Leading real estate consultant Raja
Makarem has produced new evidence
that Solidere’s sales prices
are too high. Managing partner of Ramco,
Makarem has supplied EXECUTIVE with an
analysis of Transmed’s purchase of the
prestigious Marfaa 225 building, that puts
its retail at $2,500 per m’ and offices at
$1,500, way under the Solidere target
prices of $3,600 and $2,500. Makarem’s
criticism of Solidere’s pricing, which he first
made last autumn, has been given added bite
by the company’s half-year figures showing
sales of just $1.8 million.
Marfaa 225, on the eastern side of Foch,
was bought by Transmed from a third party
owner in September and is seen by
Solidere and independent consultants as
one of the most desirable properties in
Foch-Allenby. Transmed paid $5.5 million,
but this, Makarem points out, included
$500,000 for 20 car spaces, making the
price of the building $5 million.
At $5 million for 2,626m’ of floorspace,
Marfaa 225 can be priced at an average of
$1,900 perm’ . This, argues Makarem, confirms
his earlier analysis that the market
price of land downtown is at most $700 per
m’ of built-up area (BUA), and not the
$950-$1,050 target maintained for over five
years by Solidere. Makarem derives the figure
from the rule of thumb that projects
costs are one-third land, one-third construction
and one-third for interest payments
and profit. A third of $1,900 is just over $600 per m2 of BUA.
And there’s more, says
Makarem: The details of the
Transmed deal give a precise
breakdown of current
market prices for offices and retail downtown.
“The building has a
362m’ basement, plus 362m’ at
ground and 335m’ at mezzanine,”
says Makarem. “This amounts to
one of best showrooms downtown.
That’s a total of 1,060m2 of prime
retail, which I would price at $4,000
per m’ for ground, $2,000 for mezzanine
and $1,500 for basement.
That’s a total price of $2.661 million for retail, at an average of
$2,500 per m’ .” That’s much less than Solidere’s targets of $5,000 for ground floor,
$3,333 for mezzanine and $2,500 for
basement. “The building has 1,570m’ of
office space, which at $2.35 million in total
comes out at $1,500 perm’ ,” he says. ”These
are the clear market prices downtown.”
Makarem believes that Solidere will need
to understand the implications of these figures,
even if its luck with construction permits
improves under the new government.
“Solidere has been too passive in its sales
strategy,” he says. “In current circumstances,
I do not see how a developer can buy
land at $950 perm’ of BUA and expect to
make a return on any development. The lack
of progress downtown is not just due to government
delays; it’s also due to Solidere
asking unrealistically high prices.”
Solidere’s transition from phase one
(1994-1999) of infrastructure work to a
second phase of growing income from land
and building sales coincided with a recession.
The company has kept
its prices constant, rather
than reduce them, on the
basis that they offer the
potential for a one-off cash
flow. But it has also used the
strange argument that those
who bought earlier would feel “let down”
(the words of finance manager Mounir Douaidy) if prices fell.
Critics of the approach have noted that
Solidere, while not lowering prices, has
eased payment conditions. Last year,
Douaidy admitted that rents in the Saifi
village residential project had “effectively
fallen” to $85-$110 per m2
•Solidere still has around 3.25 million m’ of
BUA in its land bank, and the fate of this land
will have a huge effect on the whole market.
Yet only three buildings – Marfaa 225, the
lzzeddine building on Martyrs Square and the
Association of Banks building- have sold in
the past two years. “The downturn is no reason
to persist with policies that have proved
useless,” says Makarem. “Solidere is such a
big player in the market that it cannot sit back
and wait for things to improve; it should help
to get them moving.”
In a market brief in July for Jones Lang
Lasalle, Makarem reported that the majority
of recuperated buildings downtown
were still vacant, citing occupancy rates
of 85% in Banks Street, 20% in Foch Allenby
and just 10% in Maarad.
His analysis of the Marfaa 225 figures
gives food for thought not just for real estate
specialists, but for all the companies that are
thinking about opening downtown.
