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Real Estate

Suburbia on the sea

by Thomas Schellen July 9, 2013
written by Thomas Schellen

The vistas around Beirut’s northern gates are changing. For years, the expanse of seaside development in the Dbayeh township was an empty promise of a coming suburbia. 

Although much of the area remains as vacant as ever — equipped with just an upscale marina and convention hall — the land-filled seafront district has started to bustle over the past three months with excavators, cranes and concrete pumps. Last month, road construction equipment got busy on some of the district’s long-neglected interior streets.
The activity is all related to the Waterfront City project, whose first phase of construction commenced this spring under the partnership of United Arab Emirates-based conglomerate Majid Al Futtaim (MAF) and Lebanese company Joseph G. Khoury et Fils.

Hailed by a massive marketing onslaught with emphasis on the new residential offerings’ entry-level prices — advertised at $250,000 — the implementation of Waterfront City’s initial batch represents a $226 million project value for 348 units. In terms of project value, the phase one undertaking will bring the largest single bulk delivery of apartments to the suburban Beirut housing market when the handover of units starts in early 2015.  
Samer Bissat, the senior project director of MAF Properties, says Waterfront City will entail 1,700 units when it is completed and represent a value of $1.5 billion to $2 billion.

There is no fixed deadline for the entire project, Bissat says, but progress is in line with the speed that the developers have been planning for. “A lot will depend on the absorption rate. My prediction is that within five years, all of Waterfront City will have started.”

The project has a noteworthy aspect on the contracting side as the executing company, ACC-Matta, is a joint-venture between Arabian Construction Company (ACC), a Lebanon-based construction firm with mainly regional business, and Joseph Matta, a firm that is focused on the domestic building market.

By collaborating, the two family firms could combine Matta’s local knowhow with the experience of ACC with international projects to give the joint venture the scope required for developments that go beyond project sizes commonly found in Lebanon, says Maher Merhebi, chief executive of ACC. “Few companies in Lebanon will be able to carry out a project of this type on such a large scale.”

The awarding of the contract to ACC-Matta sealed at the end of last year, was by a highly competitive tender, he says, and the contracting joint venture is dead-set on winning the contracts for phases two and three of Waterfront City.

Lowered expectations

The talk about Waterfront City is as old as reconstruction. Ever since the first drawings and models for master-planned developments in post-conflict Lebanon surfaced about 20 years ago at investment shows and development fairs for metropolitan Beirut, the Khoury Marina and surrounding land was featured as an upcoming magnet for urbanites in the Lebanese capital.

In June 2012, when the project was finally turning real with a groundbreaking ceremony, huge slogans pledged to prospective buyers that they would “own their horizons”. Later in the summer of 2012, the MAF-led project-owning partnership announced that sales of phase one “have soared up to 60 percent in one month” and added sales “are anticipated to ascend”.    

In talking with Executive, MAF’s Bissat admits the undeniable, saying that sales have slowed as the regional situation has turned harsher. He claims that lowered expectations are being met and deflects questions on the hard numbers in sales performance in the first quarter of 2013. 

“We are realistic and expected a slowdown on account of the regional situation. In Q1 2013, sales performed as expected on those terms and are slightly better than expected. I can’t give precise numbers but sales performance is as per the business plan,” he says before finally disclosing that the venture booked $330 million in signed sales contracts and important milestones such as deposit commitments have been met in May 2013.  

What Waterfront City officials would not answer questions on either in 2012 or today was why this development was held up so repeatedly in the past. Water under the bridge, so to speak, is how they want to treat this story. Bissat turns instead to elaborating on what he markets as the project’s future.  

“We are looking at a bright future with parks [and a] very easy and relaxed environment in terms of spacing,” he says, and emphasizes that Waterfront City will not be a gated community. “The correct terminology is that [the residential areas] are communities but they are definitely not gated. They may give such a feeling because they are contained in a specific area but [Waterfront City] is a  community which is supposed to be self-sufficient.”

MAF will retain stakes in the community. According to Bissat, “a lot” of the project is to stay with the conglomerate as it will own and operate an upcoming mall and hold onto retail and hospitality properties. “We have major interest in the mall as MAF Properties; we also have joint ventures where we will retain restaurants and lease them out.”

In terms of  communal living spaces and public areas, Bissat tells of imbuing the development with quality markers such as piazzas, an art scene and a farmers’ market. “We are contributing to society at a cultural level, at a socioeconomic level [and] at an educational level. We have been working on the components for a couple of months and Waterfront City will become a community that comes to life,” he enthuses.

Asked about the distribution of the cost burdens for creating and maintaining these communal elements and whether part of these costs are injected into the unit prices, Bissat cools the rhetoric to say, “This requires a multifaceted answer.” While Waterfront City will invest its own financial resources into the quality of life infrastructure, investment components are also part of the sales price calculation and in the long term the community will also have to pay into these structures.

New foundations

At present, the project venue still feels a good distance away from any state of community or identity. The sales center is located at the Khoury Marina, accessible only by passing two control booths. On the public side of those gates lies a leisurely 20-minute walk along the concrete breakwater to the Antelias intersection on the coastal highway.

The walk affords me with views of Beirut and an impression of the informal uses that have penetrated the land-filled area during the many years of commercial hiatus; I pass a cement truck whose driver took it here for his lunch break, a melancholic biker with a ponytail contemplating the sight of the city across the bay and young couples sitting on the seafront barrier and holding hands in the area’s relative privacy.

From a construction point of view, the main challenge of pouring the foundations for Waterfront City arises from the soil composition. The soil composition has to be examined thoroughly in order to determine the piling solutions in every portion of the project’s first phase, Merhebi says. “The primary aspect is to improve the soil characteristics and [the ground’s] behavioral qualities. Liquefaction is a major factor to consider in the piling and foundation works.”

The big challenge is that Lebanon has a high impact risk to earthquakes, he explains, and the varying soil characteristics found in the reclaimed land must be taken into account to counter the risk of dangerous earth movements in case of a tremor.  

For Bissat, the development will bring a new social environment where the ills of the things spoiling the nighttime will vanish and whose horizons have no room for problems. “The offering and added value that this environment will bring do not exist elsewhere today. I can only see positives going forward.”

 

July 9, 2013 0 comments
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The Buzz

Business briefing: 9 July 2013

by Executive Staff July 9, 2013
written by Executive Staff

Economics and Policy

The Holy Islamic month of Ramadan will start in most of the Middle East on Wednesday, after an official announcement by the Moon Sighting Committee.

More from Arabian Business

 

Lebanon's President and caretaker Prime Minister are expected to hold an urgent Cabinet session to approve two key decrees needed to proceed with oil and gas exploration in Lebanon, according to Energy Minister Gebran Bassil.

More from The Daily Star

 

The White House has said it is not in the best interests of the United States to immediately change its aid program to Egypt, where President Mohamed Morsi was removed from office by the military last week.

More from Reuters

 

Elsewhere, however, Egypt's stock index saw its steepest drop in over a month after clashes continued in Cairo and other cities.

More from Bloomberg

 

The Syrian government is cracking down on black-market currency exchange businesses and individuals who transfer local or foreign money out of the country in order to stabilize the pound.

More from The Daily Star

 

The Turkish lira rebounded from a record low against the dollar as the central bank offered $500 million at currency auctions and said it would start “strong” monetary tightening.

More from Reuters

Read more: http://www.dailystar.com.lb/Business/Middle-East/2013/Jul-08/222987-turkish-central-bank-takes-urgent-action-to-defend-lira.ashx#ixzz2YWi0E5Cj
(The Daily Star :: Lebanon News :: http://www.dailystar.com.lb)
 
Companies and Business
July 9, 2013 0 comments
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The Buzz

Business briefing: 8 July 2013

by Executive Staff July 8, 2013
written by Executive Staff

Economics and Policy

Lebanon is suceeding in its bid to limit increases in prices during Ramadan, government officials have said.

More from The Daily Star

 

The ouster of President Mohammed Morsi may give Egypt’s economy its best chance since the 2011 revolution to escape a downward spiral of currency weakness, capital flight and crumbling state finances

More from Reuters
 

Also in Egypt, the country's central bank governor, Hisham Ramez, flew to Abu Dhabi on Sunday, officials at Cairo airport said, following Egyptian media reports Cairo was seeking financial aid from Gulf states after Morsi's ousting.

More from Reuters

 

Dubai, facing debt repayments of about $50 billion over the next three years, is finally getting serious about selling off assets to raise money – a key component of its repayment strategy.

More from Gulf Business

 

Companies and Business

Abu Dhabi Islamic Bank (ADIB) has closed a $360m syndicated Islamic facility for one of the largest operator's and owner of jack-up barges in the region.

More from Reuters

 

Almarai, Saudi Arabia's largest food producer, posted a 5 per cent increase in second-quarter profit as its dairy, juice and bakery business grew.

More from Bloomberg

July 8, 2013 0 comments
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Comment

Powering Yemen’s tension

by Farea al-Muslimi July 8, 2013
written by Farea al-Muslimi

There is a lot to be said about the ways humor can keep you going in times of hardship. Yemenis, who are all too familiar with adversity, have recently adopted a new favorite joke about their Ministry of Electricity. The ministry, people say, has tasked itself with supporting population growth, given that it is delivering less electricity to homes and sending Yemenis to bed that much earlier and often. 

Electricity cuts are nothing new in the country, as Yemen produces around 1,000 megawatts, just a third of what is needed to power the country. Tribal attacks on the power grid in protest against unequal electricity provision have been common for years, but the problem has escalated: the state-owned power grid was hit on 59 different occasions between May 1, 2012 and March 15, 2013, according to Yemen’s Al Masdar media outlet, and in recent months the attacks seem to occur every other week. On June 19, a day after one such attack, Yemeni activists held a candlelit protest outside of President Abdu Mansour Hadi’s home in the hopes of pushing the government to be more accountable.

More from his author: The drone that brought it home

Yemen's chaotic national dialogue

The new government attributes these attacks to tribes in the Marib governorate, which are using them to communicate financial and political grievances and demands, such as the release of prisoners, or even demands for electricity deliveries to tribal areas. A significant portion of Yemen’s electrical capacity has been generated in the Marib governorate since 2010. Even before capacity was added back then, inequities in national power distribution were the cause of disputes and protests, but things have gone downhill since. In 2011, the government of President Ali Abdallah Saleh in Sanaa was alleged to have created artificial power shortages to fend off calls for his resignation. Nowadays, opposition figures from the left and Islamist camps accuse Saleh and his cronies of staging the attacks to discredit their successors. 

Regardless of the identity of perpetrators, the ramifications are devastating, in both political and economic terms. The loss of power has undermined trust in President Hadi’s government. This was exemplified at the end of May, when Hadi gave a speech saying that he would deal with the attackers with an “iron hand” — a threat left looking empty when just a few hours later, electricity wires were again sabotaged.

These attacks have repercussions on everyday living conditions, which are felt most strongly in coastal governorates, where summer heat can reach up to 50 degrees. This makes the issue much more serious than a simple dispute between tribes and the government, because most coastal governorates are in the south, where there is already a strong movement for secession. Prolonged, severe power cuts will play into the hands of separatists and worsen Yemen’s divide. Separatists already use the electricity cuts as a way to discredit the central government, buttressing the traditional claim that the north — where the attacks are actually happening — cannot co-exist with the south. 

The economic repercussions of the power outages — which lasted for 48 hours on one occasion in Sanaa and could go on for 20 hours a day during the period of frequent power line attacks — are grim even in the mountainous and more moderate climate areas around the capital. Prices of everyday goods rise, and perishables wither much faster. Productivity at work decreases and repetitive, short power cuts damage all sorts of electrical appliances. There were even reports that life support machines in some hospitals stopped working.

Yemen is a country that is seriously struggling to match its population growth and developing economy with an adequate power supply. The recent crisis comes with several twists. It shows that the people of Sanaa are more vulnerable today than they may have been before, simply because their lives and businesses have become more electricity dependent. Wealthy people, who can afford private generators, are the least affected, while the poor are left without. The tribes that are attacking the power lines are also doing so out of frustration that these lines transport electricity generated in their home areas to which they are given no access, yet their attacks mostly affect those who are already disadvantaged. 

Even more ironically, in the heart of Sanaa’s urban midnight darkness, one building always remains lit. The Al Saleh Mosque, built by former President Saleh, which houses his own personal museum in its basement, stays illuminated throughout the night by its own generators. Even with his fall from power, President Saleh’s memory stays brighter than the average Yemeni home.

 

Farea al-Muslimi is Executive’s correspondent in Yemen

July 8, 2013 0 comments
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Real Estate

Beirut’s ghost town

by Nabila Rahhal July 8, 2013
written by Nabila Rahhal

Maarad Street hasn’t looked this vacant since 2000. Here, in restored downtown Beirut, is where luxury retail, dining and living should meet. At lunch time, the roads should be filled with business executives from multinational companies taking their guests out for a bite. But a reality check in June reveals shy footfalls for the upscale areas and many empty offices. With the economic situation still in a downward spiral and with few tourists on the horizon for this summer, how long can commercial operations in the heart of Beirut remain viable?

Rebuilt in the 1990s after Lebanon’s devastating civil war, downtown Beirut has weathered  difficult times. From 1998 until 2002, development in the area slowed as regional tensions rose over Palestine. Then, the July 2006 war was followed by more than 18 months of sit-ins and protest camps that stifled commerce before business boomed again in the high tourism years through 2011. Throughout the ups and downs of the recent past, there were always signs of commercial activity.

Downtown offices are increasingly empty

 

Today’s absence of tourism, the bread and butter of retail ventures downtown, has taken its toll on these spaces, as a Saturday morning stroll on the luxurious Foch-Allenby street shows. “The current figures of our outlets in downtown Beirut are below our initial forecasts, which is mainly attributed to the slowdown in footfall,” says Jamil Rayess, general manager of Hamra Shopping and Trading Company. “[The drop in tourism] has had a major impact on the retail businesses in general and especially in downtown Beirut."

Luxury retailers in the area developed their concepts with the assumption that there would be foreign shoppers. “We have been living for the past two years just on [visiting Lebanese] expats and on the Lebanese living in the country, and it is very hard to survive on these clients,” says Joseph Mouawad, head of Mouawad Investment Group.

As sales have slumped, closures and relocations of luxury retail outlets have become quite frequent, but international brands provide some respite, says Claudia Kassab, a specialist in retail and shopping center strategies and managing director of Retail Consulting Group.

“Luxury brands with venues in downtown Beirut are owned by investors with strong portfolios who have a long-term vision for their brands and can overcome short-term dips in the market. It is still a question as to how long this situation can be sustained before it becomes difficult to recover the investment made,” she tells Executive.


High prices scare off buyers

According to Mouawad, office spaces in downtown are faring slightly better than retail spaces but heavy prices deter potential clients. “People are shying away from buying office space in prime areas in downtown Beirut because the price is very high,” says Mouawad. When he brought the Atrium Building, a high-end office tower in downtown, to market 10 years ago, he sold the office space for $2,500 per square meter (sqm). Today office space in the area sells for $7,000 to $8,000 per sqm and prospective tenants look for other solutions. “When prices were low, people were buying but when prices are high [as they are now], people tend to rent. Companies often rather lease and pay $300 per sqm than buy and pay $7,000.”

Low demand has impacted prices, making downtown office spaces again more attractive. Rents are not as high as people think, says Ussama Makarem, director of Berytus Building, an office building in downtown. Referring to very high prices of $1,000 per sqm in annual leases in certain areas of downtown, he says that in “other areas, like Bank Street, rent can be $400 per sqm.”  

The migration of demand in uncertain times gives an edge to office spaces where clients can take advantage of flexible services. Regus, an international provider of office space with services for temporary use and small companies, has a portfolio of 58 offices of different sizes on two floors of the downtown Azarieh Building and 41 offices in the Beirut Souks. The company says they are at 91 percent occupancy and performance is in line with expectations, because businesses in the current economic turmoil resort to flexible solutions such as short-term leasing or serviced offices.

For now, retailers are going to have to get used to more tumbleweeds than tourists, waiting for tensions to tail off and travelers to return.

July 8, 2013 0 comments
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The Buzz

Business briefing: 5 July 2013

by Executive Staff July 5, 2013
written by Executive Staff

Economics and Policy

GCC officials have formed panels to oversee sanctions against Hizbollah's interests in the region, as a penalty for the group's involvement in Syria.

More from The National

 

Egyptian shares posted their largest one-day percentage gain in more than a year Thursday after the army ousted former President Mohammed Morsi and an interim president was sworn in.

More from The Daily Star

 

Syria's president Bashar Al Assad claimed in an interview published Thursday that his international opponents have "used up all their tools" in their campaign to overthrow his regime.

More from The National

 

Companies and Business

Air traffic controllers at Beirut's Rafik Hariri International Airport have staged a two-hour strike to demand higher salaries.

More from The Daily Star

 

FlyDubai, which operates an all-Boeing Co. fleet, has said there’s an “open race” between the U.S. manufacturer and European rival Airbus SAS to supply it with 50 narrow-body aircraft worth $5 billion at list prices.

More from The Daily Star

 

July 5, 2013 0 comments
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Business

Keeping the beat

by Tamara Rasamny July 5, 2013
written by Tamara Rasamny

Company: Cardio Diagnostics

Country: Lebanon/United States

Industry: Medical Technology

Co-Founders: Ziad Sankari and Najwa Sahmarani

Established in: 2011

Number of Employees:  11

Revenues: Product yet to be launched, expectation of “several million” dollars in coming years

Capital raised: $500,000 investment from Berytech for an undisclosed amount of equity

 

Ziad Sankari was just 17 years old when he lost his father to a heart condition, but it proved a pivotal moment in his development. “It shaped my studies and focus throughout my education years,” he says.

During his undergraduate years in Lebanon he worked on developing heart products before, with the support of a Fulbright Scholarship, embarking on graduate studies in the United States — researching new technology for heart treatment. The result is Cardio Diagnostics, a supplier of medical devices that monitor a person's heart condition.

Despite the fact that the company has yet launched a product, it has been attracting serious interest. On Wednesday the Lebanese startup incubator Berytech announced that it had bought an undeclared amount of equity for $500,000.  Sankari said he had interest from a number of parties but had chosen Berytech because of the other support they offer. “Berytech brought in venture capital in the true form of the word,” he said.

So far the company has two main products that are in the advanced stages before entering the market, the LifeSense Arrhythmia and the LifeSense Ischemia. The former helps doctors diagnose and treat patients who may have arrhythmia, an irregular heartbeat, while the latter monitors patients with Coronary Artery Disease (CAD) or ischemia in order to detect signs of a heart attack.

The arrhythmia device will come first, due to enter the market early in 2014. Although some arrhythmias are barely noticeable, others can result in sudden arrhythmia death syndrome (SADS), resulting in death if not dealt with in a matter of minutes. Over 4,000 people die per year from the disease in the US alone, according to the SADS Foundation.

The key thing for sufferers is to get treatment immediately if they suffer an attack. As such they need constant monitoring of their heart. Cardio Diagnostic’s product is smaller than a mobile phone, and takes signals from three patches attached to the patient’s chest. If their heart is behaving abnormally, the data is automatically transferred to a monitoring center where further analysis can take place. If the collapse is severe, the patient’s location is recorded and emergency assistance is sent.

Sankari points out that the medical device complies with the “global standards of healthcare” and that it has been approved by the US Food and Drug Administration, a regulatory agency.

There are other services on the market for arrhythmia sufferers, but Sankari says his is both easier and cheaper. “The alternatives today are called an ultra monitor [which] costs around $200 [per week], or [full-time monitoring] in a cardio care unit at $800 per day,” he says. “We’re offering two weeks of monitoring for close to $300.”

Additionally, since arrhythmias can occur irregularly, the device is useful because it conducts long-term monitoring, picking up signs that can help diagnose and treat the condition. 

Although most of the company’s staff is located in Lebanon, its manufacturer is in the US. Sankari describes how the company uses “Lebanon as the hub of talents and logistics,” and then sends their creations and designs to the US for manufacturing.

The company will be starting a small-scale launch later this month, testing out the product in four of Lebanon’s “top hospitals,” Sankari says, declining to name them. Subsequently, they will use that feedback to improve, before a large-scale launch in the US.

As the product is still in the testing phase, the company has yet to have any revenues at all. But Sankari predicts the company’s revenue over the next couple of years will be “several million dollars.”

And he has set his sights higher than merely dealing with arrhythmia and is hoping to deal with Coronary Artery Disease – the most common type of heart attacks – as well. That’s the hope for the current prototype of the LifeSense Ischemia, which will enable people to identify the warning signs of an attack. This product, he says, will be ready for testing next year.

July 5, 2013 0 comments
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Economics & Policy

Road to nowhere

by Philip Issa July 4, 2013
written by Philip Issa

When the plan for Fouad Boutros Road came to the Lebanese public’s attention this spring, activists and public officials clashed, with claims from both sides growing in volume and aggression. The administrative authorities support the Fouad Boutros link, an estimated $75 million project that they say would improve traffic flows through Beirut’s densely populated Ashrafieh district. Opponents of the plan cry foul over the idea, saying the project will not alleviate traffic, but will instead destroy the area’s social fabric, old building stock and hidden patches of serene nature.

Executive took both sides to task, analyzing the likely impact the Boutros road would have if constructed. At the outset, it became clear that there were no real facts to deliberate on, because detailed project plans and impact studies were either hopelessly outdated, kept confidential, incomplete or non-existent.

Without such data, it is not possible to give a reasonable assessment of social impact or cost estimates, as well as the effect on traffic flow, business and air quality. It is worrying is this project was nevertheless put on the people’s doorstep.

A road apart

The project’s leading exponents are the Municipality of Beirut and the Council for Development and Reconstruction (CDR). The municipality owns all streets in the capital and is interested in having more roads to ease Beirut’s growing traffic problem. It denies that the Boutros road would ruin Ashrafieh’s Mar Mikhael neighborhood, saying the only way the project could be described as a failure is if it is not completed to its current specifications.

The CDR, as the governmental steward of the post-1992 master program to recover and expand various infrastructures in Lebanon, wants to do its job, which includes completion of the network of traffic arteries that are mapped out on its various blueprints dating back to a Greater Beirut Transportation Plan devised in the 1990s.

At the forefront of opposition to the Boutros project are two conservationist civil society organizations, the Association for the Protection of Lebanese Heritage (APLH) and Save Beirut Heritage (SBH), and a newly formed group named after the two neighborhoods that will be most directly affected, the Civil Coalition Against the Hikmeh-Turk Link. They have succeeded in creating outrage and protest against what they describe as a highway project that will only make life worse for residents of east Beirut. Vigorously mobilizing media, the detractors have drawn enough attention to their case that MP Nadim Gemayel, one of the deputies representing Ashrafieh, tells Executive, “[Members of Parliament] will not accept [any action] if there is a huge opposition about this and if the residents [of Ashrafieh] are not beneficiaries of it.”

Driven out

Squeezed in the middle of the scenario are those residents, who have been barred from expressing their views in an educated discussion on the Boutros project because they have not been given the fact base for such a discussion.

Even residents along the route are in the dark about their fate. Two families living in the presumed construction path told Executive that they had received no official notices of a pending eviction, and that, if asked to leave, they would expect compensation.

The municipality’s legal reasoning is unambiguous. Along the first 540 meters of the route — between Charles Malek Avenue and Armenia Street — most properties have been expropriated and owners were partially compensated in the 1960s or 1970s. Squatters or renters living today in such properties will not receive any compensation, says Rachid Ashkar, a council member of the Municipality of Beirut and the head of its Committee on Transport and Lighting.

A map of the affected areas in Beirut

 

He tells Executive that owners of expropriated houses have a legal right to stay on on as long as construction of the Boutros project does not commence. The same is not true for renters because it was and still is illegal for owners to lease these properties after expropriation, but Ashkar admits that the municipality looked the other way when owners took on tenants. When the time comes to vacate these premises, however, non-owning residents will get no compensation from the government. “They had deals with the owners. We are not involved,” he says.

There are residents living in expropriated buildings who don’t see things his way. One such family resides in a modest home near the Orthodox (Saint George) Hospital. According to Fuad, the head of the family, which asked to remain anonymous, their tenancy began during the Lebanese Civil War, when they were looking for a place to stay in 1982, one of the darker years of the conflict. They paid about half of the house’s estimated value to the previous occupant ­— who was himself a renter ­— took the keys and moved in.

Not long afterward, they were told that the municipality had expropriated the land years before. “How did they expropriate it? What did they pay the owner? Did the municipality reserve the land? What portion? These are things we don’t know,” says Fuad, sharing the family’s uncertainties with Executive.

In the intervening 30 years, the family says, they have not once been asked to leave and haven’t collected any compensation from the municipality. Fuad’s family is aware that they are not the rightful owners of the home — when a tree smashed their roof last winter, they knew they could not make substantial alteration to the exterior, so they jury-rigged a repair. But if they have to leave their home of 31 years to make way for the bulldozers, they unequivocally expect to be compensated by the municipality.  

“You can’t just throw any person onto the street. Sorry, not in any country can you do this,” says Fuad’s daughter Samar. “Now us, maybe, to avoid a fight, we’ll be quiet for a small amount. But others will not be quiet, because there is no alternative.”

Their feelings about the issue were heightened by the uncertainty that for all these years has kept them from renovating their home. “Suppose the municipality came and told you that it is going to take the house to build a road. Okay. A year passes. Two. Five. Still no road. 30 years?” son Majed asks with incredulity. “After 30 years, they come to say, ‘Yes, I had told you?’”

Kept in the dark

Fuad’s house and those like it have no real heritage value, but conservationists say that the Tobagi house on Armenia Street, which is slated for destruction, is historically significant to the neighborhood.

Residents have received warnings that their buildings are to be destroyed

 

According to Ashkar, though, arguments to keep the house have no legal ground because the building was properly expropriated. The fact that the building’s owners, who have continued living there, restored its façade in the 1990s, is irrelevant and the act was even illegal, he says. “They have had the pleasure of having a nice facade for the past 15 years; that’s good. But, officially speaking, they didn’t have a right to restore the façade, because this is no more their building.”

Adjacent to the Tobagi house are two buildings: one that was to be torn down under the original road plan and one that was supposed to be partially affected. Among the tenants in this second building is Souad Bared, a grandmother in her 80s. She moved in 50 years ago and for the past three decades expected that some day a room in her rented apartment might be lost to the Boutros flyover.

Under the new plan, her whole apartment will have to go. Bared found out recently from media that the project might commence imminently but claims she has not been told anything by officials of any level of government. “They are supposed to give me notice to leave the house and to tell me how much they will compensate me,” she says. “I live with my son. We haven’t discussed any plans or anything. We know nothing.”

 

A dated solution to a modern problem

Not only is the time delay in implementing the project the crux of the social problem surrounding the Fouad Boutros project, but it also explains a whole basket of other issues. It was sketched into the Beirut cityscape plan as an urban highway no later than 1964. In those days, car traffic was seen as a promise of prosperity and highways were hip.
The Beirut municipality began expropriating land for the Boutros highway in 1966, according to the CDR. By 1975, the path between Charles Malek Avenue and Armenia Street was expropriated, but the explosion of the civil war put further expropriations on hold.

Two decades later, it was reconstruction time. The CDR was tasked with rebuilding Beirut’s transportation infrastructure as a core development mission. Planning for the capital region was laid out in the 1995 Greater Beirut Transportation Plan and later augmented by the World Bank Group’s Urban Transport Development Project (UTDP) for Greater Beirut and Mount Lebanon. The planning frameworks proposed a mass transit scheme and a network of primary roads and highways — Fouad Boutros among them.

The plan entailed a traffic model backed by comprehensive survey and traffic data. It made projections to 2015. According to the municipality, it remains the most recent traffic model for Beirut.

TEAM International, the lead consultant of the 1995 transportation concept, says the plan’s underlying traffic model is now outdated. Tammam Nakkash, managing partner of TEAM, explains, “When we did the original study, only 10 percent of the traffic crossed the Green Line. The whole pattern of travel has changed. A new model has to be calibrated. [The old model] is like a squeezed lemon. Don’t try to get more juice out of it.”

Elie Helou, a senior traffic engineer at the CDR, says a 2001 traffic study for the Boutros link was updated in 2011 and confirms that it will ease traffic flows away from overused Charles Malek Avenue and the nearby Akkawi hill. But he does not tell Executive how much traffic the CDR expects Boutros Road to carry nor how much of a relief Charles Malek and other roads would see. Moreover, citizens, reporters and public interest groups do not have access to the study in question, or other technical studies. “It was never customary to disclose any [technical] study,” Helou says.

 

Heritage activists are certain that the new road will add to the existing congestion in Ashrafieh. “You are bringing people coming from [Charles Helou] highway who want to go to Hazmieh, and putting them on this already congested access [Alfred Naccache],” says Giorgio Tarraf, the spokesperson for SBH.

With no access to CDR data and technical studies, APLH recently went to count cars at streets around the critical Spinneys intersection where the new road would link to the existing Alfred Naccache thoroughfare. Raja Njeim, a member of APLH and the general coordinator of the Civil Coalition, insists that basic calculations show that Charles Malek Avenue will need to be widened by two lanes in each direction to accommodate the new traffic patterns enforced by the Boutrous project. Street parking accommodations will also have to be made, Njeim says, pushing the price of the project from $75 million to $200 million and encroaching on the Sagesse school.

But traffic experts dismiss both CDR and APLH projections. Zaher Massaad, a transport engineer at TEAM, says they are meaningless without a new, city-wide model of traffic. “I can update these numbers [of previous local studies on Boutros road], but it doesn’t help. If you don’t have a model, how can you describe how this traffic will move?”

“Don’t trust anything… until somebody gives you a study that can be reviewed by qualified people,” Nakkash adds.

A partial solution

The municipality argues that constructing the road is in the public interest. “You have to have it in order to free other streets all around in order to have dedicated lanes for the buses,” Ashkar says.

Proper public transport for Beirut is indeed something that has been long desired. The idea is actually anchored in the CDR’s 1995 master plan, and the CDR’s Helou concurs that the city and country desperately needs a public transport system. “But that doesn’t mean you stop the work on your road,” he says. However, he concedes that while the CDR has been able to realize about 50 percent of the plan’s road building program, it has yet to implement a trace of an urban public transport system. The plan had called for a network of 13 bus lines — running alongside traffic and not on dedicated lanes — to be implemented before 2005.

For TEAM’s Nakkash, there is no doubt that the highway solutions of the past two decades needed to be “accompanied by parallel investments in public transport.” He adds, “As a transport systems expert, I am absolutely against any investment in more grade separations or tunnels within the city of Beirut. The increasing congestion in Beirut cannot be curtailed except with a substantial investment in public transport.”

Legal entaglements

As things currently stand, the Boutros project requires additional lands, which are currently in the process for expropriation. With legal decrees for their transfer into public property signed in May 2012, the determination of compensations due to landowners are now in the courts. This affects the 250-meter long and 30-meter wide stretch between Armenia Street and Charles Helou highway, minus the area of the existing road that Boutros will supplant. Compensation amounts for the properties expropriated before 1977 could also still increase.
Besides the issue of compensation, the project also needs to conduct an environmental impact study, a legal requirement that came into effect for all developments above a certain size in the middle of last year.  

The CDR’s Helou confirms to Executive that both processes will run their legal course and that no construction action will be taken prematurely. “I don’t expect [the project’s commencement] before the end of the year,” he says.

In the meantime, a lot of discussion is expected on everything related to the project. Opposing stakeholders such as the civil society coalition have already put forth alternative proposals, but these are not well grounded in hard data.

Costs of the undertaking are projected by the municipality at $23 million for the roadworks and two parking structures in the southern portion of the development, $12 million for a proposed parking garage near Armenia Street, and $40 million for compensating expropriated land and building owners.

Construction and engineering experts polled independently by Executive corroborate that the cost projections for the roadworks are in line with their expert opinions. However, the cost of expropriation could easily escalate total project costs to between $90 million and $100 million, Executive estimates, based on input from real estate experts.   

Two components will drive expropriation costs. First, courts have yet to decide the amount owed to property owners north of Armenia Street and south of Charles Helou Highway. Second, the municipality still owes 25 percent of current land values to expropriated owners along the longer route from Armenia Street to Charles Malek Avenue. This is because under Lebanese legal provisions, final settlements are due when development of an expropriated property is implemented. Completing all expropriation could thus cost as much as $65 million, assuming land values of $7,000 per square meter, as real estate advisors observed from new building projects.

Knock-on effects

The Municipality of Beirut is not known for poverty, though, and shouldering of a higher compensation cost may be well within its means. Another point entirely is the cost to businesses and impact on property values in the directly and indirectly affected areas. Developer Zardman has a project in Mar Mikhael that will not be directly affected, but prices in residential towers with direct exposure to the new traffic streams are likely to suffer negative impacts, says Zardman chief executive Makram Zard. “It will help some projects but other projects will be affected negatively. It might help the project’s value go up if the project is not affected directly by facing the bridge [across Armenia street], because there will supposedly be better access.”

Some developers could actually benefit from the widening of the road between Armenia Street and the Charles Helou highway, says architectural consultant Abdul-Halim Jabr. “The [permissible] height of a building is a function of the width of the street onto which it fronts. If a lucky developer … manages to buy more than one parcel in this settlement, then they have more elbow room to go … taller,” he says.

Civil society interests are to divert the use of the project’s state-owned land into something totally novel: a public park for Ashrafieh. According to Najat Saliba, chemistry professor at the American University of Beirut, particulate pollution levels along a congested Beirut thoroughfare range between two and 4.5 times the limits recommended by the World Health Organization. The park alternative would bring Ashrafieh rare things such as playgrounds, benches, grass, shrubbery and trees.

However, cancelling the Fouad Boutros link could just as well have the totally unintended effect of filling the neighborhood with more high rises, warns CDR’s Helou. If the land is not used in accordance with the original expropriation purpose, old owners will have the right to buy back their land at 75 percent of current market prices and offer them to developers at full prices, he says. “In no time, you will have buildings going up there.”

Potential for maneuver

The now mandatory environmental impact study will include a public hearing for residents affected by the project, the Ministry of Environment emphasizes. Helou confirms that the impact report will examine pollution levels and the impact of the project on the neighborhood’s social and urban fabrics, architecture and local flora and fauna. He doesn’t believe that these assessments will dislodge the project but concedes that they might result in improvements.

“We tried to maintain the urban fabric, to maintain the culture of the region, to put trees up where we can — we tried to do all that without an assessment,” Helou says. “So maybe we have had half the story correct. All we have to do is correct the half of the story that is missing.”

Where he admits that the public officials erred was in expecting people would just swallow the project as they did so many times in the past.

Civil society stakeholders aroused public opinion by calling Fouad Boutros a ‘highway’ — which it was in the original design, and what Helou sees as overstating its detrimental impacts on heritage and people in the Ashrafieh neighborhoods.

While the CDR and municipality were caught off-guard by opposition from civil society, all necessary expropriation decrees have been acquired and, save for the environmental impact study, the Fouad Boutros project can be pursued. However, Ashrafieh’s MP Gemayel has a word of advice. “I would like to have… answers from the CDR and the municipality about the traffic study and the environmental assessment — these are main questions where we need answers in our hands in order to have a clear and direct position about this project,” he tells Executive, adding that Parliament has the ability to communicate its views effectively to both the Beirut municipality and the CDR. “I think they will not do anything without our approval.”

Lebanon’s balance of influences aside, the debate over the Fouad Boutros road is far from over. Authorities and activists need to reground themselves in facts, negotiate and propose a solution that will serve the public’s wellbeing. Without an assertion of hard data, people will be stranded on the streets, either in a car or without a home.  

July 4, 2013 1 comment
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Real Estate

Betting on Berlin

by Maya Sioufi July 4, 2013
written by Maya Sioufi

Tourists, hipsters, everybody is welcome. Party like it’s 1945.” That’s the slogan of the underground political group Hipster Antifa Neukölln, founded last summer in Berlin in reaction to increasing resentment toward foreigners, who have been accused of gentrifying the city. Europe’s trendiest capital is attracting tourists and affluent expats, as well as property developers such as renowned private equity group Blackstone.

It has also caught the attention of Beirut-based Real Capital Holding, which started investing in the city-state’s real estate in 2008. By end of May 2013, it was managing 65,000 square meters (sqm) distributed over 21 properties, and it just made its first exit, telling Executive that it achieved a 24 percent annual compounded internal rate of return on the sold property.

The chairman of Real Capital Holding is Karim Salameh, who earned early accolades as manager of Eagle One by Bank Saradar, Lebanon’s first-ever property investment vehicle, akin to a real estate investment trust. His partner in Real Capital Holding is Karim Sinno, who was an active player in the Lebanese property investment market during his 10-year tenure at Middle East Capital Group. Real Capital’s properties are acquired through investment vehicles registered in Germany and capital gains are thus subject to German tax jurisdiction.

While Salameh and Sinno invest their own money in each of the vehicles, they have a handful of investors — a majority of whom are from Lebanon — joining them in their European endeavor, and some properties are acquired for specific clients.
Why Berlin? Having come to the realization in 2007 that Berlin was significantly underpriced relative to other cities in Europe, the partners investigated this arbitrage further and eventually decided to back their conviction with capital. The price per square meter in central Berlin fetches $4,000 today versus $13,300 in Paris and $12,440 in London, according to property database Numbeo. The price is even lower than the average in real estate distressed Madrid, $5,800.

The undervaluation of real estate in Berlin is correlated with the city’s socioeconomic profile and its relatively high rate of unemployment; it is also rooted in the last century’s division of the German capital into the free but insular and economically underpowered West Berlin and the communist-ruled East Berlin and its hinterland.

Private real estate ownership in East Germany was a burden because the state mandated below market rents and landlords had virtually no rights. “The old Communist East suffered a lot from the communist regime with very low wealth creation and bad economic foundations, so the prices of real estate and of goods were very cheap. It is a unique moment in history where [we can] arbitrage the difference of the status of Berlin as the capital of a Western developed country and… as the capital of an almost bankrupt Eastern European country,” says Salameh.

Profiting from history

From an office behind Beirut’s National Museum, Salameh and Sinno have been eyeing commercial and residential properties in several districts of the German capital; to date, Real Capital Holding has invested in eight of Berlin’s twelve districts. While the firm acquired its first property in 2008, that was the only investment it made that year, and none were made in 2009.

The kickoff for their investment spree began in 2010, when eight properties were acquired followed by six in 2011 and five in 2012. They completed the acquisition of a commercial property of over 11,000 sqm in the first quarter of this year. They have not sold any investment yet and intend to hold them for around seven years. With intent to hold the properties for an average of seven years, the partners are targeting an annual internal rate of return of 14 percent.

For many years, Berlin and German real estate markets had little to offer investors seeking the high returns that other European, Middle Eastern, North African and Asian markets could provide. The combination of a stable population, a low rate of construction activity, a financial sector that required double-digit down payments and extensive protection of tenant rights led some German property investment advisors to observe that real estate price movements were as exciting as “watching paint dry”.

But stronger price movements in the German real estate market in recent years have some worried. Multi-billionaire investor George Soros warned last October, “[There is] a serious danger of a housing bubble developing in Berlin.”

Real Capital’s Salameh is not concerned, though, as Berlin still offers property valuations significantly below those found in many other European cities and decades away from the price levels seen in Paris and London.   

Will Real Capital Holding start prospecting other European cities that have seen significant downward pressure on real estate prices? “Not at this time,” he says, as he fears that it might take a long time to adjust to a bottom. While he might look at other German cities to exploit upwardly trending urban real estate prices, he sits pretty in Berlin.

July 4, 2013 0 comments
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The Buzz

Business briefing: 4 July 2013

by Executive Staff July 4, 2013
written by Executive Staff

Economics and Policy

Mohammed Morsi has been dramatically ousted, after a year as president of Egypt.

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Iranian president-elect Hassan Rouhani has called for the government and powerful clergy to end interference in the private lives of the Iranian people, free up internet access and for state media to be more open about Iran's problems.

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France has urged Lebanon to sign a tax information exchange treaty to avoid placing the country in the noncooperative countries or “tax-havens states.

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Companies and Business

The new head of Qatar's sovereign wealth fund, Ahmad al-Sayed, is known and feared as a hard, aggressive negotiator – and his appointment signals the fund's ambitious overseas acquisition plans are likely to continue.

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Middle East airline carriers recorded the strongest year-on-year traffic growth in May at 11.7 per cent, far outstripping the global average traffic surge of 5.6 per cent, statistics show.

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The Wooden Bakery, one of Lebanon's fastest growing food companies, is planning to continue its international expansion.

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Al Rajhi Bank, Saudi Arabia's largest listed lender, said it would distribute dividends worth SR2.25bn ($599.9m) for the first six months of 2013.

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Since its first edition emerged on the newsstands in 1999, Executive Magazine has been dedicated to providing its readers with the most up-to-date local and regional business news. Executive is a monthly business magazine that offers readers in-depth analyses on the Lebanese world of commerce, covering all the major sectors – from banking, finance, and insurance to technology, tourism, hospitality, media, and retail.

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