined, the land and real estate portfolios and the company’s liquidity and quasi-liquidity according to him constitute a net asset base of $8 billion, or $45 to $50 per share.   

Continuity, as far as Solidere is concerned, has been concentrated in three areas. In terms of NAV, the valuation of its land bank has been justifiably more resilient than those of other large regional developers where elasticity of supply for desert parcels may have been under-represented in considerations. 

The second factor of continuity has been the consistency of its board of directors, where six of twelve board members have been on their seats, uninterruptedly, since 1994. This latter consistency was softened a bit by four “new” faces, including Douaidy, coming to the board table in 2012. 

A third important factor in the Solidere experience has been controversy. Although the company’s engagement in the rebuilding of Beirut over the past ten years alone resulted in creating some $7 to $8 billion in property according to Douaidy’s estimate, the past 18 years have seen continuous domestic animosity against the company which, for whatever reason, just kept polarizing people.  

In Douaidy’s perception, the reputation of Solidere is marked by a perfect split. Investors he meets abroad, he says, “see in Lebanon and in this project in particular a huge success story. They are amazed by the achievements and standard of execution. But our own people here, they want to kick you down, they want to crush you and destroy this company because it doesn’t fit their political views or because they are jealous [of its] success.”

Despite Lebanon’s commercial heart suffering acute business arrhythmia, Solidere is putting on a brave face and is still working to complete a potent ventricle to ready downtown Beirut for the days when normalcy settles here — whenever that might be.

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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