Q&A – Solidere’s Mounir Douaidy

For 10 years, there was only BIEL (Beirut International Exhibition and Leisure center). A few years ago, we looked at one particular area starting from the entrance of BIEL all the way to the sea. We started with the Beirut Exhibition Center and along the same line, there will be The One (a night club owned by Skybar’s Sky management) and KidzMania (indoor theme park for children). These are temporary activities with seven-to eight-year contracts to create movement and attract people. We only receive rental income and have not taken stakes in the projects. Down the line, all these areas will be sold and developed. 

What will the waterfront district look like once permanent structures start being implemented? 

All the buildings on the frontline facing the park and the sea will be 40 meters high. There will be one or two towers there similar to the ones on the Corniche, such as the Four Seasons or the Platinum Tower. Heights on every lot will be different: some with heights of 52 meters, some with 75 meters and others even a little higher. Concentrations of high-rise buildings will be mainly in the central part of the reclaimed area and not the outside edges, which will be composed of low-rise buildings to catch the views. 

In a context of regional turmoil and lack of domestic stability, Solidere’s recently reported 2011 results saw revenues drop by 23 percent year-on-year to $296 million. How is 2012 looking so far?  

Last year, we did not sign a land sale deal until the fourth quarter when we signed four deals for $220 million, which constituted the main part of our revenues. So for 2012, I don’t know yet because we still have six months. All I can tell you is we are on the right track for sales because there is demand.

What changes have you seen in terms of demand? 

The negotiations to materialize a transaction are taking longer than usual. We have also had to break up bigger blocks into smaller units so that it becomes easier to sell these units. Finally, most of the investors looking to acquire land are, more and more, coming from Lebanon as opposed to the region. 

Solidere’s strategy has been to reduce its reliance on land sales by increasing rental income. Where do you stand on this? 

Our rental income, which stood at $50 million in 2011 up from $42 million 2010, is expected to reach $65 million by 2015 after the completion of several projects, namely the remaining component of the Souks with a cinema complex by the end of the year and a department store by 2015. Land sales will continue to be the main source of revenue over the next 10 to 15 years because we still have a significant inventory of land, mainly on the waterfront, valued at $7 billion at today’s prices. 

Given Solidere International (SI)’s exposure to countries in turmoil, where do you stand with your expansion plans outside of Lebanon? 

We were not impacted [by the turmoil] as we had not spent on anything yet because of the financial crisis. All we had to do was to restructure the projects. For example, Al Zorah project in the United Arab Emirates was reduced in size and changed from a mix used development to a touristic project. SI is now concentrating on identifying new markets and we think there are lucrative opportunities in Saudi Arabia where we already started one project for a tower in Jeddah and we have two to three projects in the making in Riyadh. 

Solidere is venturing into the restaurant business. Is this another way to reduce your reliance on land sales?

Any revenue from the restaurant business is immaterial relative to our activities. The whole idea [behind venturing into this line of business] is to allow the creation of outlets and restaurants of a certain caliber that we felt did not exist and would support the overall real estate development activity. We did it with Stay (fine dining restaurant) and Momo’s (Moroccan restaurant and bar). We brought in an operator and created an entity — a cooperation between Solidere and the operator — that would rent out the space and pay us rent. The operator runs the concept and Solidere co-manages with the operator. Solidere is not in hospitality: We don’t know how to do restaurants. We also did this with The Venue, the 1,000 square meter space used for exhibitions.

Your critics say that you are competing with the restaurant business. 

People keep saying Solidere is competing. We created these two ‘unique’ concepts that didn’t exist before so they will not compete with anything else that exists. Our intention is not to expand into this and step into the shoes of people doing this kind of business. We did this to give a push to the area, attract more people and promote cultural and artistic activities, and these restaurants came as part of this objective. If you look at the city center, there are tens of restaurants and outlets that have nothing to do with us. 

Are you also co-managing outlets in Zaitunay Bay? 

No. Zaitunay Bay is a little bit different. It is a joint venture with Stow Waterfront Development. Together we are executing Zaitunay Bay as a project made up of two parts. First is the restaurant part, only for lease, and the other part is a building composed of fully furnished small-to-medium sized apartments, which will be up for sale. 

Doesn’t this divert from Solidere’s strategy of focusing on rental income only?  

All the properties in our real estate portfolio so far were up for lease because the idea was to generate rental income and keep increasing it over the years. For this building, it was agreed with the partners that the apartments would be put up for sale as there would be higher ownership demand given the high prices, and we also wanted to recuperate our investment in the project and keep the restaurant leases to generate rental income. The building will also host a members club like the Automobile et Touring Club du Liban [ATCL] or the Golf Club, which will generate annual income.

Are you considering moving into the sale of apartments going forward? 

Until last year, the decision was not to sell any assets but going forward we are considering to slowly sell some assets. We started selling some of the Saifi apartments that were leased for the past 12 years. We are eventually offloading some of the stock of apartments as we have other apartments in Zokak El Blatt and Wadi Abou Jamil that are leased. Our new projects will come to replace some assets that we are selling. 

So the new projects will only be for lease? 

We recently got the permit to start another 20,000 square meter project in Saifi consisting of three small residential and one office building. We intend to sell the apartments of this project. We will not start offloading a huge quantity of assets. 

With demand moving to smaller sized apartments, aren’t developers having to adapt and provide smaller sized apartments too? 

All the stock on the market came from developments that started a few years ago. Future developers will be looking to smaller sized apartments but this will come after Solidere has finished selling these apartments. 

Wouldn’t the sale of apartments place you in competition with developers? 

We are not doing anything to compete with anybody in the market. We want to support other developers, complement their activities and not go in competition with them. We want developers to do well and become repeat developers. We are doing this on a very small scale and the size of the apartments we have been putting up for sale are small to medium sized, whereas developers have been selling medium- to-large sized apartments, so we are not competing with them.