0 utside the Beirut Central District (BCD), the majority

of prime new office space is located in Hamra and

Ashrafieh, especially Charles Malek Avenue. New

secondary developments have also emerged in Furn el Chebak,

Badaro, Sin el Fil, Verdun and Tehwita.

Around the city, office centers need to be specialized and flexible

to resist the BCD’s demand-pull. New office buildings in

Ashrafieh and Hamra may still enjoy high occupancy, but

mixed locations – especially those with a preponderance of residential

units – might witness a decline in occupancy rates.

Until last year, prime locations such as Charles Malek avenue

(Ashrafieh) and Hamra were in high demand, with newly built

offices in those areas offering flexibility in size and excellent

amenities. Their location, near the BCD, Beirut’s future business

center, was also attractive to tenants.

In 1999, the market became inactive and investors looked more

closely at prices. The majority of prime locations had reached a

take-up rate of 60% to 70%. But with the stagnant market, the

rate remained constant. We should now expect a declining

occupancy rate in Hamra, Verdun and Charles Malek avenue as

companies relocate to the BCD.

BCD will provide a cross-section of external supporting services,

conforming to the requirements expected in today’s modern

offices. In time, the open spaces of BCD will prove important,

as any large office building will be attractive for big companies

or institutions. Large offices with open spaces can be partitioned

to fit the needs of particular companies. Building new

developments in prime locations outside the BCD is now difficult

because the areas are highly congested and land is scarce.

Hamra’s new developments attracted occupants between

1997 and 1999. The area offers such amenities as shops, bookstores

and retail convenience stores. Ashrafieh offers restaurants

and snack bars. Verdun is known for its upmarket shopping and

will remain a retail destination rather a potential office market.

The office market became very decentralized during the war,

spreading to secondary locations such as Dora, Sin el Fil and

Badaro. Take-up in these locations was also strong during the

early ’90s because of economic growth and delays in developing

more central locations. Major office buildings were constructed

in Furn el Chebak, attracting many companies even

though the area was primarily residential.

This phase of straightforward expansion is now over. As major

companies relocate to the BCD, small companies will move to secondary

locations. We expect few new office developments in these areas, at least for now. Ericsson, opposite the new Metropolitan

Palace hotel in Sin el Fil, is the only major new building.

The development of the Agora on the Damascus highway will

revive surrounding areas, such as Furn el Chebak, Hazmieh, Sin

el Fil and Horsh Tabet. The development of the Metropolitan

Palace Beirut hotel in Horsh Tabet, which is due to be completed

by 2001, may also stimulate demand for offices.

Some office buildings in the secondary locations enjoy a take-up

rate of 80% to 90% and others 50%. Office buildings that do well

– such as the ones in the Furn el Chebak region – have large floor

sizes and are located on the main highways. About 40% of space at

the Galaxy center in Chiah has been bought. With new infrastructure

being built in the area, there is great potential, especially since

the center will accommodate the Marriott Courtyard hotel next year.

During the past year, the pipeline has been concentrated in

Ashrafieh and Charles Helou avenue. Once completed, these

office buildings will attract local rather than international tenants.

Prices have fallen during the past two years. ln general, rental prices

in prime locations are as high as prices in the BCD -becween $200

to $250 perm’ per year. Pricing in secondruy locations vary from

$150 to $100 perm’ per year. Sale prices have also decreased by 25%

to 30%. There is no reason to expect any of these prices to rise in the

foreseeable future. We hope that we have hit the bottom of the market

and that we shall witness an upturn in the next 12 months.

0 ut with old, in with the new. This

has been the philosophy in Beirut

for over 50 years and nowhere

has it been applied more ruthlessly than in

real estate. Knocking down an old twostory

house and replacing it with a multifloor

residential tower is considered

progress – and a potentially great way to

make a bundle of money. It’s no surprise

then that, when the ministry of culture in

I 996 forbade the demolition of 1,100 of

Beirut’s oldest buildings and then attempted

to pass a law to preserve them,

landowners and developers cried murder.

A few weeks ago, their protests paid off. In

a letter to the municipality of Beirut,

Mohammed Youssef Beydoun, the minister

of culture, released a number of protected

buildings, built during the Ottoman and

French mandate eras, from the preservation

decree. Later, according to Mona Hallak of

the association pour la protection des sites et

anciennes demeures au Liban (APSAD), he

issued demolition permits upon request

from individual landowners, although

Beydoun denies this. A dim fate for Beirut’s

remaining old buildings may be sealed. But

a growing number of developers and property

owners are discovering that there need not be

a conflict between the desire to preserve the

city’s heritage and the drive for profits. In

today’s real estate market old is often gold.

“The old buildings have great economic

potential – look at Monot street and AbdelWahab-

al-Inglisi in Ashrafieh,” says Abdul

Halim Jabr, professor of architecture at the

American University of Beirut and a member

of APSAD. The Ashrafieh area is fast

becoming the most expensive residential

section in Beirut. Along Monot street, prestigious

restaurants, including L’Entrecote,

Thai, Le Monot and Sushi Bar, are housed

inside scenic old buildings. Abdel-Wahabal-

lnglisi is home to such eateries as

Babylon and Tribeca, and offers a slew of

upscale boutiques, all of which exist within

splendid turn-of-the-century abodes.

Throughout the world’s capital cities,

areas with old buildings have proven to be the

most lucrative in terms of investment dollars:

New York’s Greenwich Village, Boston’s

Back Bay and Georgetown in Washington,

DC. ‘These are some of the most expensive

and exclusive areas in the world precisely

because of the carefully preserved old

homes,” says Hana Alamuddin Haydar,

architect and APSAD member. In Paris as

soon as the government designates an area as

a national heritage site, real estate prices

soar, says Jacques Tabet, urban designer:

“Now landowners are begging the government

to classify their old buildings just to see

the value of their homes automatically double

or triple.”

A handful of Lebanese are starting to recognize

the value of historical structures. In the

Tabaris area, near the Jardins de Tabaris II

construction site, two elegant four-story

buildings built at the beginning of the 20th

century were renovated and converted into

eight luxury apartments. The units sold within

days at an average price of $400,000. In

Gemmayzeh, on Gouraud street, a multiunit

1930s building was converted into modern

apartments. All units sold before the

work was even completed. Joe Kanaan,

owner of Sodeco Gestion, says he can hardly

keep up with the demand for older residential

units. Even though the older buildings

lack certain modern conveniences, such as

parking and elevators, people choose them as primary homes because of their architectural

splendor. “Old homes, because of such

details as high ceilings, mosaic floors and

arched windows, usually sell within weeks of

coming on the market – even in the current

real estate slump,” says Kanaan.

In a downturn, it is easier to m’ttke money

by renovating old buildings than by building

new ones, argues Jabr. “Rather than investing

$5 million to buy a piece of land with an

old building, tearing it down and building a

new high-rise, you can invest $500,000,

renovate an old building and get revenue

within months, instead of waiting for the elusive

millions that may never materialize,” he

says. He gives the example of Au Vieux

Quartier: “Here you have an enlightened

owner who saw market value in his old

building. He opened a restaurant inside an

antique building and fashioned an oldworld

theme around his business venture.”

With Beirut’s property market satwated-an

estimated 160,000 apartments are empty –

there’s little demand for new structures. Near

Tabaris, L’Hermitage, the Fayyad buildings

and a spanking new building at the end of

Shehade street, remain empty. On scenic

Selim de Bustros street, a new white-stone residential

tower that was inhabitable months ago

still has over half of it~ units available for sale.

In Ramlet Al-Baida, virtually all buildings

overlooking the Mediterranean are empty.

And along the comiche, two luxury highrises

with over 20 floors, Binayat-al-Ahlam

and the Comiche Garden, are monuments to

poorly planned investment schemes. They

are both vacant except for one lonely unit.

“Why build another residential tower fated to

remain empty?” asks Jabr. ‘There’s $12 billion

currently invested in inactive real estate

in Lebanon. The Lebanese can no longer

build their national economy on hope- hope

for regional peace, hope for the return of the

Lebanese expatriates.”

Bernard

Mouchbahani, senior

manager of project

finance at Lebanon

Invest, believes that it

will take a huge economic

boom to fill the empty new construction.

Even then, these

new units will take at

least five post-boom

years to sell out entirely.

Mouchbahani offers a

simple business strategy:

“Stop building, renovate

what you have and slash your

prices in half. It’s better to sell an

apartment for $200,000 and put

your money in a mutual fund than

to wait five, six or seven years for

an economic boom that might get

you $400,000.”

But the demolition balls keep

swinging. Among the buildings slated

for destruction are the stunning artdeco

Kourani home in Ashrafieh and

the elegant Al-Houssami home in

Ain el Mreisseh. Even the venerable

Au Vieux Quartier abode, built in the

1920s, is now on death row. Of the

original I, 100 buildings that were frozen under the preservation decree, over

half have been released. Protected buildings in

Beirut now number less than 600. In

Ashrafieh, a uniquely Lebanese twist of

events is transpiring. Developers wanting to

capitalize on the area’s desirability are tearing

down old buildings to build huge residential

towers, dt:stroying both the character of

Ashrafieh and the reason why people are

moving to the neighborhood. Au Vieux

Quartier is a compelling example because the

elegant structure, which was completely renovated

six months ago, is in excellent overall

condition. The ministry of culture has repeatedly

stated that the building was protected

and that no demolition permit had been issued

– but according to Hallak, its destruction was

approved by Beydoun himself.

Victor Najarian, general manager of

CARE group, one of the biggest real estate

brokers in Beirut, applauds Beydoun ‘s decision.

“Some old buildings were arbitrarily

placed under a preservation decree by a

bunch of students and have absolutely no

architectural value,” he says. It is this kind of

thinking that appalls architect Habib Debs. Old

buildings have value, he says, and not just nostalgic

value. “We need to think in terms of our

future, and think of Lebanon’s prospects as a

tourist destination,” he says. “Visitors will not

come to Lebanon to look at horrid residential

towers.” Other cities in the developing

world, including Istanbul, Mexico City and

Tunis, have stringent preservation codes

because they have recognized the value of

their old neighborhoods. All three cities

receive millions of visitors a year.

From his office in Ashrafieh, Debs points to

the Yared building, a pink IS-story tower

surrounded by a metal gate that was plopped

down in a particularly scenic area of

Ashrafieh. “New buildings such as Yared are

an aberration,” he says. ‘These buildings are

destroying the very essence of the city.” Less

than 3% of Beirut’s original buildings remain

standing and the once scenic Mediterranean

port city has turned into a sorry mess of huge,

empty residential towers. As Beirut’s old

homes are demolished, so are the remnants of

its nostalgic past. There are some in the real

estate business who are starting to realize the

economic value of Beirut’s remaining old

buildings. The question is: ls it too late?

T he optimism following the Israeli

withdrawal is wearing thin.

Although some property prices

have fallen up to 50% from the peaks of

1995-6, most analysts and practitioners

fear that the market has yet to bottom out.

Bernard Mouchbahani, senior manager of

project finance at Lebanon Invest, is just one

who thinks prices are too high: “We are still

overvalued when you look at the state of the

economy and what property costs in the rest

of the world.”

Despite prices that are high compared

with Dubai, Abu Dhabi or Istanbul (see

table), there is a crucial oversupply in many sectors of Lebanon’s real estate market.

Even if the economy were to pick up, there

is a huge slack to be taken up, says economist

Marwan lskandar: “Eighteen percent of

residential is unoccupied, as is 20% of nonresidential.

The total investment in these

properties could be around $6-7 billion, and

it might take seven or eight years for this

oversupply to be removed.” Others believe

there is not so much of an oversupply, but

rather the wrong kind of supply. “Much of

the vacant stock is of very poor quality,” says

Michael Dunn, general manager of Healey

& Baker in Beirut. “Cheaper and better

alternatives are available already, and if the

overall demand increases, the supply of

better stock will increase as well.”

The crucial issue is demand. Whatever the

quality of supply, economic growth at the

moment remains an aspiration. The key

issue for those who don’t see an upturn in

real estate is the failure of the government’s

fiscal policy, which they say is leading

the country toward an economic shakedown

that will hammer real estate as surely

as any other sector.

Many have lost any belief that the government

can turn the macro-situation round.

Each month, economic indices emerge that

chart recession. Last year’s GDP growth was

-1 % and is forecast at a mere 0.5% for 2000,

according to the Economic Intelligence Unit.

The ballooning deficit has topped 50%,

while the debt to GDP stands at 140%. “The government says don’t rock the boat, but the

boat is sinking,” says a leading financial services

manager. “Assume a six-month delay

after the elections until they all settle down in

their new p01tfolios. Remember the weight

and speed of the bureaucracy. Assume the government

does nothing, or rather that it makes

mistakes. Then, you must assume a macroeconomic

shakedown.”

The country, he says, is heading firmly

down that road. “The private sector is creeping

into default. The government will be

doing the same, or worse.” Such pressure

would clearly be deflationary. People and

businesses would have less to spend.

Demand for goods, services and homes

would fall. So, as a consequence, should

property prices. If they did not fall (because

would-be seUers continued with the so-called

‘comparative’ methods, or simple wishful

thinking, rather than looking at yield), then the

market would become even more illiquid.

Underlying the economic indices are the

political failures that undermine confidence.

The saga of the Beirut Trade Center – aka the

Murr Tower – has done nothing to improve

matters. When the Solidere general meeting

in June deferred a proposal to sell the 40-storey

building to interior minister Michel Murr,

many in the real estate business bemoaned

what they saw as yet another postponement of

overdue progress in downtown. “We expected

this sale would speed up the supply of permits,”

says one real estate expert. Solidere’s

land sales, tumbling from $118 million in1998 to $37.5 million in 1999, are one indication

of declining demand that no amount of

political posturing can change.

But against the deflationary pressure

there would be a contrary pressure, which is

where things could get interesting. This

would come from the upper middle class and

above, who have savings. “They haven’t

been investing in real estate because of the

excellent returns on the Lebanese pound,

Nasdaq or whatever,” says the financial

services manager. ” In a shakedown, they

may move money into real estate on the

assumption that it’s better to trust the land

than the government. If the desire to invest

in real estate is as strong as the deflationary

pressure, then prices won’t fall.” According

to Karim Salameh, director of the Property

House, prices have already been falling

since 1996 or 1997. “But there is a certain

floor,” he says. “If at that point, a virtuous

circle of investment is created, then prices

could go up again.” Perhaps. But with the

slack in the market and current macroeconomic

s ituation, most analysts believe

prices are unlikely to rise across the board.

Recession does, however, bring its own

opportunities. Benefiting from steady yields

in a falling market is part of the thinking

behind the Real Estate Investment

Company (REIC), Eagle One, which the

Property House announced in February.

The plans for a ten-year, close-ended fund

have been delayed by the fears and uncertainties

that surrounded the Israeli withdrawal.

The company’s strategy is to buy

properties with good existing tenants whose

prices have fallen but whose yields have

remained constant. Such opportunities

should increase as pri1.:es fall – giving the

investor both the income from the yield,

either directly or in the case of REIC

through a dividend and capital gains as and

when the market improves.

Whatever happens to the market overall,

there are always prices that buck the general

trend. Picking the right spot – in time and design as well as space – is what turns real

estate from a passive resource into a marketable

commodity. In retail, BHV and

Monoprix, Spinney’s and ABC have all

been successful despite the recession. At the

same time, Hamra and Verdun have managed

to maintain prices at around $5,000 and

$5,000 to $7,000 respectively and have

attracted high-profile brands like Etam,

The Body Shop, Mothercare and DKNY.

The Ali Ahmad Group is confident that

Verdun 732, which is nearing completion,

will repeat the success of Verdun 730.

Consumer attraction to high-profile brands

is clearly increasing. International retailers

have increased their numbers of shops from

110 in 1997 to 144 today, with those held by

US retailers rising from 26 to 38, according

to a recent survey by Healey & Baker.

Raja Makarem, managing partner of

Ramco and broker of the recent deal that will see Virgin open in downtown, believes that

in general prices are about as low as they will

go. “I think we’re now at the bottom of the

hole, and people are already sniffing round

for bargains,” he says. “Don’t forget that

Lebanon is a small country, and that many

people would like a foothold here.” And

despite the construction downturn, a number

of ambitious large-scale schemes are steaming

ahead. Down by the sea at Raouche,

Kingdom Holding is well into the construction

of a complex with a Movenpick hotel

(see box). Like Solidere’s souks, such a

development is large enough to have strong

knock-on effects elsewhere. Whatever happens

to prices, it will be the ability to see and

take the opportunities that will distinguish the

sheep from the goats